EMPLOYMENT AGREEMENT

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is executed as of this 28th day of July, 2008, by and between Kenneth S. Folberg (“Executive”) and ARI Network Services, Inc. (the “Company”).

RECITALS

The Company desires to employ Executive, and Executive desires to be employed by the Company, on the terms and conditions set forth herein.

As a result of Executive’s employment with the Company, Executive will have access to and be entrusted with valuable information about the Company’s business and customers, including trade secrets and confidential information.

The Parties believe it is in their best interests to make provision for certain aspects of their relationship during and after the period in which Executive is employed by the Company.

NOW, THEREFORE, in consideration of the promises and the mutual agreements and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Company and Executive (collectively, “Parties” and individually, “Party”), the Parties agree as follows:

ARTICLE I

EMPLOYMENT

1.1

Position and Duties.  Executive shall be employed in the position of Vice President of Finance and Chief Financial Officer, and shall be subject to the authority of, and shall report to, the Company’s President and Chief Executive Officer.  Executive’s duties and responsibilities shall include all those customarily attendant to the position of Vice President of Finance and Chief Financial Officer and as may be assigned from time to time by the President and Chief Executive Officer.  At all times, Executive shall devote Executive’s entire business time, attention and energies exclusively to the business interests of the Company while employed by the Company.

1.2

At-Will Employment.  The term of Executive’s employment under this Agreement shall be for an indefinite period and may be terminated by either party at any time and for any reason or no reason upon written notice to the other party.

ARTICLE II

COMPENSATION AND OTHER BENEFITS

2.1

Base Salary.  While employed by the Company, the Company shall pay Executive an annual salary of One Hundred Ninety Thousand and no/100 Dollars ($190,000) (“Base

Salary”), payable in accordance with the normal payroll practices and schedule of the Company.  Notwithstanding the foregoing, the Base Salary shall be subject to annual review by the Compensation Committee (the “Compensation Committee”) of the Company’s Board of Directors (the “Board”) and, beginning on the first anniversary of the commencement of Executive’s employment by the Company, shall be subject to annual adjustment based on the recommendation of the Compensation Committee if approved by the full Board.

2.2

Bonuses.  While employed by the Company, Executive will be eligible to participate in the Company’s Management Incentive Bonus Plan or any successor plans for senior executives (“Bonus Plan”), the specifics of which are determined from time to time by, and at the sole discretion of, the Compensation Committee and approved by the full Board.  For purposes of clarification, the Parties acknowledge and agree that under the current Bonus Plan, the annualized bonus amount which Executive would initially be eligible to receive if one hundred percent (100%) of such Bonus Plan targets were met would be Seventy Thousand and no/100 Dollars ($70,000).  In the event that the Board terminates or modifies in any material way the long-term incentive compensation component or any other component of the Bonus Plan, Executive shall receive the same treatment as other similarly situated executive employees.

2.3

Equity – Grant of Options.  Upon commencement of Executive’s employment with the Company, Executive will be granted options to purchase up to fifty thousand (50,000) shares of the Company’s common stock pursuant to the terms and conditions of an Award Agreement between the Company and Executive in the form of the Company’s standard Award Agreement.  Such options shall be subject to the terms and conditions of such Award Agreement, including, without limitation, with respect to vesting and forfeiture.

2.4

Perquisites, Benefits and Other Compensation.  While employed by the Company and subject to the express provisions of this Article II, Executive will be entitled to receive perquisites and benefits provided by the Company to its senior executive employees, subject to the eligibility criteria related to such perquisites and benefits, and to such changes, additions, or deletions to such perquisites and benefits as the Company may make from time to time, as well as such other perquisites or benefits as may be specified from time to time at the sole discretion of the Board.

2.5

Vacation.  Employee shall be entitled to a maximum of twenty (20) days of paid vacation and three (3) personal holidays in any calendar year, pro-rated for any partial calendar year, in accordance with the Company’s general vacation and personal holidays policies for similarly situated employees.

ARTICLE III

TERMINATION

3.1

Termination By The Company For Cause.  If Executive’s employment is terminated by the Company at any time for Cause (defined below), Executive shall have no further rights against the Company, except for the right to receive (a) any unpaid Base Salary with respect to the period prior to the effective date of termination and (b) any vacation (but not

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personal holidays) that Executive has accrued, but not used, prior to the effective date of termination.

3.2

Termination By The Company Without Cause.  If Executive’s employment is terminated by the Company at any time without Cause (defined below), in addition to the compensation outlined in Paragraph 3.1, above, Executive shall have the right to receive (a) any earned but unpaid bonus due to Executive for any fiscal year of the Company that has been completed as of the effective date of termination and (b) a Severance Payment (defined below), the payment of which is contingent upon Executive’s execution of a written severance agreement (in a form satisfactory to the Company) containing, among other things, a general release of all claims, statutory or otherwise, against the Company.  Executive acknowledges and agrees that the Company reserves the right to update and modify the businesses listed in Paragraph 5.4(d), below, in such severance agreement.

3.3

Termination By Executive With Good Reason.  If Executive resigns his employment with the Company for Good Reason (defined below), in addition to the compensation outlined in Paragraph 3.1, above, Executive shall have the right to receive (a) any earned but unpaid bonus due to Executive for any fiscal year of the Company that has been completed as of the effective date of resignation and (b) a Severance Payment (defined below), the payment of which is contingent upon Executive’s execution of a written severance agreement (in a form satisfactory to the Company) containing, among other things, a general release of all claims, statutory or otherwise, against the Company.  Executive acknowledges and agrees that the Company reserves the right to update and modify the businesses listed in Paragraph 5.4(d), below, in such severance agreement.  A resignation shall only be for “Good Reason” if: (1) withi n thirty (30) calendar days of the initial existence of Good Reason, Executive provides written notice of Good Reason to the Board; (2) the Company does not remedy said Good Reason within thirty (30) calendar days of its receipt of such notice; and (3) Executive terminates his employment effective any time after the expiration of such 30-day remedy period prior to the date that is ninety (90) days after the initial existence of Good Reason.

3.4

Resignation.  If Executive resigns his employment with the Company at any time without Good Reason (defined below), Executive shall have no further rights against the Company, except for the right to receive (a) any unpaid Base Salary with respect to the period prior to the effective date of resignation and (b) any vacation (but not personal holidays) that Executive has accrued, but not used, prior to the effective date of resignation.  Executive agrees that, following his provision of notice of resignation without Good Reason, the Company may, at its sole discretion, accept the resignation effective immediately or at such other time as the Company may designate and that, in such case, such Company-designated date shall be the effective date of resignation.

3.5

Death or Disability.  If Executive’s employment with the Company is terminated due to his death or Disability (defined below), Executive shall have no further rights against the Company, except for the right to receive (a) any unpaid Base Salary with respect to the period prior to the effective date of termination, (b) any vacation (but not personal holidays) that Executive has accrued, but not used, prior to the effective date of termination and (c) any earned

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but unpaid bonus due to Executive for any fiscal year of the Company that has been completed as of the effective date of termination.

3.6

Definitions.

(a)

Severance Payment.  For purposes of Paragraphs 3.2 and 3.3, above, “Severance Payment” means nine (9) months of Base Salary, payable following termination pursuant to the terms of the written severance agreement specified in Paragraph 3.2 or 3.3, above.  Such Severance Payments shall be made in equal installments in accordance with the Company’s normal payroll practices and schedule beginning no later than the second regular Company pay date following expiration of any revocation period specified in such severance agreement; provided, however, that all installments that have yet to be paid by the Final Payment Date (defined below) shall be paid to the Executive in a lump sum on the Final Payment Date.  For the purposes of this Section 3.6(a), the Final Payment Date is the 15^th day of the third month following the later of (i) the last day of the calendar year in which t he termination occurs, or (ii) the last day of the Company’s fiscal year in which the termination occurs.

(b)

Cause.  For purposes of Paragraphs 3.1 and 3.2, above, “Cause” shall mean any of the following: (1) Executive has breached this Agreement in a material way or has breached in a material way the fiduciary duty he owes to the Company or any other obligation or duty he owes to the Company under this Agreement, which breach remains uncured, if subject to cure, to the reasonable satisfaction of the Board for thirty (30) calendar days after Executive receives written notice thereof from the Board; (2) Executive has committed gross negligence or willful misconduct in the performance of Executive’s duties for the Company; (3) Executive has failed in a material way to follow reasonable instructions from the Board, consistent with this Agreement, concerning the operations or business of the Company, which failure remains uncured, if subject to cure, to the reasonable satisfac tion of the Board for thirty (30) calendar days after Executive receives written notice thereof from the Board; (4) Executive has committed a crime the circumstances of which substantially relate to Executive’s employment duties with the Company; (5) Executive has misappropriated or embezzled funds or property of the Company or engaged in any material act of dishonesty; or (6) Executive has attempted to obtain a personal profit from any transaction in which the Executive knows or reasonably should know the Company has an interest, and which constitutes a corporate opportunity of the Company, or which is adverse to the interests of the Company, unless the transaction was approved in writing by the Board after full disclosure of all details relating to such transaction.

(c)

For purposes of Paragraphs 3.3 and 3.4, above, “Good Reason” shall mean the occurrence of any of the following without the written consent of Executive: (1) the Company has breached this Agreement in a material way, which breach remains uncured, if subject to cure, for thirty (30) calendar days after the Board receives written notice thereof from Executive; (2) a material diminution in Executive’s Base Salary; (3) a material diminution in Executive’s authority, duties, or responsibilities; or (4) a material change in the geographic location at which Executive must perform his services,

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provided such new location is more than fifty (50) miles from the location where Executive is required to perform services prior to the change.  

(d)

For purposes of Paragraph 3.5, above, “Disability” means the inability of Executive, due to a physical or mental impairment, to perform the essential functions of Executive’s job with the Company, with or without a reasonable accommodation, for ninety (90) consecutive business days or one hundred twenty (120) business days in the aggregate during any 365-day period.  A determination of Disability shall be made by the Board, which may, at its sole discretion, consult with a physician or physicians satisfactory to the Board, and Executive shall cooperate with any efforts to make such determination.  Any such determination shall be conclusive and binding on the Parties.  Any determination of Disability under this Paragraph 3.6(d) is not intended to alter any benefits any Party may be entitled to receive under any long-term disability insurance policy carried by either th e Company or Executive with respect to Executive, which benefits shall be governed solely by the terms of any such insurance policy.

3.7

Termination In Connection With A Change In Control.  Notwithstanding any other provision of this Agreement, should Executive’s employment be terminated upon the occurrence of or within two (2) years of a  “Change in Control,” as defined in any Change of Control Agreement (“COC Agreement”) that may be presented by the Company to Executive (in a form satisfactory to the Company), the terms of such termination shall be governed exclusively by such COC Agreement and Executive shall not be entitled to receive any of the benefits provided for under this Article III.

ARTICLE IV

CONFIDENTIALITY

4.1

Confidentiality Obligations.  Executive will not, while employed by the Company, directly or indirectly use or disclose any Confidential Information or Trade Secrets except in the interest and for the benefit of the Company.  After the end, for whatever reason, of Executive’s employment with the Company, Executive will not directly or indirectly use or disclose any Trade Secrets.  For a period of two (2) years following the end, for whatever reason, of Executive’s employment with the Company, Executive will not directly or indirectly use or disclose any Confidential Information.  Executive further agrees not to use or disclose at any time information received by the Company from others except in accordance with the Company’s contractual or other legal obligations; the Company’s Customers are third party beneficiaries of this promise.

4.2

Definitions.

(a)

Trade Secret.  The term “Trade Secret” has that meaning set forth under applicable law.  The term includes, but is not limited to, all computer source code created by or for the Company.

(b)

Confidential Information.  The term “Confidential Information” means all non-Trade Secret or proprietary information of the Company which has

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value to the Company and which is not known to the public or the Company’s competitors, generally.  Confidential Information includes, but is not limited to: (i) inventions, product specifications, information about products under development, research, development or business plans, production know-how and processes, manufacturing techniques, operational methods, equipment design and layout, test results, financial information, customer lists, information about orders and transactions with customers, sales and marketing strategies, plans and techniques, pricing strategies, information relating to sources of materials and production costs, purchasing and accounting information, personnel information and all business records; (ii) information which is marked or otherwise designated as confidential or proprietary by the Company; and (iii) information received by the Company from others which the Company has an obligation to treat as confidential.

(c)

Exclusions.  Notwithstanding the foregoing, the terms “Trade Secret” and “Confidential Information” shall not include, and the obligations set forth in this Agreement shall not apply to, any information which: (i) can be demonstrated by Executive to have been known by him prior to his employment by the Company; (ii) is or becomes generally available to the public through no act or omission of Executive; (iii) is obtained by Executive in good faith from a third party who discloses such information to Executive on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (iv) is independently developed by Executive outside the scope of his employment without use of Confidential Information or Trade Secrets.

ARTICLE V

NON-COMPETITION

5.1

Restrictions on Competition During Employment.  While employed by the Company, Executive shall not directly or indirectly compete against the Company, or directly or indirectly divert or attempt to divert Customers’ business from the Company anywhere the Company does or is taking steps to do business.

5.2

Post-Employment Non-Solicitation of Restricted Customers.  For two (2) years following termination of Executive’s employment with the Company, for whatever reason, Executive agrees not to directly or indirectly solicit or attempt to solicit any business from any Restricted Customer in any manner which competes with the services or products offered by the Company in the twelve (12) months preceding termination of Executive’s employment with the Company, or to directly or indirectly divert or attempt to divert any Restricted Customer’s business from the Company.

5.3

Post-Employment Restricted Services Obligation.  For two (2) years following termination of Executive’s employment with the Company, for whatever reason, Executive agrees not to provide Restricted Services to any Competitor.  During such two (2) year period,

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Executive also will not provide any Competitor with any advice or counsel concerning the provision of Restricted Services.

5.4

Definitions.

(a)

Customer.  The term “Customer” means any individual or entity for whom/which the Company has provided services or products or made a written or formal proposal to perform services or provide products.

(b)

Restricted Customer.   The term “Restricted Customer” means any individual or entity (i) for whom/which the Company provided services or products, and (ii) with whom/which Executive had contact on behalf of the Company, or about whom/which Executive acquired non-public information in connection with his employment by the Company, during the twenty-four (24) months preceding the end, for whatever reason, of Executive’s employment with the Company; provided, however, that the term “Restricted Customer” shall not include any individual or entity whom/which, through no direct or indirect act or omission of Executive, has terminated its business relationship with the Company.

(c)

Restricted Services.  The term “Restricted Services” means services of any kind or character comparable to those Executive provided to the Company during the twelve (12) months preceding the termination of Executive’s employment with the Company relating to: (i) providing electronic parts catalogs for manufacturers and/or to their dealers and distributors, via compact discs and/or on-line, related to manufactured equipment and their components in the following industry segments: outdoor power (i.e., commercial lawn care); power sports (i.e., motorcycles, snowmobiles, all terrain vehicles); marine (i.e., boats, personal water crafts); recreation vehicles; floor maintenance; auto/truck after-care; agriculture; and construction; (ii) providing on-line, direct mail, electronic mail or other marketing services to equipment manufacturers, distributors and dealers, in the aforementioned industry segm ents, aimed at helping them market their equipment and related products; and (iii) providing F&I (finance and insurance-type products) and services for dealerships, in the aforementioned industry segments, using an outsourced center approach, where the center performs the primary selling role on behalf of and in conjunction with each dealership, directly to their customers via on-line and telephone interaction.

(d)

Competitor.  The term “Competitor” shall include the following businesses: Snap-on Business Solutions; Dominion Enterprises; 50 Below; Channel Blade; and Enigma, and such businesses’ affiliates, successors and assigns, provided that such businesses are engaged in: (i) providing electronic parts catalogs for manufacturers and/or to their dealers and distributors, via compact discs and/or on-line, related to manufactured

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equipment and their components in the following industry segments: outdoor power (i.e., commercial lawn care); power sports (i.e., motorcycles, snowmobiles, all terrain vehicles); marine (i.e., boats, personal water crafts); recreation vehicles; floor maintenance; auto/truck after-care; agriculture; and construction; (ii) providing on-line, direct mail, electronic mail or other marketing services to equipment manufacturers, distributors and dealers, in the aforementioned industry segments, aimed at helping them market their equipment and related products; and (iii) providing F&I (finance and insurance-type) products and services for dealerships, in the aforementioned industry segments, using an outsourced center approach, where the center performs the primary selling role on behalf of and in conjunction with each dealership, directly to their customers via on-line and telephone interaction, at the time of Executive’s termination, for whatever reason.