Document:

Exhibit 4.1

THIS SECURED NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE (“NOTE”) IS SUBORDINATED TO ALL “SENIOR DEBT” NOW OR HEREAFTER OWING BY THE ISSUER TO FIFTH THIRD BANK (THE “BANK”), AS PROVIDED IN THAT CERTAIN SUBORDINATION AGREEMENT DATED AS OF NOVEMBER 28, 2012, AS IT MAY BE AMENDED, RESTATED, MODIFIED OR SUPPLEMENTED AND IN EFFECT FROM TIME TO TIME.  

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE RESOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT PURSUANT TO THE ACT AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR UNLESS ISSUER RECEIVES AN OPINION OF HOLDER’S OR ANY SUBSEQUENT HOLDER’S COUNSEL, SATISFACTORY TO ISSUER, OR A “NO ACTION” LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, SATISFACTORY TO ISSUER, THAT SUCH TRANSFER MAY BE EFFECTED IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND AN OPINION OF HOLDER’S OR ANY SUBSEQUENT HOLDER’S COUNSEL, SATISFACTORY TO ISSUER, THAT SUCH TRANSFER MAY BE EFFECTED IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER SUCH APPLICABLE STATE SECURITIES LAWS.

SECURED NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE

$3,500,000

Milwaukee, Wisconsin

November 28, 2012 (the “Issue Date”)

  

FOR VALUE RECEIVED, ARI NETWORK SERVICES, INC., a corporation organized under the laws of the State of Wisconsin (the “Issuer”), hereby promises to pay to MICHAEL D. SIFEN, INC., a corporation organized under the laws of the State of Virginia (the “Holder”), the sum of Three Million Five Hundred Thousand Dollars ($3,500,000) (the “Principal Amount”), together with interest accruing on the outstanding unpaid principal balance hereof (i) from and after November 7, 2012 (the “Initial Advance Date”) until the first annual anniversary of the Issue Date at a rate per annum equal to ten percent (10%),  and (ii) from and after the first annual anniversary  of the Issue Date until payment of all outstanding principal and accrued interest at a rate per annum equal to fourteen percent (14%).  

1.

Advances; Additional Consideration.  The Principal Amount shall be advanced by the Holder to the Issuer as follows: (a) On the Initial Advance Date, the Holder advanced to the Issuer Five Hundred Thousand Dollars ($500,000) (the “First Advance”); (b) on November 26, 2012, the Holder advanced to Godfrey & Kahn S.C. Two Million One Hundred Thousand Dollars ($2,100,000) (the “Second Advance”), to be held in trust pending authorization from the Holder’s counsel that the Second Advance may be released; (c) on November 28, 2012, the Holder shall advance to the issuer Six Hundred Thousand Dollars ($600,000) in immediately available funds by wire transfer, to an account designated by the Issuer; and (d), on or prior to December 4, 2012 (the “Final Advance Date”), the Holder shall advance to the Issuer the remaining Three Hundred Thousand Dollars ($300,000) in immediately available funds by wire 

transfer, to an account designated by the Issuer.  For purposes of clarification, the First Advance and the Second Advance advanced by the Holder prior to the Issue Date of this Note, shall be subject to the terms and conditions of this Note in all respects.  As additional consideration for the Principal Amount advanced in accordance with this Section 1, on the Final Advance Date, the Issuer shall issue to the Holder Four Hundred Forty Thousand (440,000) shares of the Issuer’s common stock, par value $0.001 per share (the “Stock”).

2.

Payment.  The original principal amount of this Note, and all interest accrued thereon, shall be payable as follows:

(a)

Accrued interest only shall be due and payable quarterly commencing on February 28, 2013 (with the first such installment of interest due on February 28, 2013, to be equal to the interest that has accrued from the Initial Advance Date through and including February 28, 2013), and continuing on each May 31st, August 31st, November 30th and February 28th  thereafter (or, if such payment date shall be a Saturday, Sunday or a legal holiday, on the first regular business day immediately following such date) until May 28, 2016, at which time all accrued interest and outstanding principal shall be due and payable in full. 

Interest accrued hereunder shall be calculated for the actual number of days elapsed, using a daily rate determined by dividing the annual rate by three hundred sixty-five (365).  All payments of principal and interest hereunder shall be made in, and all references herein to monetary denominations shall refer to, lawful money of the United States of America.  All payments of principal and interest hereunder shall be made to the order of the Holder, at the address set forth in Section 12 of this Note for notices to Holder, or such other address for payment as the Holder shall hereafter provide to the Issuer by notice in accordance with the notice procedures in Section 12.  As long as the notice of the address for notices and payment is clear and explicit, the Holder may designate different addresses for payment and notices.

3.

Prepayment.  The Issuer may at its sole election at any time and from time to time prepay all or any part of this Note without premium or penalty.  All prepayments shall be applied as follows:  (i) first to accrued and unpaid interest that is due and payable quarterly as provided herein, and (ii) then to principal.  

4.

Subordination.  The Holder, by its acceptance hereof, acknowledges that this Note is subordinated and junior in right of payment to (i) all indebtedness, obligations and liabilities of the Issuer, existing as of the date hereof to the Bank, and (ii) if Holder provides its written consent (which consent shall not be unreasonably withheld), to all indebtedness, obligations and liabilities of the Issuer hereafter incurred, to current or future Senior Lenders (as hereinafter defined), including, without limitation, to the Bank pursuant to that certain Loan and Security Agreement between the Issuer and the Bank dated as of July 27, 2011 (as amended, restated, modified or supplemented and in effect from time to time, the “Bank Loan Agreement”), all as provided in the Subordination Agreement (as defined below); provided, however, that:

(a)

The Issuer shall not (i) amend, restate, modify or supplement any such indebtedness, obligations and liabilities to any Senior Lender (including, without 

2

limitation, refinancing the Bank Loan Agreement with a different Senior Lender) on terms and conditions that adversely affect the Holder’s rights and repayment terms under the Note or under the Subordination Agreement (as hereinafter defined) or (ii) increase (except as provided below) any  indebtedness, obligations and liabilities existing as of the date hereof, without the Holder’s prior written consent (which consent may not be unreasonably withheld by the Holder).  Notwithstanding the foregoing or anything else to the contrary contained herein, after the Issue Date, the Issuer may increase the existing line of credit under the Bank Loan Agreement by up to One Million Dollars ($1,000,000) and may make draws on such line of credit, which increase and draws the Holder hereby expressly consents to; 

(b)

In the event Issuer reduces the amount of the indebtedness, obligations and liabilities on its term loan with the Bank existing as of the date hereof (i.e., through the payment of principal), Issuer shall not thereafter increase such indebtedness without the written consent of the Holder; and 

(c)

In the event that the Bank notifies the Issuer that it intends to sell or otherwise transfer the Bank Loan Agreement to another Senior Lender, the Issuer shall notify the Holder in writing of such sale and, within thirty (30) calendar days of the date of the receipt of such notice (the “Exercise Period”), the Holder shall have the right to (i) purchase the Bank Loan Agreement within the Exercise Period or (ii) designate another Senior Lender to purchase the Bank Loan Agreement within the Exercise Period, in each case on substantially the same terms and conditions of the sale offered by the Bank (subject to any modifications to such terms and conditions of sale required under law or required to allow Holder, or other Senior Lender, to practically exercise its right to purchase, provided that such modifications do not change the terms and conditions of the Bank Loan Agreement.)  If the Holder fails to exercise its right under this Section 4(b) within the Exercise Period (including, without limitation, completing the purchase of the Bank Loan Agreement by the Holder or the Senior Lender designated by the Holder, as applicable, within the Exercise Period), the Holder hereby acknowledges and agrees that such rights shall lapse and the Bank may sell or otherwise transfer the Bank Loan Agreement as permitted thereunder.    

For purposes of clarification, after the Issue Date, Issuer shall not increase the amount of its indebtedness to Bank existing as of the Issue Date without the written consent of Holder, and if the amount of the term loan decreases, Issuer shall not thereafter incur additional indebtedness to Bank or Senior Lenders, except that Issuer may increase the existing line of credit by $1 million and make draws on such line of credit. 

The Holder has entered into that certain Subordination Agreement dated as of the date hereof in favor of the Bank (as amended, restated, modified or supplemented and in effect from time to time, the “Subordination Agreement”).  The Holder, by accepting this Note, agrees to execute such documents as any Senior Lenders may reasonably request (including, but not limited to, an amendment to this Note reflecting the new subordination or intercreditor agreement) to effect the subordination intended hereunder in the form generally set forth in the Subordination Agreement, including, without limitation, any commercially reasonable debt subordination agreement or intercreditor agreement requested by the Senior Lenders.   For purposes hereof, 

3

“Senior Lenders” shall mean any bank, including, but not limited to, the Bank, institutional lender, company regularly involved in the business of lending, or affiliate of any of the foregoing who makes loans or provides other financial accommodations to the Issuer, whether before or after the Issue Date, and who has not expressly agreed to subordinate those loans or accommodations to the Holder.    

5.

Issuer’s Negative Covenants. So long as the obligations of the Issuer under this Note remain outstanding, unless the Holder shall otherwise consent in writing (which consent may not be unreasonably withheld by the Holder): 

(a)

Debt.  The Issuer shall not, either directly or indirectly, create, assume, incur or have outstanding any indebtedness (including purchase money indebtedness), or become liable, whether as endorser, guarantor, surety or otherwise, for any debt or obligation of any other person or entity, except:

(i)

the obligations to the Bank existing as of the date hereof pursuant to the Bank Loan Agreement, including any increases of such obligations as permitted hereunder; 

(ii)

the obligations to the Holder under this Note;  

(iii)

the obligations to P. Lee Poseidon, William H. Luden III and Robert Y. Newell IV under those certain Non-Negotiable Unsecured Promissory Notes dated November 28, 2012 in the aggregate principal amount of Three Hundred Thousand Dollars ($300,000);

(iv)

obligations of the Issuer for taxes, assessments, municipal or other governmental charges; 

(v)

obligations of the Issuer for accounts payable, other than for money   borrowed, incurred in the ordinary course of business; and

(vi)

other indebtedness permitted under the Bank Loan Agreement as in effect on the date hereof.

(b)

Encumbrances.  The Issuer shall not, either directly or indirectly, create, assume, incur or suffer or permit to exist any lien, security interest or charge of any kind or character upon any asset of the Issuer, whether owned at the date hereof or hereafter acquired, except as permitted by the Bank Loan Agreement as in effect on the date hereof.

(c)

Distributions. Until the Note is paid and satisfied in full, the Issuer will not:  (a) declare or pay dividends or make any other distributions upon any of its shares of capital stock, except that the Issuer may (i) repurchase options and its capital stock from employees, consultants or Board members of the Issuer at any time and in its sole discretion, and (ii) pay dividends in its capital stock; or (b) cease operations, liquidate or sell substantially all of its assets.

4

6.

Events of Default.  Each of the following occurrences shall constitute an “Event of Default” under this Note:

(a)

Failure to Pay Principal or Interest.  If the Issuer shall fail to pay any installment of interest, which is permitted to be paid under the Subordination Agreement, within thirty (30) days of the date scheduled for such payment.

(b)

Breach of Representation or Warranty.  If any material representation or warranty made by the Issuer in this Note shall prove to have been knowingly false (to the actual knowledge of Roy W. Olivier and Darin R. Janecek) in a material respect on the Issue Date and the Holder shall not have independent knowledge on the Issue Date of the inaccuracy of the representation or warranty; provided, that the Holder is deemed to have independent knowledge only of information that is or has been included in public securities filings or press releases issued by the Issuer on or prior to the Issue Date or which has been otherwise made available to it or any of its shareholders or representatives for review on or prior to the Issue Date.

(c)

Insolvency.  The Issuer is adjudicated to be insolvent under Wisconsin law.  

(d)

Involuntary Bankruptcy; Appointment of Receiver, Etc.  If an involuntary case shall be commenced against Issuer and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of Issuer in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law.

(e)

Voluntary Bankruptcy; Appointment of Receiver, Etc.  The Issuer shall have an order for relief entered with respect to it or shall have commenced a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property or assets; or the Issuer shall make any assignment for the benefit of creditors.

(f)

Sale of Substantially all of the Assets of Issuer. The sale by Issuer of substantially all of its assets to a person or entity that does not control, is not controlled by, or is not under common control with Issuer as of the closing of the sale.

(g)

Nonperformance.  Any failure to perform or default in the performance by the Issuer of any covenant, condition or agreement contained in this Note and, if capable of being cured, such failure to perform or default in performance continues for a period of thirty (30) days after the Issuer receives notice or knowledge from any source of such failure to perform or default in performance. 

5

7.

Rights and Remedies.  Upon the occurrence of any Event of Default described in Sections 6(c), (d), (e), or (f) above, the unpaid principal amount of this Note, and any and all accrued interest hereunder, shall automatically become immediately due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisal, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Issuer; and upon the occurrence and during the continuance of an Event of Default described in Sections 6(a), (b) or (g), above, the Holder may declare, by written notice to the Issuer, the unpaid principal amount of and any and all accrued and unpaid interest under this Note to be due and payable, without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisal, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by the Issuer.  

8.

Security.  The Issuer’s obligations under this Note are secured by a Subordinated Security Agreement dated as of even date herewith in favor of the Holder (the “Subordinated Security Agreement”).

9.

Representations, Warranties and Covenants of Holder.  The Holder hereby represents, warrants and covenants to the Issuer that:

(a)

Investment Purpose.  As of the date hereof, the Holder is obtaining this Note for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Act.  Moreover, the Holder is acquiring the Stock for investment only and for the Holder’s own account, and not with a view to resale or other disposition thereof.  The Holder is capable of evaluating the merits and risks of an investment in the Stock and the Note.  The Holder acknowledges that the Stock is not registered under the Act, or any state securities laws, and is being issued in reliance upon one or more exemptions from the registration requirements made available under such laws.  The Holder covenants and agrees that it will not offer, sell or otherwise transfer the Stock unless and until the Stock is registered pursuant to the securities laws of all applicable jurisdictions, or unless the disposition thereof is otherwise exempt from registration thereunder; in the event the Stock is proposed to be transferred pursuant to an exemption from registration, such proposal must be accompanied by an opinion of counsel reasonably satisfactory to the Issuer to the effect that such transfer complies with applicable securities laws.  The Holder has been directed by the Issuer to review the Issuer’s most recent annual report on Form 10-K and any Forms 8-K filed since the Issuer’s most recent annual report on Form 10-K, all of which have been filed publicly and can be found on the website for the Securities and Exchange Commission (www.sec.gov), and has been told that the Issuer will provide written copies of such reports to the Holder upon request.

(b)

Transfer or Re-Sale.  The Holder understands that the sale or re-sale of this Note has not been and is not being registered under the Act or any applicable state securities laws, and this Note may not be transferred or sold unless the Holder receives the prior written consent of the Issuer (which consent shall not be unreasonably withheld by the Issuer as set forth in Section 16 hereof) and complies with applicable provisions of the Subordination Agreement.  The Holder and the Issuer hereby agree that the ownership 

6

of more than fifty percent (50%) of the equity or voting equity of the Holder by any person or entity other than Michael D. Sifen while he is living or his heirs upon his death shall be deemed to be a transfer of the Note hereunder requiring the prior written consent of the Issuer. 

(c)

Authorization; Enforcement.  The execution of this Note has been duly and validly authorized by the Holder.  This Note has been duly executed and delivered on behalf of the Holder, and this Note constitutes the valid and binding agreement of the Holder enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally or general principles of equity.

10.

Representations and Warranties of the Issuer.  The Issuer hereby represents and warrants to the Holder that:

(a)

Organization.  The Issuer is a corporation duly organized and validly existing under the laws of the jurisdiction in which it is incorporated.

(b)

Authorization; Enforcement.  (i) The Issuer has all requisite corporate power and authority to enter into and perform this Note and to consummate the transactions contemplated hereby and to issue and deliver this Note in accordance with the terms hereof, (ii) the execution and delivery of this Note by the Issuer and the consummation by it of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Issuer, and (iii) this Note constitutes, and upon execution and delivery by the Issuer of this Note, such instrument will constitute, a legal, valid and binding obligations of the Issuer enforceable against the Issuer in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors rights generally or general principles of equity.  

11.

Presentment, etc. The Issuer hereby waives demand, presentment for payment, notice of nonpayment, protest and notice of protest.

12.

Notices.  Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five (5) days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party.  The addresses for such communications shall be:

If to the Issuer:

ARI Network Services, Inc.

10850 West Park Place, Suite 1200

Milwaukee, Wisconsin 53224

Attention: Chief Financial Officer

Facsimile:  (414) 973-4357

7

With a copy to:

Mark C. Witt, Esq.

Godfrey & Kahn, S.C.

780 N. Water Street

Milwaukee, Wisconsin 53202-3149

Facsimile:  (414) 273-5198

If to the Holder:

Michael D. Sifen, Inc.

500 Central Drive, Suite 106

Virginia Beach, Virginia 23454

Attention: Michael Sifen

Facsimile:  (757) 486-0905

With a copy to:

Steven J. Harwood, Esq.

Wilks, Alper & Harwood, P.C.

150 Boush St., Suite 700

Norfolk, Virginia 23510-1637

Facsimile: (757) 623-6508

Each party shall provide notice to the other party of any change in address.  The Issuer may make all payments on this Note to the Holder at the address provided above.  Notwithstanding any information available to the Issuer or actual knowledge of the Issuer, until the Issuer receives notice of a change of address in accordance with the notice provisions contained in this Note, the Issuer may direct all payments on this Note to the last address of which the Issuer has received such notice, provided however, an Event of Default will not have occurred hereunder if the Issuer timely makes payment to the Holder at an address that the Issuer in good faith believes to be the current address of the Holder because the Issuer has relied on a notice by the Holder which has not been given in accordance with the provisions of this Note.  In such event any such discrepancy will be promptly resolved by the Issuer and the Holder upon discovery of the issue.  Notwithstanding any information available to the Issuer or actual knowledge of the Issuer that a person has acquired this Note from the Holder, and without limitation to the Issuer’s right to refuse its consent to the transfer of this Note, the Issuer may make all payments to the Holder until this Note has been surrendered for reissue to the acquiring person, together with such documentation evidencing and confirming the acquisition of the Note, as the Issuer in good faith requires.  All such payments will be deemed to be valid payments on this Note for the full amount of the payment.  If this Note is reissued to effect a transfer to a new person, the Note may be issued by the Issuer for the then current principal balance if such balance is less than the face amount of this Note at the time of reissue.

13.

Interpretation.  The language used in this Note will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.  Whenever used in this Note, the singular number shall include the plural, the plural the singular, and the masculine shall include the feminine and the neuter, 

8

the words “Issuer,” and “Holder” shall be deemed to include the Issuer and the Holder as defined herein and their respective permitted successors and assigns, and the word “person” shall be deemed to mean natural persons, corporations, limited liability companies, partnerships and all other legal entities.

14.

Records.  The Issuer shall maintain records showing the principal and interest amount and the dates of the payments on the Note.  The Note shall be surrendered when the final payment of principal and interest is made.

15.

Severability.  If any provision of this Note shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Note or the validity or enforceability of this Note in any other jurisdiction.

16.

Amendments; Assignment; Successors and Assigns.  The Note may be amended or modified only by an instrument in writing signed by the Issuer and the Holder.  This Note may not be assigned by the Holder without the prior written consent of the Issuer (which consent may not be unreasonably withheld by the Issuer).  Issuer may reasonably withhold its consent for reasons including, but not limited to, Issuer concluding in good faith that (i) the proposed transferee or one of its affiliates is a competitor, is likely to be a competitor or is likely to be acquired by a competitor, of the Issuer, (ii) the proposed transferee or one of its affiliates intends to use its rights under the Note, a Subordination Agreement or the Subordinated Security Agreement to (A) affect the Issuer’s stock price, (B) unduly influence the Issuer’s Board of Directors from exercising its fiduciary duty to the Issuer’s stockholders, (C) assist such transferee in a tender offer for the Issuer’s stock, change in control of the Issuer, sale of assets of the Issuer, or other business combination involving the Issuer, (D) influence the Issuer’s Board of Directors to approve a voluntary surrender of some or all of the Collateral (as defined in the Subordinated Security Agreement) or similar transaction, or (E) absent an Event of Default hereunder, cause the Issuer to make payments under the Note earlier than required under the Note, or (iii) the assignment or transfer would violate any laws or cause the Issuer to violate any laws.  In the event the Holder receives any proposed bona fide offer to purchase this Note, the Holder shall notify the Issuer of such an offer and, in addition to providing the Issuer with all information reasonably requested by the Issuer in connection with the Issuer’s consideration whether to consent to the proposed transfer, provide the Issuer with the right for thirty (30) days after receipt of such notice to purchase the Note on substantially the same economic terms and conditions (subject to any modifications to such terms and conditions required under law or required to allow the Issuer to practically exercise its right to purchase provided that such modifications do not change the purchase price or payment terms paid for the Note) as being offered to the Holder by the proposed assignee or transferee.  Any permitted assignee or transferee of this Note shall agree in writing with the Issuer to the same restrictions on assignment or transfer of the Note as are set forth hereunder.  Any such transferee shall also be required to comply with the requirements of the Subordination Agreement.  The Holder and the Issuer hereby agree that the ownership of more than fifty percent (50%) of the equity or voting equity of the Holder by any person or entity other than Michael D. Sifen while he is living or his heirs upon his death shall be deemed to be a transfer of the Note hereunder requiring the prior written consent of the Issuer.  This Note shall be binding upon the Issuer and its successors and assigns and shall inure to the benefit of the Holder and its permitted successors and assigns.

9

17.

Governing Law.  This Note shall be governed by and interpreted and enforced in accordance with the laws of the State of Delaware, without giving effect to any choice of law rules or provisions (whether the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisidiction other than the State of Delaware.

18.

Consent to Jurisdiction.  The Issuer and the Holder irrevocably consent to the exclusive jurisdiction of any federal court located within the Eastern District of the Commonwealth of Virginia or the Eastern District of the State of Wisconsin for the purposes of any suit, action or other proceeding arising out of this Agreement.  The Issuer and Holder further agree that service of any process, summons, notice or document by U.S. registered mail to such party’s respective address set forth herein shall be effective service of process for any such action, suit or proceeding.  The Issuer and Holder irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Note in such courts, and hereby irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.  THE ISSUER AND THE HOLDER HEREBY IRREVOCABLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS NOTE OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORM­ANCE AND ENFORCEMENT HEREOF.

19.

Costs, Fees and Expenses.  The Issuer shall pay or reimburse the Holder for all reasonable costs, fees and expenses (including reasonable attorneys’ fees) incurred by the Holder or for which the Holder becomes obligated in connection with the negotiation, preparation, consummation, or collection of the Note.  

20.

Counterparts.  This Note may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.  

[SIGNATURE PAGE FOLLOWS]

10

IN WITNESS WHEREOF, the Issuer has caused this Note to be signed in its name by its duly authorized officer as of the date first above written.

ARI NETWORK SERVICES, INC.

By:  /s/ Roy W. Olivier                                

       Roy W. Olivier,

       President and CEO 

Acknowledged and agreed to:

HOLDER:

MICHAEL D. SIFEN, INC.

By:  /s/ Michael D. Sifen                                     

         Michael D. Sifen, Chief Executive Officer

[Signature Page to Secured Non-Negotiable Subordinated Promissory Note]

 

11Exhibit 10.1

SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT 

AND OTHER LOAN DOCUMENTS

This Second Amendment to Loan and Security Agreement and Other Loan Documents (this “Amendment”) is made as of November 28, 2012, by and between ARI NETWORK SERVICES, INC., a Wisconsin corporation (“Borrower”), and FIFTH THIRD BANK, an Ohio banking corporation (“Lender”).

W I T N E S S E T H:

WHEREAS, Borrower and Lender are parties to that certain Loan and Security Agreement dated as of July 27, 2011, as amended from time to time (as amended, and as it may be further amended, restated, modified or supplemented and in effect from time to time, the “Loan Agreement”); 

WHEREAS, Project Viking II Acquisition, Inc., a Wisconsin corporation (“Project Viking”), a Wholly-Owned Subsidiary of Borrower, has heretofore submitted a revised bid to Nauni Jo Manty, the Chapter 11 Operating Trustee (the “Trustee”) to purchase the retail services portion of the estate of Fifty Below Sales & Marketing, Inc., a Minnesota corporation (“50 Below”), for $5,000,000 in cash (the “50 Below Purchase Transaction”), and which revised bid was accepted on or around November 9, 2012;

WHEREAS, Borrower has informed Lender that it proposes to structure the 50 Below Purchase Transaction as follows: (i) $1,800,000 of the purchase price would be paid in cash using, in part, the proceeds of the Revolving Loans (which Revolving Loan proceeds will be contributed by Borrower to Project Viking as capital), and (ii) $3,200,000 of the purchase price would be paid in cash from the proceeds of a secured subordinated loan from Michael D. Sifen, Inc., a Virginia corporation (“Sifen”), in exchange for an secured subordinated note made by Borrower to Sifen and the issuance by Borrower to Sifen of 440,000 shares of Borrower’s stock, par value $0.001 per share (which subordinated loan proceeds will be contributed by Borrower to Project Viking as capital); provided, however, that Sifen will increase the secured subordinated loan to a total of $3,500,000 by December 4, 2012 and such additional $300,000 of subordinated debt will be used to pay down the Advances (as defined herein) by a like amount (the “Sifen Subordinated Loan Transaction”);

WHEREAS, certain provisions of the Loan Agreement prohibit the 50 Below Purchase Transaction, the Sifen Subordinated Loan Transaction and the proposed terms thereof, and Borrower has requested that Lender consent to the 50 Below Purchase Transaction and the Sifen Subordinated Loan Transaction and waive any provisions of the Loan Agreement which would otherwise prohibit the 50 Below Purchase Transaction and the Sifen Subordinated Loan Transaction, and that Lender agree to amend the Loan Agreement and other Loan Documents in certain respects; and

WHEREAS, Lender is agreeable to such requests, on and subject to the terms and conditions set forth herein;

-1-

NOW, THEREFORE, the parties hereto hereby agree as follows:

1.

Definitions.  Capitalized terms used herein and defined in the Loan Agreement and not otherwise defined herein are used with the meanings given such terms in the Loan Agreement.

2.

Amendments to Loan Agreement.  The Loan Agreement is hereby amended as follows:

(a)

by inserting the following definitions to Section 1.1 in their proper alphabetical order:

“50 Below” shall have the meaning set forth in the Recitals of the Second Amendment.

“50 Below Purchase Transaction” shall have the meaning set forth in the Recitals of the Second Amendment.

“50 Below Purchase Transaction Documents” shall mean, collectively, that certain Order Approving the Sale of the Debtor’s Assets Free and Clear of Liens and Interests, that certain Bill of Sale executed by the Trustee, that certain Assumption and Assignment and Transition Services Agreement by and between Project Viking and the Trustee, any and all lien releases and terminations, and all other agreements, instruments and documents entered into or delivered in connection with the 50 Below Purchase Transaction, as each may be amended, restated, modified or supplemented and in effect from time to time.

“Advance Providers” shall have the meaning set forth in Section 9.18(a).

“Advances” shall have the meaning set forth in Section 9.18(a).

“Advance Provider Agreements” shall mean, collectively, those certain letter agreements from each of the Advance Providers to Lender and acknowledged and agreed to by Borrower, each in form and substance acceptable to Lender.

“First Amendment” shall mean that certain First Amendment to Loan and Security Agreement dated as of August 17, 2012 by and between Borrower and Lender.

“Guarantor” and “Guarantors” shall mean, respectively, each of and collectively, the following: Project Viking and Roy W. Olivier.

“Guaranty” and “Guaranties” shall mean, collectively, (i) that certain Continuing Unconditional Guaranty dated as of November 28, 

-2-

2012 made by Project Viking in favor of Lender, and (ii) that certain Continuing Unconditional Limited Guaranty dated as of November 28, 2012 made by Roy W. Olivier in favor of Lender, each in form and substance acceptable to Lender, and as each may be amended, restated, modified or supplemented and in effect from time to time.

“Project Viking” shall have the meaning set forth in the Recitals of the Second Amendment.

“Second Amendment” shall mean that certain Second Amendment to Loan and Security Agreement dated as of November 28, 2012 by and between Borrower and Lender.

“Securities Pledge Agreement” shall mean that certain Securities Pledge Agreement dated as of November 28, 2012 by and between Borrower and Lender, in form and substance acceptable to Lender, as it may be amended, restated, modified or supplemented and in effect from time to time.

“Security Agreement” shall mean that certain Security Agreement dated as of November 28, 2012 by and between Project Viking and Lender, in form and substance acceptable to Lender, as it may be amended, restated, modified or supplemented and in effect from time to time.

“Senior Debt” shall mean all Debt of Borrower and its Subsidiaries other than Subordinated Debt.

“Sifen” shall mean, Michael D. Sifen, Inc., a Virginia corporation.

“Sifen Subordinated Loan” shall mean that certain loan made by Sifen to Borrower in the aggregate principal amount of $3,500,000, the proceeds of which are to be used in connection with the 50 Below Purchase Transaction, to be advanced as follows: (i) $500,000 on November 7, 2012, (ii) $2,100,000 on November 26, 2012, (iii) $600,000 on or before November 28, 2012, and (iv) $300,000 on or before December 4, 2012.  

“Sifen Subordinated Loan Documents” shall mean, collectively, that certain Secured Non-Negotiable Subordinated Promissory Note executed by Borrower and made payable to the order of Sifen in the original principal amount of $3,500,000, that certain Subordinated Security Agreement by and between Borrower and Sifen, the Sifen Subordination Agreement, and all other documents, agreements, instruments and certificates executed in connection with the Sifen Subordinated Loan, as each may be amended, restated, modified or 

-3-

supplemented and in effect from time to time in accordance with the provisions of the Sifen Subordination Agreement.

“Sifen Subordinated Loan Transaction” shall have the meaning set forth in the Recitals of the Second Amendment.

“Sifen Subordination Agreement” shall mean that certain Subordination Agreement dated as of November 28, 2012 made by and between Sifen and Lender and acknowledged to by Borrower, in form and substance acceptable to Lender, as it may be amended, restated, modified or supplemented and in effect from time to time.

“Subordinated Debt” shall mean that portion of the Debt of Borrower which is subordinated to the Obligations in a manner satisfactory to Lender in its sole discretion, including right and time of payment of principal and interest.

“Total Funded Debt” shall mean, as to any Person, all Debt of such Person that matures more than one year from the date of its creation (or is renewable or extendible, at the option of such Person, to a date more than one year from such date).

“Trustee” shall have the meaning set forth in the Recitals of the Second Amendment.

(b)

by amending and restating each of the following definitions in Section 1.1 as follows:

“EBITDA” shall mean, for any period, (a) the sum for such period of: (i) consolidated Net Income, plus (ii) Interest Charges, plus (iii) federal and state income taxes, plus (iv) depreciation and amortization, plus actual transaction expenses in an amount not to exceed the amounts set forth below for the corresponding periods set forth below incurred by Borrower in connection with closing the Purchase Transaction and the 50 Below Purchase Transaction, provided that all such transaction expenses are verified by Lender and consented to by Lender in its sole discretion, in each case to the extent included in determining Net Income for such period.

		
	Quarter Ended

	Maximum Transaction 

Expenses Permitted to be 

added back to EBITDA

	 
	 

	October 31, 2012

	$200,000

	January 31, 2013

	$200,000

	April 30, 2013

	$200,000

-4-

“Permitted Liens” shall mean (a) Liens for Taxes, assessments or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (b) Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law, and (ii) Liens in the form of deposits or pledges incurred in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any advances or borrowed money or the deferred purchase price of property or services, which do not in the aggregate materially detract from the value of the property or assets of Borrower or materially impair the use thereof in the operation of Borrower’s business and, in each case, for which it maintains adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (c) Liens described on Schedule 9.2 as of the Closing Date; (d) easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of Borrower or any of its Subsidiaries; (e) subject to the limitation set forth in Section 9.1(e), Liens arising in connection with Capitalized Lease Obligations (and attaching only to the property being leased); (f) subject to the limitation set forth in Section 9.1(f), Liens that constitute purchase money security interests on any property securing Debt incurred for the purpose of financing all or any part of the cost of acquiring such property, provided that any such Lien attaches to such property within twenty (20) days of the acquisition thereof and attaches solely to the property so acquired; (g) Liens granted to Lender hereunder and under the Loan Documents; and (h) Liens in favor of Sifen securing the Sifen Subordinated Loan.

“Purchase Agreement” shall have the meaning set forth in the Recitals of the First Amendment.

“Purchase Transaction” shall have the meaning set forth in the Recitals of the First Amendment.

“Revolving Loan Maturity Date” shall mean December 15, 2013, unless extended by Lender pursuant to any modification, extension or renewal note executed by Borrower and accepted by Lender in its sole and absolute discretion in substitution for the Revolving Note.

“Seller” shall have the meaning set forth in the Recitals of the First Amendment.

-5-

“Shareholders” shall have the meaning set forth in the Recitals of the First Amendment.

“Term Loan Maturity Date” shall mean December 15, 2013, unless extended by Lender pursuant to any modification, extension or renewal note executed by Borrower and accepted by Lender in its sole and absolute discretion in substitution for the Term Note.

(c)

by inserting the following as Section 7.27:

7.27

Sifen Subordination Agreement.  The subordination provisions of the Sifen Subordination Agreement are enforceable against Sifen by Lender.  The Obligations constitute Senior Debt entitled to the benefits of the subordination provisions contained in the Sifen Subordination Agreement.  Borrower acknowledges that Lender is entering into this Agreement and is making and/or continuing to make the Loans in reliance upon the subordination provisions of the Sifen Subordination Agreement and this Section 7.27.

(d)

by inserting the following as Section 8.21:

8.21

Brokerage Statements.  Borrower shall deliver or cause to be delivered, within ten (10) days after the end of each month, copies of the most recent statements relating to investment accounts of Roy W. Olivier, whether such investment accounts are held at a financial institution, brokerage firm or otherwise, which statements shall evidence a minimum aggregate balance of not less than $250,000.00 at all times.

(e)

by amending and restating Section 9.1 in its entirety to read as follows:

9.1

Debt.  Borrower shall not, either directly or indirectly, create, assume, incur or have outstanding any Debt (including purchase money indebtedness), or become liable, whether as endorser, guarantor, surety or otherwise, for any debt or obligation of any other Person, except:

(a)

the Obligations under this Agreement and the other Loan Documents;

(b)

obligations of Borrower for Taxes, assessments, municipal or other governmental charges;

(c)

obligations of Borrower for accounts payable, other than for money borrowed, incurred in the ordinary course of business;

(d)

Rate Management Obligations incurred in favor of Lender or an Affiliate thereof for bona fide hedging purposes and not for speculation;

-6-

(e)

Capitalized Lease Obligations, provided that the aggregate amount of all such Debt outstanding at any time shall not exceed Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00) in the aggregate;

(f)

Debt for Capital Expenditures incurred after the date of this Agreement not to exceed Five Hundred Thousand and No/100 Dollars ($500,000.00) in the aggregate; 

(g)

Debt described on Schedule 9.1 and any extension, renewal or refinancing thereof so long as the principal amount thereof is not increased; and 

(h)

Sifen Subordinated Loan and the Advances.

(f)

by amending and restating Section 9.3 in its entirety to read as follows:

9.3

Investments.  Borrower shall not, either directly or indirectly, make or have outstanding any Investment, except:

(a)

Investments constituting Debt permitted by Section 9.1;

(b)

Contingent Liabilities constituting Debt permitted by Section 9.1 or Liens permitted by Section 9.2;

(c)

Cash Equivalent Investments; 

(d)

Investments listed on Schedule 9.3 as of the Closing Date; and

(e)

Investments in Project Viking.

provided, however, that (i) any Investment which when made complies with the requirements of the definition of the term “Cash Equivalent Investment” may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (ii) no Investment otherwise permitted by subsections (a) or (b) shall be permitted to be made if, immediately before or after giving effect thereto, any Event of Default or Unmatured Event of Default exists.

(g)

by amending and restating Section 9.5 in its entirety to read as follows:

9.5

Issuance of Capital Securities.  Borrower shall not and shall not permit any Subsidiary to issue any Capital Securities other than (a) any issuance of shares of Borrower’s common Capital Securities pursuant to any option program, (b) the issuance of preferred stock pursuant to the Rights Plan dated as of August 7, 2003 between Borrower and American Stock Transfer & Trust Company, (c) any issuance of Capital Securities 

-7-

by a Subsidiary to Borrower or another Subsidiary in accordance with Section 9.6, or (d) the issuance of common Capital Securities to Sifen in connection with the Sifen Subordinated Loan Transaction.

(h)

by amending and restating Section 9.6 in its entirety to read as follows:

9.6

Distributions.  Borrower shall not and shall not permit any Subsidiary to, (a) make any distribution or dividend (other than stock dividends), whether in cash or otherwise, to any of its equityholders, (b) purchase or redeem any of its equity interests or any warrants, options or other rights in respect thereof, (c) pay any management fees or similar fees to any of its equityholders or any Affiliate thereof other than reasonable board of directors fees, (d) pay or prepay interest on, principal of, premium, if any, redemption, conversion, exchange, purchase, retirement, defeasance or sinking fund or any other payment in respect of any subordinated debt, if any, or (e) set aside funds for any of the foregoing.  Notwithstanding the foregoing, (i) any Subsidiary may pay dividends or make other distributions to Borrower or to a domestic Wholly-Owned Subsidiary; (ii) Borrower may make Earn-Out Payments and Holdback Payments to the extent permitted under the Subordination Agreement; and (iii) Borrower may make regularly scheduled payments of interest to Sifen under the Sifen Subordinated Loan Documents to the extent permitted under the Sifen Subordination Agreement.

(i)

by inserting the following as Section 9.16:

9.16

50 Below Purchase Transaction Documents.  Borrower shall not amend or modify, nor permit the amendment or modification of, any of the 50 Below Purchase Transaction Documents in each case without the prior written consent of Lender.

(j)

by inserting the following as Section 9.17:

9.17

Sifen Subordinated Loan Documents.  Borrower shall not amend or modify, nor permit the amendment or modification of, any of the Sifen Subordinated Loan Documents or the Sifen Subordination Agreement, in each case without the prior written consent of Lender.

(k)

by inserting the following as Section 9.18:

9.18

Special Covenant and Agreement.

(a)

Borrower will obtain or has obtained  $300,000 (the “Advances”) from the following three individuals:  P. Lee Poseidon, William H. Luden III and Robert Y. Newell IV (collectively, the “Advance Providers”).  The proceeds of such Advances will be used to pay down Borrower’s outstanding Revolving Loans from Lender on or before November 28, 2012.  Borrower intends to use the proceeds of the 

-8-

final $300,000 installment of the Sifen Subordinated Loan (to be funded by Sifen to Borrower on or before December 4, 2012), to repay the Advances.  Borrower represents and warrants to Lender that each of the Advance Providers has agreed in writing with Borrower and Lender (and Borrower also hereby agrees with Lender) that (i) the Advances are unsecured loans evidenced by notes, copies of which have been delivered to the Bank, and (ii) Borrower shall not make any payment of any kind in respect of the Advances except with proceeds from the final $300,000 installment of the Sifen Subordinated Loan and not until such final installment has been received.

(b)

In addition, Borrower agrees to obtain the unconditional continuing guaranty from Roy W. Olivier limited to $250,000 (plus interest, collection costs and any related expenses) guaranteeing Borrower’s obligations to Lender, in form and substance satisfactory to Lender (the “Olivier Guaranty”), concurrently with execution of the Second Amendment, and, not later than 14 days after the date hereof, provide to Lender the personal financial statement which are required under the Olivier Guaranty, which personal financial statement shall reflect a personal net worth of at least $250,000, and also to provide to Lender not later than 14 days after the date hereof personal brokerage account statements evidencing the ownership of marketable securities having a current market value of not less than $250,000.  The Olivier Guaranty will terminate (except to the extent demand for payment has been validly made thereunder prior to such date) on the date upon which Borrower delivers to Lender a covenant compliance certificate for the fiscal quarter ending on October 31, 2013 as required by Section 8.10, and the related financial statements as required by Section 8.8, certified as true and correct by an appropriate officer of Borrower, containing a computation of each of the financial covenants set forth in Section 10 and demonstrating that Borrower is in compliance with each such covenant for the period then ending.  (In the event that Borrower is not in compliance with such covenants for the period then ending, the Olivier Guaranty shall continue in full force and effect until the date when Borrower is in compliance as of the end of a fiscal quarter ending thereafter and has delivered to Lender a covenant compliance certificate and such financial statements certified as required by Sections 8.8 and 8.10 demonstrating such compliance.)

(c)

In addition, Borrower agrees that, until the date when such final $300,000 installment of the Sifen Subordinated Loan is received from Sifen and used to repay the Advances (the “Repayment Date”), and notwithstanding anything to the contrary in Section 2.1 of this Agreement or any other provision of any Loan Document, from the date of the Second Amendment to the Repayment Date the Revolving Loan Commitment shall be divided into a $500,000 tranche and a $1,000,000 tranche and Borrower shall not be permitted to borrow any advances under the 

-9-

$1,000,000 tranche except upon Lender’s sole discretion with respect to each such advance.  Borrower further agrees that any borrowings under the $1,000,000 tranche which Lender, in its sole discretion, permits, shall be repaid within sixty (60) days, and in addition, within such sixty (60) day period Borrower shall obtain additional capital contributions equal to the amount of such advance.  Borrower agrees that it will obtain the written agreement of each of the Persons providing any such additional advances to the foregoing requirement that such advances may not be repaid until the final $300,000 installment is received from Sifen.  Upon occurrence of the Repayment Date, this Section 9.18(c) shall be terminated and of no further force or effect.

(d)

Any breach of this provision by Borrower or any of the Advance Providers (by accepting any payment prohibited hereby) will be an immediate Event of Default under this Agreement and the other Loan Documents.

(l)

by amending and restating Section 10.1 in its entirety to read as follows:

10.1

Fixed Charge Coverage Ratio.  As of the end of each of its fiscal quarters for the four fiscal quarter period then ending, Borrower and its Subsidiaries shall maintain a ratio of (a) consolidated EBITDA plus rent and operating lease payments, less cash taxes paid, distributions, dividends and Capital Expenditures (other than Capital Expenditures financed with the proceeds of purchase money Debt or Capitalized Lease Obligations to the extent permitted under this Agreement) and other non-cash extraordinary items for the four fiscal quarter period then ending to (b) the consolidated sum of (i) Interest Charges of Borrower and its Subsidiaries for such period paid in cash, and (ii) all scheduled principal  payments for such period with respect to all Debt that were paid or were due and payable by Borrower and its Subsidiaries during such period plus rent and operating lease expense incurred in the same such period, of not less than the ratio set forth below for the corresponding period set forth below:

		
	Period

	Ratio

	 
	 

	For the four fiscal quarter period 

ending on each of October 31, 2012

 and January 31, 2013

	1.00 to 1.00

	For the four fiscal quarter period 

ending on April 30, 2013

	1.15 to 1.00

	For the four fiscal quarter period 

ending on July 31, 2013

	1.15 to 1.00

-10-

		
	For the four fiscal quarter period 

ending on October 31, 2013 and on 

the last day of each fiscal quarter 

ending thereafter

	1.20 to 1.00

(m)

by amending and restating Section 10.2 in its entirety to read as follows:

10.2

Senior Debt to EBITDA Ratio.  As of the end of each fiscal quarter of Borrower, Borrower and its Subsidiaries shall maintain a ratio of (a) consolidated Senior Debt, to (b) consolidated EBITDA, of (i) not greater than 2.00 to 1.00 for each of the fiscal quarters ending October 31, 2011, January 31, 2012, April 30, 2012 and July 31, 2012, (ii) not greater than 1.75 to 1.00 for each of the fiscal quarters ending October 31, 2012, January 31, 2013, April 30, 2013 and July 31, 2013, and (iii) not greater than 1.50 to 1.00 for each fiscal quarter ending thereafter.  

(n)

by inserting the following as Section 10.3:

10.3

Total Funded Debt to EBITDA.  As of the end of each of its fiscal quarters for the four fiscal quarter period then ending, Borrower and its Subsidiaries shall not permit the ratio of (a) consolidated Total Funded Debt (which shall include, without limitation, the Sifen Subordinated Loan), to (b) consolidated EBITDA, to exceed the ratio set forth below for the corresponding period set forth below:

		
	Period

	Ratio

	 
	 

	For the four fiscal quarter period 

ending on January 31, 2013

	2.50 to 1.00

	For the four fiscal quarter period 

ending on April 30, 2013

	2.25 to 1.00

	For the four fiscal quarter period 

ending on July 31, 2013

	2.25 to 1.00

	For the four fiscal quarter period 

ending on October 31, 2013 and on 

the last day of each fiscal quarter 

ending thereafter

	2.00 to 1.00

(o)

by inserting the following as Section 11.14:

11.14

Sifen Subordination Agreement.  The subordination provisions of the Sifen Subordination Agreement shall for any reason be revoked or invalid or otherwise cease to be in full force and effect, or Borrower shall contest in any manner, or any other holder thereof shall contest in any judicial proceeding, the validity or enforceability of the Sifen Subordination Agreement or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason not have the 

-11-

priority contemplated by the provisions of the Sifen Subordination Agreement.

(p)

by inserting the following as Section 11.15:

11.15

Guaranties.  There is a discontinuance or revocation by any of the Guarantors of any of the Guaranties or the Security Agreement or any of the Guarantors shall contest the validity of any of the Guaranties or the Security Agreement.

(q)

by inserting the following as Section 11.16:

11.16

Sifen Subordinated Loan Documents.  A default or “Event of Default” occurs under any of the Sifen Subordinated Loan Documents.  

(r)

by inserting the following as Section 11.17:

11.17

Sifen Subordinated Loan.  The amount of $2,100,000 of the Sifen Subordinated Loan is not advanced by Sifen to Borrower on or before November 26, 2012 for any reason, the amount of $600,000 of the Sifen Subordinated Loan is not advanced by Sifen to Borrower on or before November 28, 2012 for any reason, or the aggregate total amount of the Sifen Subordinated Loan advanced by Sifen to Borrower on or before December 4, 2012 is less than $3,500,000 for any reason.

(s)

by inserting the following as Section 11.18:

11.18

Lien Priority.  Lender fails to have an enforceable first lien (except for any Permitted Liens) on or security interest in any property given as security for the Obligations or any other obligations or liabilities of Borrower or any Guarantor to Lender.

(t)

by inserting the following as Section 11.19:

11.19

Advance Provider Agreements.  Any Advance Provider violates any of the terms of any of the Advance Provider Agreements.

3.

Amendment to the Other Loan Documents.  The other Loan Documents are hereby amended to the extent necessary to be consistent with the foregoing amendments to the Loan Agreement.

4.

Consent to 50 Below Purchase Transaction, Sifen Subordinated Loan Transaction and Transactions Under Section 9.18.  Subject to the terms and conditions hereof, including, without limitation, the satisfaction of each of the conditions set forth in Section 8 hereof, Lender hereby consents to the 50 Below Purchase Transaction, the Sifen Subordinated Loan Transaction and the transactions contemplated under Section 9.18 of the Loan Agreement.  The consents set forth herein shall be effective only in the specific instances and for the specific purposes set forth herein and shall neither extend to any other violations under, or default of, the Loan Agreement 

-12-

or any of the other Loan Documents, nor shall this consent prejudice any rights or remedies of Lender under the Loan Agreement and the other Loan Documents with respect to matters not specifically addressed hereby.

5.

Waiver.  Section 9.14 of the Loan Agreement provides that Borrower shall not create or acquire any additional Subsidiaries without the prior written consent of Lender.  The formation of Project Viking violates such covenant and the failure by Borrower to comply with such covenants constitutes an Event of Default under the Loan Agreement.  Subject to the terms and conditions hereof, including, without limitation, the satisfaction of each of the conditions set forth in Section 8 hereof, Lender hereby waives Borrower’s violation of Section 9.14 of the Loan Agreement and the Event of Default created thereby.  The waiver set forth herein shall be effective only in the specific instances and for the specific purposes set forth herein and shall neither extend to any other violations under, or default of, the Loan Agreement or any of the other Loan Documents, nor shall this waiver prejudice any rights or remedies of Lender under the Loan Agreement and the other Loan Documents with respect to matters not specifically addressed hereby.

6.

Reaffirmation and Confirmation of Security Interests.  Borrower hereby confirms to Lender that Borrower has granted to Lender a security interest in or Lien upon substantially all of the property of Borrower, including, without limitation, the Collateral, to secure the Obligations.  Borrower hereby reaffirms its grant of such security interest and Lien to Lender for such purpose in all respects.

7.

Representations and Warranties.  Borrower hereby represents, warrants and covenants to Lender that:

(a)

Authorization.  Borrower is duly authorized to execute and deliver this Amendment and all deliveries required hereunder, and is and will continue to be duly authorized to borrow monies under the Loan Agreement, as amended hereby, and to perform its obligations under the Loan Agreement and the other Loan Documents.

(b)

No Conflicts.  The execution and delivery of this Amendment and all deliveries required hereunder, and the performance by Borrower of its obligations under the Loan Agreement and the other Loan Documents do not and will not conflict with any provision of law or of the charter or by-laws of Borrower or of any agreement binding upon Borrower.

(c)

Validity and Binding Effect.  This Amendment, the Loan Agreement and the other Loan Documents are a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies.

(d)

No Events of Default. As of the date hereof and after giving effect to the waiver set forth in Section 5, no default or Event of Default under the Loan Agreement or any of the other Loan Documents has occurred or is continuing.

-13-

(e)

Warranties.  As of the date hereof, the representations and warranties in the Loan Agreement and the other Loan Documents are true and correct as though made on such date, except where a different date is specifically indicated.

8.

Conditions to Effectiveness.  This Amendment shall be deemed to be effective as of the date hereof (the “Amendment Effective Date”), and the effectiveness of this Amendment shall be subject to, the satisfaction of all of the following conditions: 

(a)

This Amendment, duly authorized and fully executed by Borrower and Lender, shall have been delivered to Lender.

(b)

Each of the Guaranties, duly authorized and fully executed by the applicable Guarantor, shall have been delivered to Lender.

(c)

The Security Agreement, duly authorized and fully executed by Project Viking, shall have been delivered to Lender.

(d)

The Securities Pledge Agreement, duly authorized and fully executed by Borrower, together with a copy of the form of stock certificate(s) evidencing the securities pledged thereunder (with an .pdf of the executed stock certificate to be delivered to Lender by November 30, 2012 and an original of the executed stock certificate to be delivered to Lender by December 3, 2012), and undated stock  power(s) therefor executed in blank, shall have been delivered to Lender.

(e)

The Sifen Subordination Agreement, duly authorized and fully executed by each of the parties thereto, shall have been delivered to Lender.

(f)

Copies of each of the Sifen Subordinated Loan Documents, duly authorized and fully executed by each of the parties thereto, shall have been delivered to Lender.

(g)

Each of the Advance Provider Agreements, fully executed by each of the parties thereto, together with copies of each of the bridge notes evidencing the Advances, shall have been delivered to Lender.

(h)

Resolutions shall have been adopted by Borrower’s Board of Directors authorizing the execution, delivery and performance of this Amendment, the Securities Pledge Agreement and all other related documents, and a copy thereof, certified by Borrower’s corporate secretary, shall have been delivered to Lender.

(i)

A certificate of Borrower’s corporate secretary stating that there have been no amendments, modifications or changes to Borrower’s Articles of Incorporation or By-Laws since August 17, 2012, shall have been delivered to Lender.

(j)

Resolutions shall have been adopted by Project Viking’s Board of Directors authorizing the execution, delivery and performance of the Guaranty, the Security Agreement and all other related documents, a copy thereof, certified by Project Viking’s corporate secretary, shall have been delivered to Lender.

-14-

(k)

A certificate of Project Viking’s corporate secretary certifying true, correct and complete copies of Project Viking’s Articles of Incorporation, By-Laws and incumbency of officers, shall have been delivered to Lender.

(l)

Copies of each of the 50 Below Purchase Transaction Documents, duly executed by each of the parties thereto, each in form and substance acceptable to Lender, shall have been delivered to Lender.

(m)

Each condition precedent set forth in the 50 Below Purchase Transaction Documents shall have been fulfilled or waived by the applicable party thereto, and no breach of any material term or condition of any of the 50 Below Purchase Transaction Documents shall have occurred.

(n)

The Sifen Subordinated Loan Transaction contemplated by the Sifen Subordinated Loan Documents shall be consummated in accordance with the Sifen Subordinated Loan Documents; provided, that the amount of the Sifen Subordinated Loan which is funded prior to December 4, 2012 may be $3,200,000 as set forth in the Recitals of this Amendment.

(o)

Evidence that any and all existing liens on any of the assets to be acquired in the 50 Below Purchase Transaction have been or will be terminated and cancelled as part of closing thereunder. 

(p)

Such other documents, instruments, agreements, certificates and opinions as Lender may reasonably request in order to effectuate fully the transactions contemplated herein shall have been duly executed and delivered to Lender.

9.

Conditions Subsequent.  The obligation of Lender to continue to make  Loans (or otherwise extend credit under the Loan Agreement) is subject to the fulfillment, on or before the date applicable thereto, of each of the conditions subsequent set forth below (the failure by Borrower to so perform or cause to be performed constituting an Event of Default under the Loan Agreement):

(a)

as soon as possible and in any event by December 3, 2012, originals of each of the documents set forth in Section 8 hereof (other than those for which copies only are required as indicated above), which originals shall include, without limitation, originals of this Agreement, the Guaranties, the Security Agreement, the Securities Pledge Agreement, the Stock Certificate(s) (executed), the Stock Power(s), the Sifen Subordination Agreement and the Advance Provider Agreements; 

(b)

on the date hereof, promptly following execution hereof, Borrower shall make a repayment of the outstanding balance of the Revolving Loans in an amount not less than $900,000;

(c)

promptly upon request by Lender therefor, any and all other information (financial or otherwise) regarding the business affairs and operations of 50 Below and Project Viking;  and 

-15-

(d)

within 30 days of the date hereof, deliver to Lender an original of a Collateral Access Agreement with respect to the leased property located in Duluth, Minnesota (or such other Minnesota location or any other locations for the 50 Below business), in form and substance acceptable to Lender, together with a fully-executed copy of the lease.

10.

Costs and Expenses.  Borrower shall pay all costs and expenses in connection with the preparation of this Amendment and other related Loan Documents, including, without limitation, reasonable attorneys’ fees and expenses.

11.

Acknowledgment; Release.

(A)

BORROWER HEREBY ACKNOWLEDGES THAT THE AMENDING AND RESTATING OF THE FINANCIAL COVENANTS IN SECTION 10 OF THE LOAN AGREEMENT PROVIDED FOR IN THIS AMENDMENT SETS SUCH FINANCIAL COVENANTS AT LEVELS WHICH ARE ABOVE THE LEVELS WHICH WOULD CONFORM TO BORROWER’S FINANCIAL PROJECTIONS PREPARED ON A PRO FORMA BASIS ASSUMING CONSUMMATION OF THE 50 BELOW PURCHASE TRANSACTION AND THE SIFEN SUBORDINATED LOAN TRANSACTION.  ACCORDINGLY, BORROWER ACKNOWLEDGES THAT TO COMPLY WITH THE AMENDED AND RESTATED FINANCIAL COVENANTS IN SECTION 10, BORROWER’S FUTURE FINANCIAL PERFORMANCE WILL HAVE TO EXCEED THE LEVELS WHICH IT HAS PROJECTED IN SUCH PRO FORMA PROJECTIONS AND THAT IF IT IS NOT ABLE TO ACHIEVE SUCH HIGHER FINANCIAL PERFORMANCE IT WILL BE IN DEFAULT OF ONE OR MORE OF SUCH COVENANTS, RESULTING IN ONE OR MORE EVENTS OF DEFAULT UNDER THE LOAN AGREEMENT AND OTHER LOAN DOCUMENTS.  BORROWER HEREBY CONFIRMS THAT IT IS VOLUNTARILY AND KNOWINGLY ENTERING INTO THIS AMENDMENT, INCLUDING SUCH AMENDMENT AND RESTATEMENT OF SUCH FINANCIAL COVENANTS, AND WAIVES ANY OBJECTIONS, CLAIMS, CAUSES OF ACTION AND DAMAGES OF ANY KIND, CHARACTER, OR NATURE WHATSOEVER IN RESPECT THEREOF WHICH BORROWER MAY HAVE OR CLAIM TO HAVE, NOW OR AT ANY TIME HEREAFTER, IN ANY WAY ARISING FROM OR ATTRIBUTABLE TO, OR BASED UPON, SUCH AMENDED AND RESTATED FINANCIAL COVENANTS, OR THE INABILITY OF BORROWER TO MEET THE REQUIREMENTS OF SUCH FINANCIAL COVENANTS AS SO AMENDED AND RESTATED, OR ANY EVENTS OF DEFAULT OCCURRING IF BORROWER IS UNABLE TO MEET SUCH REQUIRED FINANCIAL PERFORMANCE LEVELS.

(B)

IN ADDITION TO THE FOREGOING, BORROWER HEREBY ACQUITS, AND FOREVER DISCHARGES LENDER AND EACH AND EVERY PAST AND PRESENT SUBSIDIARY, AFFILIATE, STOCKHOLDER, OFFICER, DIRECTOR, AGENT, SERVANT, EMPLOYEE, REPRESENTATIVE, AND ATTORNEY OF LENDER FROM ANY AND ALL CLAIMS, CAUSES OF ACTION, SUITS, DEBTS, LIENS, OBLIGATIONS, LIABILITIES, DEMANDS, LOSSES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES) OF ANY KIND, CHARACTER, OR NATURE WHATSOEVER, KNOWN OR UNKNOWN, FIXED OR CONTINGENT, WHICH 

-16-

BORROWER MAY HAVE OR CLAIM TO HAVE NOW OR WHICH MAY HEREAFTER ARISE OUT OF OR BE CONNECTED WITH ANY ACT OF COMMISSION OR OMISSION OF LENDER EXISTING OR OCCURRING PRIOR TO THE DATE OF THIS AMENDMENT OR ANY INSTRUMENT EXECUTED PRIOR TO THE DATE OF THIS AMENDMENT ARISING WITH RESPECT TO THE LOAN AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN.

12.

Miscellaneous.

(a)

Captions.  Section captions and headings used in this Amendment are for convenience only and are not part of and shall not affect the construction of this Amendment.

(b)

Governing Law.  This Amendment shall be a contract made under and governed by the laws of the State of Illinois, without regard to conflict of laws principles.  Whenever possible, each provision of this Amendment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment.

(c)

Counterparts.  This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall together constitute but one and the same document.   

(d)

Successors and Assigns.  This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

(e)

References.  From and after the Amendment Effective Date, any reference to the Loan Agreement or the other Loan Documents contained in any notice, request, certificate or other instrument, document or agreement executed concurrently with or after the execution and delivery of this Amendment shall be deemed to include this Amendment unless the context shall otherwise require.

(f)

Continued Effectiveness.  Notwithstanding anything contained herein, the terms of this Amendment are not intended to and do not serve to effect a novation as to the Loan Agreement.  The parties hereto expressly do not intend to extinguish the Loan Agreement.  Instead, it is the express intention of the parties hereto to reaffirm the indebtedness created under the Loan Agreement which is evidenced by the Notes provided for therein and secured by the Collateral.  The Loan Agreement and each of the other Loan Documents, except as modified hereby, remain in full force and effect and are hereby reaffirmed in all respects.

(g)

Customer Identification - USA Patriot Act Notice; OFAC and Bank Secrecy Act.  Lender hereby notifies Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001) (the “Act”), and Lender’s policies and practices, Lender is required to obtain, verify and record certain information and documentation that identifies Borrower, which information includes the name and address of Borrower and such other information that will allow Lender to identify Borrower 

-17-

in accordance with the Act.  In addition, Borrower shall (a) ensure that no person who owns a controlling interest in or otherwise controls Borrower or any subsidiary of Borrower is or shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or included in any Executive Orders, (b) not use or permit the use of the proceeds of the Loan to violate any of the foreign asset control regulations of OFAC or any enabling statute or Executive Order relating thereto, and (c) comply, and cause any of its subsidiaries to comply, with all applicable Bank Secrecy Act (“BSA”) laws and regulations, as amended.

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

-18-

IN WITNESS WHEREOF, the parties have executed this Second Amendment to Loan and Security Agreement and Other Loan Documents as of the date first set forth above.

BORROWER:

ARI NETWORK SERVICES, INC., a Wisconsin corporation

By:  /s/ Roy W. Olivier                                   

Name:

Roy W. Olivier

Title:

President and Chief Executive Officer

LENDER:

FIFTH THIRD BANK, an Ohio banking corporation

By:   /s/ Gayne M. Underwood                        

Name:

Gayne M. Underwood

Title:

Vice President

 

-19-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00210-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00210-of-00352.parquet"}]]