SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
__X__ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999 or
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ____________
Commission File Number: 0-27166
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XATA Corporation
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(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1641815
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
151 E. Cliff Road, Suite 10, Burnsville, Minnesota 55337
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (612) 894-3680
----------------
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 13, 1999, the following securities of the Registrant were outstanding:
4,418,133 shares of Common Stock, $.01 par value per share.
1
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XATA Corporation
INDEX
Page No.
PART I. FINANCIAL INFORMATION --------
Item 1. Financial Statements:
Balance Sheets as of
March 31, 1999 and September 30, 1998 3
Statements of Operations for the Three and Six
Months Ended March 31, 1999 and 1998 5
Statements of Cash Flows for the Six
Months Ended March 31, 1999 and 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of
Operation 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
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PART I. Item 1. Financial Information
XATA Corporation
BALANCE SHEETS
March 31, 1999 and September 30, 1998
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS: 1999 1998
------------ ------------
(unaudited) (audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 213,682 --
Available-for-sale securities -- --
Accounts receivable, less allowance for doubtful accounts
of $146,794 at March 31, 1999, and $1,047,000 at September 30, 1998 1,600,245 1,942,458
Notes receivable, current portion 17,854 44,496
Inventories 303,088 474,011
Prepaid expenses 107,168 104,480
------------ ------------
Total current assets 2,242,037 2,565,445
Equipment and leasehold improvements, at cost:
Engineering and manufacturing equipment 809,491 844,438
Office furniture and equipment 1,392,768 1,677,269
Leasehold improvements 22,141 38,417
------------ ------------
2,224,400 2,560,124
Less accumulated depreciation and amortization (1,478,684) (1,331,571)
------------ ------------
Net equipment and leasehold improvements 745,716 1,228,553
------------ ------------
Other Assets:
Notes receivable, long term portion -- 54,436
Capitalized software development costs, less accumulated amortization
of $246,211 at March 31, 1999, and $2,395,993 at September 30, 1998 3,587,781 2,685,324
Purchased software, less accumulated amortization
of $100,008 at March 31, 1998, and $1,135,243 at September 30, 1998 99,992 264,757
Goodwill, less accumulated amortization
of $69,049 at March 31, 1998, and $1,393,866 at September 30, 1998 130,951 145,237
Other 35,889 42,217
------------ ------------
Total other assets 3,854,613 3,191,971
Total assets $ 6,842,366 $ 6,985,969
============ ============
</TABLE>
3
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XATA Corporation
BALANCE SHEETS
March 31, 1999 and September 30, 1998
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
------------ ------------
(unaudited) (audited)
LIABILITIES AND STOCKHOLDERS' EQUITY:
<S> <C> <C> <C>
Current Liabilities:
Bank line of credit (Note 8) $ 65,925 $ 548,996
Current maturities of long term debt 300,549 309,534
Accounts payable 1,350,718 1,122,754
Accrued expenses and taxes payable 741,405 845,846
Deferred revenue 847,494 729,820
------------ ------------
Total current liabilities 3,306,091 3,556,950
Long-term Liabilities:
Long-term debt 308,402 461,491
Deferred taxes -- --
------------ ------------
Total long-term liabilities 308,402 461,491
Stockholders' Equity:
Commonstock, par value $.01 per share, authorized 8,333,333 shares;
issued 4,430,633 at March 31, 1999 and 4,430,633 at
September 30, 1998 44,306 44,306
Additional paid-in capital 9,398,821 9,398,821
Common stock to be issued, 12,500 shares 135,688 135,688
Retained earnings (accumulated deficit) (6,350,942) (6,611,287)
------------ ------------
Total stockholders' equity 3,227,873 2,967,528
------------ ------------
Total liabilities and stockholders' equity $ 6,842,366 $ 6,985,969
============ ============
</TABLE>
4
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XATA Corporation
STATEMENTS OF OPERATIONS
For the Three and Six Months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Three Month Periods Six Month Periods
Ended March 31, Ended March 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 3,366,664 $ 3,440,896 $ 5,718,998 $ 5,998,692
Cost of sales 1,819,575 2,013,751 3,129,133 3,470,846
------------ ------------ ------------ ------------
Gross profit 1,547,089 1,427,145 2,589,865 2,527,846
Operating expenses 1,194,436 1,415,535 2,275,503 2,880,763
------------ ------------ ------------ ------------
Operating income (loss) 352,653 11,610 314,362 (352,917)
Non-operating (expense) income:
Interest (expense) (39,589) (3,350) (81,390) (7,015)
Interest income 450 29,688 2,946 66,094
Gain on sale of assets 24,428 24,428
------------------------------------------------------------
(14,711) 26,338 (54,016) 59,079
------------ ------------ ------------ ------------
Net income (loss) before income taxes 337,942 37,948 260,346 (293,838)
Income tax provision (benefit) 0 15,179 0 (117,535)
------------ ------------ ------------ ------------
Net income (loss) $ 337,942 $ 22,769 $ 260,346 $ (176,303)
============ ============ ============ ============
Net income (loss) per share
Basic EPS $ 0.08 $ 0.01 $ 0.06 $ (0.04)
============ ============ ============ ============
Diluted EPS $ 0.08 $ 0.01 $ 0.06 $ (0.04)
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding
Basic EPS 4,418,133 4,417,559 4,418,133 4,415,784
============ ============ ============ ============
Diluted EPS 4,460,298 4,417,559 4,459,582 4,415,784
============ ============ ============ ============
</TABLE>
5
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XATA Corporation
STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Six Month Periods
Ended March 31,
1999 1998
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
------------ ------------
Net cash provided by (used in) operating activities 1,510,219 (692,870)
------------ ------------
Cash Flows from Investing Activities
Purchase of available-for-sale securities 0 (1,999,156)
Proceeds from sale and maturity of available-for-sale securities 0 4,351,425
Proceeds from principal payments received on notes payable 81,078 0
Purchase of fixed assets (50,870) (349,726)
Additions to software development costs (1,167,301) (1,204,565)
Proceeds from sale of assets 485,701 0
------------ ------------
Net cash provided by (used in) investing activities (651,392) 797,978
------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in line of credit (483,071) 0
Proceeds from long-term debt (8,985) 0
Repayment of long-term debt (153,089) 0
Proceeds from options and warrants exercised 0 15,000
------------ ------------
Net cash provided by (used in) financing activities (645,145) 15,000
------------ ------------
Increase (decrease) in cash and cash equivalents 213,682 120,108
Cash and Cash Equivalents
Beginning -- 336,126
------------ ------------
Ending $ 213,682 $ 456,234
============ ============
</TABLE>
6
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NOTES TO FINANCIAL STATEMENTS
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NOTE 1. MANAGEMENT STATEMENT
In the opinion of management of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal,
recurring accruals) necessary to present fairly the financial position of the
Company as of March 31, 1999 and the results of operations and cash flows for
the three and six month periods ended March 31, 1999 and 1998. The results of
operations for any interim period are not necessarily indicative of the results
for the fiscal year ending September 30, 1999. These interim financial
statements should be read in conjunction with the Company's annual financial
statements and related notes thereto included in the Company's Form 10-KSB and
Annual Report to shareholders for the fiscal year ended September 30, 1998.
NOTE 2. BASIC AND DILUTED PER SHARE
Basic per-share amounts are computed, generally, by dividing net income or loss
by the weighted-average number of common shares outstanding. Diluted per-share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is anti-dilutive thereby reducing the loss
or increasing the income per common share
NOTE 3. CORPORATE LIQUIDITY AND SUBSEQUENT EVENTS
The Company continues to emphasize promotion of its core onboard computing
products and continues to evaluate opportunities to sell non-core and
under-performing product lines. Management believes that the disposition of the
under-performing product lines and operational cost-reduction efforts will
provide positive cash flow from operations. The Company believes 1) cash from
operations, 2) bank line of credit, 3) current vendor terms, 4) the sale of
under performing assets and 5) an infusion of new equity will provide adequate
cash to fund the delivery of its anticipated revenues for the foreseeable
future. Any significant new product development in the near term will require
external funding. The Company may not be able to secure external funding when
needed or at all, and such financing, if available, may not be on terms
favorable or acceptable to the Company.
On May 13, 1999 the Company completed the sale of 40,000 shares of Series A
convertible Preferred Stock. The sale resulted in an infusion of $600,000 in
cash. This cash will be used primarily for new product development.
NOTE 4. SALES OF ASSETS
On February 4, 1999, the Company sold a non-core business unit located in
Peoria, Illinois for $350,000 plus approximately $65,000 for certain open
account receivable, associated with that business. The sale resulted in a gain
of approximately $31,000. In addition, the Company sold a piece of real estate,
no longer needed by the Company, for approximately $72,000 resulting in a loss
of approximately $7,000.
7
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PART I ITEM 2. Management's discussion and analysis or plan of operation. The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company's results of
operation and financial condition. This discussion should be read in conjunction
with the financial statements in Item 1 and the Company's report on Form 10-KSB
for the period ended September 30, 1998.
RESULTS OF OPERATIONS
NET SALES. The Company's net sales for the three months ended March 31, 1999
decreased 2.2% to $3,366,664 as compared to sales of $3,440,896 for the
comparable three month period ended March 31, 1998. Net sales for the six months
ended March 31, 1999 decreased 4.7% to $5,718,998 from the comparable six months
ended March 31, 1998. The decreases were primarily due to slightly lower unit
sales prices partially offset by higher service revenues. The Company
anticipates that total revenue for fiscal 1999 will exceed fiscal 1998 levels.
GROSS PROFIT. The Company had a gross profit of $1,547,089 (46.0% of net sales)
for the three months ended March 31, 1999, compared to a gross profit of
$1,427,145 (41.5% of net sales) for the comparable period in 1998. The six month
totals were $2,589,864 (45.3% of net sales) and $2,527,846 (42.1% of net sales)
respectively. The increase in gross profit percentage is due primarily to higher
service revenues and a reduction in the amortization of capitalized software
development costs. During fiscal 1998, certain capitalized software development
costs became fully amortized. Accordingly, cost of goods sold for the three and
six month periods ended March 31, 1999 does not include amortization expense for
certain products that were in the comparable periods for fiscal 1998.
OPERATING EXPENSES. Operating expenses include research and development, selling
expenses and general and administrative expenses. Total operating expenses were
$1,194,437 for the three month period ended March 31, 1999 (35.5% of net sales)
compared to $1,415,535 (41.1% of net sales) for the comparable prior year
period. The six month totals were $2,275,503 (39.8% of net sales) and $2,880,763
(48.0% of net sales), respectively.
Operating expenses other than research and development were $954,335 (28.3% of
net sales) for the three month period ended March 31, 1999 compared to
$1,082,764 (31.5% of net sales) for the comparable prior year period. The six
month totals were $1,749,138 (30.6% of net sales) and $2,311,320 (38.5% of net
sales), respectively. The decreases of $307,454 and $562,182 for the three and
six month periods ended March 31, 1999 compared to the comparable prior year
periods were primarily due to planned decreases in salaries and wages and
associated benefits, and planned decreases in sales, marketing, advertising and
depreciation and amortization expenses. These were offset somewhat by the
increase in public company expense. The Company will continue to monitor
operating expenses to better match them with current and future revenue
opportunities. The Company expects operating expenses for fiscal 1999 to be
lower than fiscal 1998.
The Company's market position is based on its strong research capability and its
technology leadership, as evidenced by its growing customer base. The Company
has significantly increased expenditures for its combined research and
development and capitalized software development over the past two years.
Expenditures for research and development are included in operating expenses and
are charged to operations as incurred. These research and development expenses
during the three and six months ended March 31, 1999 were $240,101 and $357,239
respectively. During the comparable fiscal 1998 period reasearch and development
expenditures were $138,761 and $354,466 respectively. The increase over the
8
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prior year period occurred primarily as the result of several new scheduled
projects. Software development costs are capitalized after the establishment of
technological feasibility of new products. Capitalized software development
costs are amortized to cost of sales over the expected useful life of the
product, beginning when the first commercial sales are made. The recoverability
of capitalized costs is evaluated each quarter. Software development costs of
$469,378 were capitalized for the three month period ended March 31, 1999, and
$1,167,301 for the six months ended March 31, 1999. This compares to $681,349
and $1,204,564 for the comparable three and six month periods in fiscal 1998.
The decrease is due to the completion of Desktop Dispatch redevelopment,
completion of Phase I of the Symbol project and the completion of Phase I of
OpCenter(TM). The Company anticipates that expenditures for research and
development and capitalized software development will remain at fiscal 1998
levels during fiscal 1999 but increase during fiscal 2000.
INTEREST INCOME AND EXPENSES. Net interest expense for the three month period
ended March 31, 1999 was $39,589 compared to interest income of $26,338 in the
comparable prior year period. For the six month period ending March 31, 1999,
net interest expense was $78,444 and interest income of $59,079, respectively.
The Company anticipates that net interest expense will continue to increase as
the bank line of credit is used to support software development programs.
OTHER INCOME AND EXPENSE. During the period ending March 31, 1999 the Company
recorded a gain on the sale of assets related to its Peoria operation of
$31,470. This was partially offset by a loss, $7,042, on the sale of a Company
owned building.
INCOME TAXES. No income tax expense or benefit was recorded for the three and
six month periods ending March 31, 1999 due to no utilization of the Company's
net operating losses. Income tax expense for the three month period ending March
31, 1998 was $15,179. For the six month period ending March 31, 1998 an income
tax benefit of $117,535 was recorded.
NET INCOME. The Company recorded net income of $337,942 for the three month
period ended March 31, 1999, compared to net income of $22,769 for the
comparable 1998 period. The six month totals were a net income of $260,346 and
net loss of $176,303, respectively. Of the net income recorded for the three and
six month periods ending March 31, 1999, $24,428 was a net gain on the sale of
assets. The remaining $313,514 and $235,918 in the 1999 period was primarily the
result of lower operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had a working capital deficit of $1,064,054
compared to a deficit of $991,505 at September 30, 1998.
Cash flows provided by operating activities during the six months ended March
31, 1999 totaled $1,510,219 compared to cash used in operating activities of
$692,870 for the same period a year ago. Cash provided by operations for the six
months ended March 31, 1999 was primarily the result of a net income, and non
cash expenses, (depreciation and amortization of $815,918) a decrease in
accounts receivable and an increase in accounts payable of $435,050 and other
working capital items of $79,983
Cash flows used in investing activities were $651,392 for the period ending
March 31, 1999 compared to cash provided of $797,978 during the same period last
year. The cash used in investing activities was primarily for software
development costs and the purchase of fixed assets. These were partially offset
by the proceeds from the sale of assets.
9
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Cash flows used in financing activities were $645,145 during the six months
ended March 31, 1999 compared to cash provided of $15,000 during the same period
a year ago. The cash was used to reduce debt.
During fiscal 1999, cash will be required to meet working capital needs,
including inventory and accounts receivable financing, sales and marketing
expenditures, customer support, continuing research and development expenses and
capital expenditures. The Company believes that 1) cash from operations, 2) bank
line of credit, 3) current vendor terms, 4) the sale and planned sale of under
performing assets and 5) an infusion of new equity will provide adequate cash to
fund the delivery of its anticipated revenues and development needs for the
foreseeable future. Accordingly the Company has formally requested that the
"going concern" statement be removed from the Form 10-KSB dated September 30,
1998. Any significant new product development in the near term will require
external funding. The Company may not be able to secure external funding when
needed or at all, and such financing, if available, may not be on terms
favorable or acceptable to the Company.
FORWARD-LOOKING STATEMENTS
THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS.
ACTUAL RESULTS MAY DIFFER MATERIALLY. THESE FORWARD-LOOKING STATEMENTS INVOLVE A
NUMBER OF RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THE RECEIPT AND
SHIPPING OF NEW ORDERS FOR THE COMPANY'S CURRENT PRODUCTS; THE TIMELY
INTRODUCTION AND MARKET ACCEPTANCE OF NEW PRODUCTS; THE SUCCESSFUL AND TIMELY
DISPOSITION OF THE COMPANY'S NON-CORE BUSINESS UNITS AND THE DETERMINATION OF
WRITE-DOWNS, IF ANY, ASSOCIATED WITH SUCH TRANSACTIONS; RESEARCH AND DEVELOPMENT
FUNDING AT THE LEVELS REQUIRED; AND THE ABILITY TO SECURE AND MAINTAIN STRATEGIC
PARTNER RELATIONSHIPS.
10
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes In Securities -
On May 13, 1999 the Company sold 40,000 shares of Series A 8%
Convertible Preferred Stock for $15.00 per share. Under the
terms of the sale, the Company is to register the underlying
common stock within 30 days of the sale date. The sale was a
private placement to pre-qualified investors, individuals who
met annual income or net worth pre-requisites, for cash. No
underwriting fees or commissions were paid. The preferred
stock is convertible into common at the rate of 1 to 10. This
will result in a price per common share of $1.50.
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
The annual meeting of shareholders of the Company was held on
February 17, 1999. As of the record date, December 21, 1998
there were 4,418,133 shares of Common Stock issued and
outstanding. There were present and voting at the meeting, in
person or by proxy, 3,852,898 shares of Common Stock
(approximately 87% of the total issued and outstanding).
Matters voted upon and results thereof are as follows:
1. Election of Directors:
FOR AGAINST
Dennis R. Johnson 3,030,392 822,506
William P. Flies 3,765,123 87,775
Carl M. Fredericks 3,717,902 134,996
Roger Kleppe 3,764,223 88,675
Stephen Lawrence 3,546,569 306,329
2. Ratification of appointment of McGladrey & Pullen, LLP as
the independent auditors of the Company for the year ending
September 30, 1998:
FOR 3,816,823 AGAINST 12,555 ABSTAIN 23,520
----------- ----------- -----------
Item 5. Other Information
Subsequent Events -- On May 13, 1999 the Company sold 40,000
shares of Series A 8% Convertible Preferred Stock at $15.00
per share to pre-qualified investors. Total proceeds to the
Company were $600,000.
11
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Item 6. Exhibits and Reports on Form 8-K - Financial Data Schedule
* Exhibit 4.2 - Certificate of Designation of Series A
Convertible Preferred Stock
* Exhibit 27 - Financial Data Schedule
12
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 13, 1999 XATA Corporation
(Registrant)
by: /s/ Gary C. Thomas
---------------------
Gary C. Thomas
Chief Financial Officer
(Signing as Principal Financial and
Accounting Officer and as Authorized)
13
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION OF VOTING POWER,
PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF
SERIES A 8% CONVERTIBLE PREFERRED STOCK
OF
XATA CORPORATION
---------------------------------
Pursuant to Section 302A.401 of the
Minnesota Business Corporation Act
---------------------------------
XATA Corporation, a Minnesota corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article 3 of its Restated
Articles of Incorporation, as amended (the "Articles of Incorporation"), and in
accordance with the provisions of Section 302A.401 of the Minnesota Business
Corporation Act, the Board of Directors of the Corporation (the "Board of
Directors") at a meeting duly called and held on April 29, 1999, duly approved
and adopted the following resolution, which resolution remains in full force and
effect on the date hereof.
RESOLVED, that the Certificate of Designation with regard to the terms
of the Series A 8% Convertible Preferred Stock (the "Series A Preferred Stock")
is hereby approved by the Board of Directors of the Corporation and shall be
filed with the Minnesota Secretary of State in accordance with the Minnesota
Business Corporation Act.
SERIES A PREFERRED STOCK
The express terms of the Series A Preferred Stock are set forth below:
A. DESIGNATION AND AMOUNT. The shares of such series of Preferred Stock
will be designated as "Series A Preferred Stock," and the number of shares
constituting the Series A Preferred Stock will be 50,000.
B. LIQUIDATION PREFERENCE. In the event of either an involuntary or a
voluntary liquidation or dissolution of the Corporation, payment shall be made
first to the holders of the Series A Preferred Stock, in the amounts herein
fixed, before any payment shall be made or any assets distributed to the holders
of the Common Stock or any other class or series of the Corporation's capital
stock ranking junior to the Series A Preferred Stock with respect to the right
to receive dividends and the right to a distribution of assets upon dissolution,
liquidation or winding up of the Corporation (collectively the "Junior Stock").
The assets of the Corporation available for distribution to the holders of the
capital stock of the Corporation shall be distributed to such holders in the
following order of priority: (i) First, the holders of shares of the
Corporation's Series A Preferred Stock shall be entitled to receive out of the
<PAGE>
assets of the Corporation an amount equal to the Original Issue Price per share
(as such term is defined in paragraph C, below), plus all dividends unpaid and
accumulated or accrued thereon to the date of such distribution; and (ii)
Second, the holders of the Common Stock and any other Junior Stock shall be
entitled, to the exclusion of the holders of the Series A Preferred Stock, to
share in all the assets of the Corporation then remaining in accordance with
their rights vis-a-vis each other. If upon any liquidation or dissolution of the
Corporation the assets available for distribution shall be insufficient to pay
the holders of all issued and outstanding shares of the Series A Preferred Stock
the full amounts to which they shall be entitled, the holders of such shares
shall share pro rata in any such distribution.
C. CONVERSION RIGHTS. At the option of each holder thereof, each share
of Series A Preferred Stock, including all accrued but unpaid dividends, shall
be convertible at any time after the date of issuance of the Series A Preferred
Stock at the office of the Corporation (or at such other office or offices, if
any, as the Board of Directors of the Corporation may designate), into fully
paid and nonassessable shares of Common Stock. Each share of Series A Preferred
Stock shall be convertible into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Original Issue Price (as
hereinafter defined) for such share by the Conversion Price (as hereinafter
defined) in effect at the time for such share. The "Original Issue Price" shall
be $15.00, subject to appropriate adjustment to reflect combinations, splits, or
other adjustments affecting the Series A Preferred Stock as a class. The
"Conversion Price" initially shall be $1.50 but shall be subject to adjustment
from time to time as hereinafter provided. The following provisions shall govern
such right of conversion:
(1) MECHANICS. In order to voluntarily convert shares of
Series A Preferred Stock into shares of Common Stock, the holder
thereof shall surrender at any office hereinabove mentioned the
certificate or certificates evidencing such shares, duly endorsed to
the Corporation or in blank, and give written notice to the Corporation
at such office that such holder elects to convert such shares. Shares
of Series A Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day of the surrender
of such shares for conversion as herein provided, and the person
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of
such shares of Common Stock at such time. As promptly as practicable on
or after the conversion date, the Corporation shall issue and deliver
or cause to be issued and delivered at such office a certificate or
certificates for the number of shares of Common Stock issuable upon
such conversion.
(2) ADJUSTMENTS FOR SUBDIVISIONS AND COMBINATIONS. If the
Corporation shall at any time, or from time to time, effect a
subdivision of the outstanding shares of Common Stock, the conversion
ratio then in effect immediately before such subdivision shall be
proportionately increased and conversely, if the Corporation shall at
any time, or from time to time, combine the outstanding shares of
Common Stock, the conversion ratio then in effect immediately before
such combination shall be proportionately decreased. Any adjustment
under this subsection shall become effective at the close of business
on the date such subdivision or combination becomes effective.
(3) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE OR
SUBSTITUTION. If the Common Stock issuable upon the conversion of the
Series A Preferred Stock shall be changed into the same or a different
number of shares of any other class or classes of stock of the
Corporation, whether by capital reorganization, reclassification or
otherwise (other than by a subdivision or combination as provided for
elsewhere in this paragraph C), then and in each event the holder of
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each share of Series A Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock or
other securities and property receivable upon such reorganization,
reclassification or other change by the holders of the number of shares
of Common Stock into which each such share of Series A Preferred Stock
might have been converted immediately prior to such reorganization,
reclassification or other change, all subject to further adjustment as
provided elsewhere in this paragraph C.
(4) ADJUSTMENT FOR NASDAQ NATIONAL MARKET DELISTING. In the
event that the Corporation's Common Stock is no longer traded in the
Nasdaq National Market, and the average closing sale price (or average
of the bid-ask prices if there is no sale price) per share of the
Common Stock is less than $1.50 during the thirty (30) trading days
following the earlier of the Corporation's first public announcement of
such delisting or the effective date of delisting, then the conversion
price shall equal such average lower price effective upon the 31st day.
(5) RESERVATION OF STOCK. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock solely for the purpose of effecting the conversion of the
Series A Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect a conversion of any or
all of the issued and outstanding shares of the Series A Preferred
Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all
then issued and outstanding shares of the Series A Preferred Stock, the
Corporation shall take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
D. DIVIDENDS. The holders of shares of Series A Preferred Stock shall
be entitled to receive cumulative cash dividends at the annual rate per share
equal to 8% of the Original Issue Price before any dividends shall be paid on
any shares of Junior Stock. Such dividends shall be payable quarterly in arrears
on the last day of each calendar quarter. Such dividends on the Series A
Preferred Stock shall accrue from day to day whether or not declared and shall
be payable before any dividends on any shares of Junior Stock shall be declared
or paid or set apart for payment, and shall be cumulative (whether or not in any
dividend period there shall be funds of the Corporation legally available for
the payment of such dividends), so that if at any time dividends on the
outstanding shares of Series A Preferred Stock at said rate have not been paid
when due, or funds set apart for such payment, with respect to all preceding
dividend periods, the amount of the deficiency shall be fully paid or set apart
for payment (without interest) before any distribution by way of dividend or
otherwise shall be declared or paid upon, or set apart for, any shares of Junior
Stock. Dividends on shares of capital stock of the Corporation shall be payable
only out of funds legally available therefor.
E. REDEMPTION. The Corporation may, at any time and from time to time,
at the option of the Board of Directors, redeem all or any part of the issued
and outstanding shares of Series A Preferred Stock on any date set by the Board
of Directors by paying an amount per share equal to the Original Issue Price
plus all dividends unpaid and accumulated or accrued thereon to the date of
redemption.
In the event of a redemption at the option of the Corporation of less
than all of the issued and outstanding shares of the Series A Preferred Stock,
redemptions as among the holders of such shares shall be on a pro rata basis.
3
<PAGE>
The Corporation shall give notice by mail of redemptions to the holders
of record of the issued and outstanding shares of Series A Preferred Stock at
least fifteen (15) days prior to the date of redemption. The notice (i) shall
specify the date of redemption and the number of shares to be redeemed from each
holder and (ii) shall be addressed to each holder at his or her post office
address as shown on the records of the Corporation. Holders so notified shall be
entitled to exercise their rights of conversion under paragraph C, above, during
the 15-day notice period until 5:00 p.m. (Minneapolis, Minnesota time) on the
business day immediately preceding the date fixed for redemption (but only if
such rights have not expired as of the date of conversion). On the date fixed
for redemption, each holder of shares of Series A Preferred Stock called for
redemption shall surrender the certificate or certificates evidencing shares
which have not been converted to the Corporation at the place designated in such
notice and shall thereupon be entitled to receive payment. If less than all of
the shares represented by any such surrendered certificate or certificates are
redeemed, the Corporation shall issue a new certificate for the unredeemed
shares.
If the Corporation deposits, on or prior to any date fixed for
redemption of shares of Series A Preferred Stock, with any bank or trust company
having capital and surplus of at least $10,000,000 in Minneapolis, Minnesota, as
a trust fund, a sufficient sum to redeem, on the date fixed for redemption
thereof, the shares then called for redemption, with instructions and authority
to such bank or trust company to pay the redemption price on or after the date
fixed for redemption or prior thereto upon the surrender of the certificates
representing the shares then being redeemed, then and from and after the date of
such deposit, and notwithstanding that any certificate for shares so called for
redemption shall not have been surrendered for cancellation, the shares so
called for redemption shall no longer be deemed to be issued and outstanding and
all rights with respect thereto shall forthwith cease and terminate, except only
the right of the holders thereof to receive from such bank or trust company, at
any time after the date of such deposit, the sum so deposited, without interest.
Any funds so deposited and unclaimed at the end of six (6) years from such
redemption date shall be released or repaid to the Corporation, after which the
holders of the shares so called for redemption shall be entitled to receive
payment of the redemption price only from the Corporation.
F. NO VOTING RIGHTS. The shares of Series A Preferred Stock shall have
no voting rights except in certain circumstances as required by the Minnesota
Business Corporations Act.
G. REISSUANCE. Any shares of Series A Preferred Stock which are
redeemed by the Corporation shall not be reissued as Series A Preferred Stock,
but shall become unissued, undesignated shares of the authorized Preferred Stock
of the Corporation. Any shares of Series A Preferred Stock which are converted
to Common Stock shall cease to exist and shall not return to authorized unissued
capital of the Corporation.
H. PROHIBITIONS. While any Series A Preferred Stock is issued and
outstanding, the Corporation shall not undertake any action set forth in
subsections (1), (2), or (3) below without the prior written consent of all
holders of the Series A Preferred Stock then outstanding:
(1) Issuance of any shares of any class or series of capital
stock ranking on a parity with or having a priority over the Series A
Preferred Stock with respect to the right to receive dividends or the
right to receive a distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
or
(2) Declaration or payment of any dividend or other
distribution on any shares of Junior Stock, other than dividends or
distributions payable solely in shares of Junior Stock, or
4
<PAGE>
purchase, redemption or other acquisition for any consideration (other
than in exchange for or out of the net cash proceeds of the issue or
sale of other shares of Junior Stock or debt securities convertible
into other shares of Junior Stock) of any shares of Junior Stock (all
such declarations, dividends, purchase payments or other distributions
or allocations being herein called "Restricted Stock Payments"), unless
at the time of making, payment or declaration of the proposed
Restricted Stock Payment all dividend and redemption payments
applicable to Series A Preferred Stock have been currently satisfied;
or
(3) Amendment of the Articles of Incorporation of the
Corporation so as to alter any existing provision relating to the
Series A Preferred Stock.
IN WITNESS WHEREOF, the parties hereto have caused this Certificate of
Designation, or a counterpart thereof, to be duly executed, and their respective
corporate seals to be hereunto affixed and attested, all as of the day and year
first above written.
XATA CORPORATION
By /s/ Gary C. Thomas
-------------------------------------
Name: Gary C. Thomas
----------------------------------
Title: Chief Financial Officer
---------------------------------
Attest:
/s/ William P. Flies
- ------------------------------
5
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<CIK> 0000854398
<NAME> XATA CORPORATION
<S> <C>
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<PERIOD-END> MAR-31-1999
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0
0
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