FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1998
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to _________________
Commission file number: 0-27166
XATA CORPORATION
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(Name of small business issuer in its charter)
Minnesota
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(State or other jurisdiction of incorporation or organization)
41-1641815
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(I.R.S. Employer Identification No.)
151 East Cliff Road, Suite 10, Burnsville, Minnesota 55337
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (612) 894-3680
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year: $ 9,215,000.
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $ 4,085,343 based on shares held by non-affiliates as of December 21,
1998, and the closing sale price for said shares in the Nasdaq National Market
as of such date.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,418,133 shares of Common Stock, as
of December 21, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on February 17, 1999 (the "Proxy Statement") is
incorporated by reference in Part III of this Form 10-KSB to the extent stated
herein. Except with respect to information specifically incorporated by
reference in this Form 10-KSB, the Proxy Statement is not deemed to be filed as
a part hereof. Such Proxy Statement is not filed herewith, but will be filed
with the Commission not later than January 28, 1999. In addition, there are
incorporated by reference in this report on Form 10-KSB certain previously filed
exhibits identified in Part III, Item 13 hereof.
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TABLE OF CONTENTS
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PART I 1
Item 1. Description of Business 1
Item 2. Description of Property 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
PART II 19
Item 5. Market for the Common Equity and Related Stockholder Matters 19
Item 6. Management's Discussion and Analysis or Plan of Operation 20
Item 7. Financial Statements 24
Item 8. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure 24
PART III 25
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act 25
Item 10. Executive Compensation 25
Item 11. Security Ownership of Certain Beneficial Owners and Management 25
Item 12. Certain Relationships and Related Transactions 25
Item 13. Exhibits and Reports on Form 8-K 25
SIGNATURES 27
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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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL
XATA Corporation ("XATA" or the "Company") is the leading provider of
onboard technology to the fleet trucking industry. Founded in 1985 as an onboard
technology company, XATA today remains solely focused on developing and
delivering solution-based applications for the transportation industry. XATA
ONBOARD is the most powerful, advanced, intelligent, yet user-friendly onboard
computer system on the market. XATA ONBOARD seamlessly combines onboard
computing, real-time communications, global positioning, and fleet management
software to provide an enterprise-wide logistics management solution for
America's largest fleets.
XATA's state-of-the-art technology, strong customer base and
unparalleled commitment to customer satisfaction make XATA the leader in this
market. With 15 years of industry experience, over 350 fleets using its system,
and more than 15,000 units installed in the field, XATA continues to develop
leading-edge software solutions that deliver a significant and rapid return on
investment for its customers.
XATA Corporation was founded in 1985 by William P. Flies to design,
develop, and distribute computer information systems for use in non-office
operating environments. In December 1991, the Company obtained additional needed
capital through a merger with a publicly held entity. In late 1995, the Company
received net proceeds of approximately $4,945,000 from a public offering.
In August 1996, the Company purchased substantially all of the assets
of a business known as Payne & Associates ("Payne"), an unincorporated division
of Computer Petroleum Corporation, including software products that integrate
information, communication, and Internet based technologies for trucking
industry applications. Such products include Desktop Dispatch, SatMap WarRoom,
Dealer Locator, Internet Dealer Locator, Transportation Breakdown Management
System, and LoadTracker. This acquisition was intended to provide the Company
with capabilities in the development of Internet, Intranet and Windows(R)-based
applications software that complement the core functionality of the XATA Fleet
Management System and to broaden the portfolio of products the Company could
offer to the fleet trucking industry. In June 1997, XATA formed a new
unincorporated business division, XATA Enterprise Technologies (XET), using
personnel and products XATA acquired from Payne. During the fourth quarter of
1997, the Company completed an evaluation of the recoverability of assets
(primarily purchased software and goodwill) acquired from Payne in August 1996
resulting in a fourth quarter 1997 charge of approximately $1.8 million. See
"XATA Enterprise Technologies" below.
In October, 1996, the Company acquired all of the issued and
outstanding equity securities of
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Key Logistics, Inc., a company which developed a PC Windows(R)-based software
known as RouteView that automatically sequences and optimizes delivery routes on
a daily basis. RouteView generates computer-rendered maps that display each
delivery location on a route, sequences delivery locations to minimize mileage,
and provides tools for the dispatcher to modify routes as necessary. The name
"Key Logistics" is no longer in commercial use and Key Logistics' operations
have been consolidated into the Company; however, Key Logistics, Inc. currently
remains as a wholly owned subsidiary of the Company. RouteView is sold and
marketed as both a stand-alone software package and as an integrated component
of the XATA System.
The Company incurred a significant loss in 1998, following a
significant loss in 1997. The 1997 loss is attributable principally to the write
down in value of assets acquired from Payne (now XET). The 1998 loss is
attributable principally to loss of sales of XET products which did not perform
to customers' expectations, as well as other factors, such as the Company's
inability in 1998 to deliver Windows NT-based fleet management software and
real-time communication capabilities being sold by competitors, and customers'
special Year 2000 concerns. During the first quarter of fiscal 1999, the Company
reassessed its products and operations and decided to direct its product
development and marketing efforts to areas of its core competencies. The Company
further determined that the XET and RouteView products, although complementary
to its core products, do not significantly impact its core competencies and, in
general, are not integral to the Company's plans for second generation product
development, as formulated in the first quarter of fiscal 1999. Accordingly, the
Company is considering discontinuing these product lines and operations through
sale of one or both of these business units.
THE TRUCKING INDUSTRY
The trucking industry, with annual revenues around $300 billion, is the
major component of the transportation sector of the United States economy,
accounting for 78% of the nation's freight bill and 5% of the GDP. Published
economic forecasts indicate that the trucking industry's share of the total
transportation market in the United States is likely to remain relatively
stable. Private carriers and for-hire carriers traditionally have comprised the
two major fleet categories within the trucking industry. Private carriers are
manufacturers, wholesalers, merchants and other companies who transport their
own goods using equipment that they own or lease. For-hire carriers are
companies whose primary business is trucking and who transport freight that
belongs to others. Today, however, the functions of for-hire and private
carriers are evolving to include services which address more than merely
delivery, resulting in the rapidly growing market segment of logistics.
Logistics providers manage a portion or all of the transportation and logistics
for businesses that choose to outsource as part of their operation.
The Company believes that the following trends are significantly
impacting the trucking industry and are resulting in increasing competitive
pressures and an accelerated rate of change:
1. Further industry consolidation, as shippers demand more
service and logistical management. Only the most efficient
companies will survive.
2. Continued growth of outsourcing and leasing arrangements as
manufacturers consider the expense of maintaining their own
fleets.
3. Further legislation on driver health, safety, and the
environment (including stricter hours-of-service regulations),
which will drive up the cost of compliance.
4. Continued revolutionary changes in trucking technology which
are creating capabilities
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that are becoming required standard features for all truck
operations; for example, in cab communications capabilities.
5. Continued shortage of qualified drivers for heavy-duty
trucking operations.
6. Continued emphasis on effective management of the movement of
goods from the source of supply to the final customer (supply
chain management).
7. Continued blurring of the distinctions between traditional
segments of the trucking industry as many fleets begin acting
as broad-based transportation providers.
Management of the Company believes that there is, and will continue to
be, significant demand in the transportation industry for onboard technology,
principally because the use of this technology enables trucking companies to
both respond to competitive pressures with significant cost savings and to
deliver increased levels of customer service.
TARGET MARKET
XATA's current target market consists of the approximately 2.9 million
Class 6, 7 and 8 "heavy duty" trucks which are designed to carry large amounts
of cargo over long distances. To date, XATA has concentrated its sales and
marketing efforts on trucking, transportation and logistics companies operating
fleets of 25 or more vehicles, which include approximately 61% of the heavy duty
trucks in operation. The Company believes there is an increasing demand by the
management of these fleets for improved fuel economy, productivity, and
profitability.
Heavy duty commercial trucking fleets are characterized by a
significant investment in equipment, valuable cargo, relatively high operating
costs, significant annual mileage per vehicle, and extensive federal and state
compliance reporting requirements. In general, any fleet with ten or more
vehicles has a sufficient capital investment in fleet equipment and related
operating costs to require the services of a fleet manager to ensure efficient
deployment of the fleet's assets. Investment in equipment includes the cost of
each tractor, at an average cost of $75,000, and each trailer, at an average
cost of $25,000. Heavy duty vehicles typically travel 100,000 miles per year
with fuel economy figures of five to seven miles per gallon ("mpg"), and fuel
costs may average $18,000 per year. These costs, plus driver costs exceeding
$0.40 per mile, insurance costs of up to $5,000 per vehicle per year, and
expenses related to maintenance, dispatchers, safety directors, clerical support
and support equipment make the efficient operation of each vehicle an essential
and complex part of fleet management. Accordingly, accurate and timely data
collection and analysis is necessary to enable fleet management to sustain and
increase profitability.
In addition to management information needs, extensive operational data
collection and reporting is mandated by federal and state agencies. For example,
the Federal Highway Administration (FHWA) imposes strict work hour rules on
drivers and requires maintenance of driver logs. Drivers of hazardous loads are
subject to additional regulation and documentation requirements. Failure to
maintain legally required driver logs can result in the permanent revocation of
a driver's commercial drivers license, substantial fines and, in the case of an
accident, potential liability for the trucking company and its management.
Although insurance companies and other safety-minded organizations are lobbying
to mandate electronic logs to improve the accuracy of recordkeeping, there is no
assurance that legislation or regulation mandating such logs will be adopted in
the near future. FHWA regulations currently allow, but do not require, onboard
electronic driver logs.
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Extensive federal regulation of the industry is supplemented by
regulation by each of the 50 states. In general, each state requires that each
vehicle pay state fuel taxes based on the amount of fuel that is consumed while
in that state. Compliance requires the driver to record state border crossing
information and fuel purchase information. Many long haul vehicles cross up to
25 state borders per week, resulting in significant paperwork for the driver,
the clerical staff of the carrier and the carrier's fuel tax return preparer. To
complicate an already large paperwork requirement, these records must be
maintained at the vehicle domicile location (i.e., home base for a fleet of
trucks) and at the carrier's headquarters for access by state fuel tax auditors
and by federal driver log compliance personnel.
COMPETITION
Until the late 1970's, when Rockwell International introduced a product
called the TripMaster, onboard driver information was limited to engine gauges
and rudimentary tachographs. The TripMaster is an electronic version of the
tachograph that records road speed and engine speed in an electronic memory
rather than on paper. This data can be retrieved by numerous means, such as
cables or computers, and can be transferred to office equipment for presentation
in a format more readable than that produced by the tachograph. Other suppliers
of electronic tachograph equipment followed suit with similar products. Several
engine manufacturers also market systems that provide limited fuel and vehicle
performance information directly from the ECM (electronic control module) in
electronic engines to the fleet and driver. In the mid-1980's, CADEC Systems,
Inc. (which was later acquired by Cummins Engine Company, a large manufacturer
of truck diesel engines) appeared in the market with the first onboard driver
interaction product, consisting of a keyboard containing a single line screen.
In 1997, Eaton Corporation, a major manufacturer of commercial truck components,
commercially introduced Fleet Advisor, the first system to integrate onboard
computing with real-time communications.
Sophisticated onboard communication systems were introduced to the
heavy duty trucking market in 1987 for the purpose of providing nationwide
two-way communication between vehicles and management sites. Today, Qualcomm,
Inc., a California-based company that produces and markets a satellite based
vehicle tracking and communication system, has captured a significant portion of
the onboard communications market. HighwayMaster Communications, Inc., a
Texas-based company, has introduced a nationwide cellular-based communication
system that provides both voice and data transmissions. Although communication
systems are traditionally not in direct competition with XATA's products, and
are, in fact, complementary to XATA's system, they compete for a fleet's
"technology budget." XATA believes that trucking fleets that purchase
communication systems will eventually augment those systems with the
capabilities of an onboard system such as the XATA system, and conversely, that
those who purchase the XATA onboard system may augment that system with the
purchase of a complementary communication system. Therefore, the Company is
working to provide its customers with a total integrated solution bydeveloping
communication capabilities and solutions internally and by establishing
strategic relationships, such as its current relationships with Bell South and
Symbol Technologies.
The Company believes that the nature and sources of competition in its
industry are rapidly evolving and, in the future, that these changes will
require it to adapt its existing products and to develop new products which
facilitate the collection, communication and processing of onboard information
throughout the transportation network and the entire supply chain. This may
entail the development of new technologies and the adaptation of new and
existing products to be compatible with products and services provided by others
in the industry, including others who may be considered competitors of the
Company in one or more lines of business.
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DESCRIPTION OF THE COMPANY'S PRODUCTS AND SERVICES
XATA ONBOARD is a state-of-the-art onboard information system that
integrates onboard computing, real-time communications, global positioning, and
advanced fleet management software into an enterprise-wide logistics solution
for the fleet trucking industry.
Transportation professionals are increasingly turning to onboard
technology in order to improve fleet productivity and profitability. XATA
enables these professionals to achieve measurable improvements by integrating
onboard technology into the fleet management process. The XATA system features
ease-of-use and extensive functionality not found in competitors' products. This
has led to its use by such nationally known fleets as AmeriServe, BOC Gases,
Coca Cola, EOTT, Safeway, Supervalu, Ruan, Ryder, Penske, Unisource, and
Whirlpool.
XATA's onboard computer is an essential productivity tool for the
professional driver that helps him contribute to the overall success of the
company. The onboard computer and powerful fleet management software unifies
drivers and fleet managers into a single team with the power to drive out cost
and drive up service.
SYSTEM COMPONENTS
The XATA System consists of six basic components:
o Mobile Application Server
o Driver Computer
o Data Station
o Driver Key
o OpCenter(TM)
o SmartCom(TM)
Each component of the XATA System has a basic function that it performs as part
of its role in the total system.
Mobile Application Server
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The Mobile Application Server (MAS) is the most technologically advanced onboard
computer available on the market today. The MAS and our Driver Computer form an
advanced client/server architecture that extends the life of the customer's
existing onboard computer system and enables the deployment of new applications
in the future using this powerful platform.
Using this client/server architecture, the MAS contains and executes multiple
onboard applications in a multi-tasking real time environment while providing
extensive connectivity to vehicle networks, peripheral devices, and other server
devices. The MAS serves as the primary application platform for XATA's onboard
computer system by:
o providing processor and memory resources for more advanced
applications.
o supporting connectivity to multiple peripheral devices.
o providing the architecture to support the use of GPS and real-time
communications.
o increasing the level of systems integration in the vehicle.
o creating an architecture that is modular, scaleable, expandable,
and open.
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The Mobile Application Server is physically small, about the size of a box of
diskettes, but contains a powerful 486-class microprocessor, flash disk, memory,
backup battery power, a real time clock, an Ethernet port, and a Controller Area
Network (CAN) port. In addition, the Mobile Application Server contains three
RS-232 serial I/O ports, two of which can be either RS-485 ports or RS-232 ports
and an internal 12 Channel GPS receiver.
These servers are built to live in the harsh world of heavy-duty vehicles and to
handle the concurrent events that occur in those vehicles. They are controlled
by pSOS, a popular multi- tasking, real-time operating system, which manages
multiple applications that function in a client/server architecture. TCP/IP
application interfaces are employed throughout the system.
Driver Computer
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The Driver Computer has a large, touch-sensitive, easy to read, user friendly
screen which provides instant feedback to the driver. It requires little
training and interacts with the driver, who simply touches the screen. The
Driver Computer has a very high level of acceptance among drivers not only
because it is easy to use, but because it makes the job easier and, in fact,
acts as an onboard advisor in a number of ways. For example, the Driver Computer
creates a paperless interactive trip plan, paperless state fuel tax data
capture, and a DOT certified paperless driver's log. In addition, the XATA
system gives the driver important information about each day's routes. The
system tells the driver where to go, when to be there, and what to do. The trip
plan is always available for the driver's review. All data that is captured by
the Driver Computer is presented to the driver first, and the driver can read
and interact with the system at all times.
Driver Key
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Each driver has an electronic key which stores the driver's identity, the
driver's log, dispatch data, and trip data. It has the capacity to hold multiple
trips. Besides serving as a data storage device, the Driver Key transports
information to and from the Driver Computer and Data Stations for collection
purposes, utilizing the key receptacles built into both devices.Because each key
contains a computer memory chip, the Driver Key provides a portable, powerful,
efficient and secure method for transporting information in a paperless,
electronic format.
Data Station
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Data Stations contain the same hardware as the Driver Computer, but utilize
different software. The Data Stations are located where trips begin and end. The
data station gives the driver his dispatch data on a Driver Key at the beginning
of trips and offloads actual trip data from the driver's key at the end of
trips. The Data Station connects directly to a PC or to a modem, giving the user
the capability to transfer information to or from his PC or from any remote
site. Drivers can access the Data Station at any time, allowing them to operate
on their schedule without the need to physically interchange paper with
management.
OpCenter Fleet Management Software
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OpCenter operates in an open, multi-user, Windows NT environment, and collects,
validates and processes data recorded by a fleet's network of XATA onboard
computers - then stores the information in an open SQL database for further
analysis and reporting. It also automatically delivers this information in a
user-friendly, intelligent format over an interactive desktop interface.
OpCenter provides a decision support system for the entire distribution team
that reduces operating costs, improves safety, streamlines compliance reporting,
and automates data collection for other systems.
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By integrating all fleet operations under one Windows NT-based desktop, this
family of intelligent applications helps users more efficiently measure fleet
performance, resolve exception conditions, monitor ongoing operations and
perform detailed analysis when time permits.
The OpCenter modules - Frontline(TM), Control Center(TM), Courier Station(TM)
and Task Force(TM) - are tailored to specific job functions:
o Frontline. Frontline streamlines data collection, processing and reporting
through automatically generated, standard reports.
o Control Center. Control Center controls security, configuration and system
management, and can be customized to meet the needs of a single site or an
enterprise-wide distribution network.
o Courier Station. Courier Station is a powerful communications management
application that collects and distributes data to wired and wireless
networks including spread spectrum, terrestrial and satellite networks.
o Task Force. Task Force is a collection of fleet management applications
designed to support information delivery and analysis.
OpCenter fleet management software provides access to all of the information
captured by the Driver Computers. The software serves as an expert system that
learns the important factors in the fleet's operation. It collects trip
information from the Data Stations and oversees every aspect of dispatch, cargo
management, and driver management. The data import and export capabilities
provides the carrier headquarters with compliance data and domicile comparisons.
In addition, OpCenter provides the user's MIS department with accurate data for
billing, payroll, incentives, and routing. OpCenter uses its learned knowledge
and the customer's guidelines to detect and report exceptions. Automatic
reporting, structured specifically by each customer, provides the user with
predefined information on a consistent schedule. More extensive detail reports
are also available when the user needs to "drill down" into the detail for any
reason.
With more than 100 standard reports, and a powerful query tool that lets users
create customized graphical reports, OpCenter provides instant access to the
information and analysis fleet managers need. XATA's OpCenter suite is currently
the only fleet management software on the market that automatically retrieves,
transforms and delivers onboard information throughout the enterprise in an
intelligent, interactive, exception-based format.
In addition to OpCenter's four modules, users may also select optional software
applications to expand OpCenter's capabilities to meet their individual needs.
These optional system applications are described in detail further below.
SmartCom
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SmartCom(TM) is a suite of communications applications that complement XATA's
industry-leading onboard logistics applications and fleet management software.
SmartCom provides intelligent and immediate access to critical onboard
information at multiple levels within fleet operations by integrating
"real-time" communications throughout XATA's suite of logistics applications.
XATA uses a "least cost, network independent" approach to deliver SmartCom's
communications capabilities. SmartCom's real-time notification is triggered by
onboard exception conditions, defined and selected by users, ensuring only
critical information is reported to fleet management.
By detecting and processing exception conditions onboard - 'in-the-truck' -
instead of back at the office,
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customers minimize transmission costs and control the recurring communication
charges that can negatively impact return on investment.
By enabling real-time identification and communication of exception conditions,
SmartCom helps drivers, dispatchers and fleet managers work together to improve
customer service and operating efficiency. SmartCom's inherent design minimizes
message size and traffic by providing only critical information with the most
operational benefit.
XATA's SmartCom provides customers with the flexibility to choose from several
different communication modes to find the least costly, most efficient means to
send and receive fleet information. XATA is the only company that allows
customers to select logistics applications independently from a communication
network. Vendors that own their network or resell air-time for profit are not
minimizing cost for their customers. XATA designs its logistics applications to
minimize transmission costs through the intelligence built into the system.
SmartCom applications will operate on any communication network that the
customer may choose. With this approach the customer has the flexibility to
deliver information in a "least cost" manner via several different modes:
o Data Key - allows the upload and download of trip data via a no-cost
"batch" method at the beginning or end of trips. XATA collects and
processes detailed driver and vehicle data, a majority of which is not
relevant to "real-time" operating decisions.
o Yard Express - allows fleets to communicate at no cost with in-yard
wireless technology.
o Bell South - This terrestrial network allows low-cost communication in
metropolitan areas containing 93% of the US population.
o Other WAN modes - Satellites offer complete, continuous coverage anywhere
in the world.
SYSTEM APPLICATIONS
The XATA system offers functionality unmatched by any other system on the market
today, including the software applications described below:
Onboard Fuel Management
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Every XATA Driver Computer has "real time" fuel management. Fuel consumption is
sensed 10 times per second, electronically captured, and continually displayed
for the driver. Drivers can use this information to alter speed and gear
shifting to improve fuel economy.
Onboard Electronic Logs
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Every XATA Driver Computer automatically maintains a complete electronic driver
log that complies with Department of Transportation regulations. No paper record
must be produced by the driver. Driver logs can be recalled for the prior 8 days
at any time and the driver's available driving time is constantly displayed.
Electronic State Fuel Tax
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All of the electronic data concerning fuel consumption is captured by the Driver
Computer and transferred directly to the customer's fuel tax processor. All fuel
consumption and mileage driven is electronically captured, and all fuel
purchases by state and all state crossings are entered by the driver as they
occur.
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Electronic Tachograph
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This one-of-a-kind system turns the XATA Driver Computer into a high-tech speed
recorder. It can record and report a second-by-second, foot-by-foot analysis of
any vehicle's speed data, at any time and at any location, and it lets the
customer create precise reports of speed, speed changes and distance for any
unit in the fleet.
Smart Route
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Every XATA Driver Computer is capable of receiving complete trip plan data from
the Route Dispatcher subsystem, and during the route, collects comprehensive
stop and leg information. This allows for comparison between planned and actual
data. The Driver Computer can receive dispatch data that guides drivers through
their routes with step-by-step instructions.
Exception Management
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XATA's expert system software works in the background of OpCenter analyzing
every event, then offering suggestions to improve productivity. The customer is
relieved of the time intensive, error prone task of manually processing
information, since the XATA system alerts the user to only the problems that
occur. "Management by exception" allows operations personnel to spend more time
interacting with drivers and customers and less time dealing with all of the
information being collected. This type of decision support is currently only
available from XATA.
Onboard Tables
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Every fleet has terminology that is specific to its operation. Every XATA Driver
Computer gives a customer the ability to create and download customized tables
with information specific to the fleet's operation, including cargo lists, delay
tables, unplanned events, notes, and many more.
Smart Standards
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The XATA System compiles a learned operational standard for every element of a
customer's fleet, including: locations, legs, routes, drivers and power units.
This "learned history" can be used to establish exception reporting guidelines
or used as an ongoing measurement against the standards set by fleet management.
Positon Plus GPS
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Position Plus(TM) is a suite of application software that uses a Mobile
Application Server with a built-in GPS (Global Positioning System) receiver to
add the date, time and vehicle position to traditional onboard computer data in
order to enhance and extend the benefits provided by the XATA system. Position
Plus(TM) consists of four applications:
1. Hands Free State Crossing--automatically acquires and records vehicle
locations at state line crossings to support completely automated fuel tax
reporting.
2. GPS Logs--automatically acquires and records vehicle position at driver log
status changes to support automated driver logs.
3. GPS Locations--automatically acquires and records vehicle position during
trips to identify customer, fueling, rest, and service stops.
4. Onboard Compass--vehicle direction is available to assist the driver when
traveling unfamiliar routes via a compass heading displayed on the Driver
Computer.
Yard Express
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Yard Express(TM) provides wireless communication with drivers while they are in
a yard, whether local or remote, and is intended to decrease the amount of time
needed to perform typical yard activities. Yard
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Express combines local area radio communications with XATA's Driver Computer and
Fleet Management System to expedite the data collection and dispatch process and
improve the efficiency of the driver.
In the vehicle, Yard Express utilizes a XATA Driver Computer, Mobile Application
Server, and a spread spectrum radio to allow the driver to transfer trip data
and receive new dispatch data in the yard without leaving the vehicle. In the
dispatch office, Yard Express utilizes the XATA Fleet Management System, a
PC-based communications server, and local area radio hardware to allow the
dispatcher to queue information to the drivers and to allow the drivers to
receive this data via the radio network.
Smart Check
- - -----------
SmartCheck automates check calls, enabling dispatchers and fleet managers to
automatically receive updates from drivers when pre-defined conditions or events
occur, or to request an update from SmartRoute, an integrated dispatching
application that monitors route progress.
Smart Messaging
- - ---------------
SmartMessaging streamlines two-way messaging between drivers and fleet
operations by predefining the most common messages, and providing a means to
send free form text messages when necessary.
Fleet Incentives
- - ----------------
Create incentive programs tailored to fleet objectives for all drivers, specific
drivers or the entire fleet management team.
Multiview
- - ---------
Expands the capabilities of OpCenter to handle the measuring, monitoring and
management of multiple fleets and multiple operations within the same database.
Custom Commands
- - ---------------
Allows the fleet to define and use up to eight new commands and associated data
screens for the Driver Computer to allow the customized collection of fleet
specific information.
Tanker Manager
- - --------------
Tanker Manager software allows drivers and fleet managers to use the power of
the XATA system to accurately capture inventory data during bulk deliveries of
gases and liquids. The software also does all calculations for the driver and
performs validity checks on the data entered. The resulting improvement in
inventory management means fleet managers can provide their customers with
better service while optimizing delivery and production schedules and reducing
driver paperwork.
XATASERV
XATAServ is the Company's comprehensive customer service and technical
support program, offering a wide range of support options designed to provide
customer-focused solutions for operation of the XATA System. The mission of
XATAServ is to develop, communicate and deliver a comprehensive goal attainment
and support program that ensures the customer's success with the XATA system by
providing the tools, training and knowledge necessary to identify and maximize
their return on investment. XATAServ is typically purchased at the time of the
initial order and provides assistance in all areas, beginning with rollout and
installation, and including training and support of ongoing operations. The
XATAServ program is in addition to the limited warranty included in the base
price of the system.
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XATA also offers management-level consulting services to provide
clients with information and advice on how to improve their usage of the XATA
system. These advanced training services are different from the basic training
and support service for front-line staff. XATA's consultants advise management
on how to use the advanced capabilities of the XATA system to reduce operating
costs and increase savings. They help answer critical questions about
interpreting data and detecting trends that require more extensive experience
and expertise than technical support.
XATA ENTERPRISE TECHNOLOGIES (XET)
XATA Enterprise Technologies (XET), an unincorporated division of XATA,
is built primarily around personnel, products and technological expertise from
Payne. XET's principal products are Desktop Dispatch and Transportation
Breakdown Management System. These products are "stand alone" products. While
these products are complimentary to the Company's core onboard business, they
are not a critical part of that business.
DESKTOP DISPATCH allows a dispatcher to manage the entire dispatch
process using one application, from order entry, to equipment tracking and
trailer management, through final invoicing. Desktop Dispatch lets dispatchers
place orders, build trips, assign and track drivers and equipment, and optimize
loads. It allows dispatchers to manage more operational functions and receive
and post orders faster and more accurately with the same resources they have
today.
TRANSPORTATION BREAKDOWN MANAGEMENT SYSTEM (TBMS) seamlessly integrates
Internet Dealer Locator and Breakdown Call Report to provide complete emergency
breakdown management from locating service, to providing a paperless work order
system for managing service calls. It reduces response times, phone expenses and
paperwork, tracks replacement part warranties and provides a detailed asset
history.
During the fourth quarter of 1997, the Company completed an evaluation
of the recoverability of assets (primarily purchased software and goodwill)
acquired from Payne in August 1996. During fiscal 1997, following the
acquisition, the largest customer of Payne was unexpectedly acquired by another
company, resulting in the loss of this customer's business and a corresponding
decrease in the revenue stream upon which the software and goodwill values were
based. In addition, the loss of this customer required the Company to
substantially modify the acquired software for marketing and sale to others. As
a result of these events, management of the Company determined that the
Company's investment in Payne was severely impaired and that the value of the
remaining products being sold by the Company was approximately $200,000.
Accordingly, the goodwill and acquired software relating to the Payne
acquisition were written down to this estimated value, resulting in a fourth
quarter 1997 charge of approximately $1.8 million.
ROUTEVIEW
In October 1996, the Company acquired all of the capital stock of Key
Logistics, Inc., which is currently a wholly-owned subsidiary of the Company.
Key Logistics' principal product is RouteView, a PC Windows(R)-based software
system that automatically sequences and optimizes delivery routes on a daily
basis. RouteView generates street-detailed maps that display each delivery
location on a route, sequences delivery locations to minimize mileage and
provides tools for the dispatcher to modify routes as necessary. RouteView is
designed to both duplicate and automate the everyday tasks and tools of the
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routing process in a way that is simple, understandable, and easy-to-use.
RouteView assigns stops to routes based on geographic territory, then sequences
stops within these routes to minimize miles in the same manner as a dispatcher
performing these tasks manually. Additional RouteView Tools allow the user to
view the effects of route changes before implementation.
In September of 1997, the Company introduced a 32-bit version of its
RouteView(TM) software. Compatible with the Windows 95(R) and Windows NT(R)
platforms, the new version of this map-based software processes stops and
optimizes routes within a familiar, point-and-click interface. The new version
of RouteView also features an interface with XATA's onboard computer system.
RouteView's main functions include verifying addresses with its
powerful address-location system, assigning stops to individual routes,
sequencing stops within routes, optimizing routes to achieve minimum mileage,
balancing routes to maximize the use of assets and calculating estimated time of
arrivals (ETAs). It also prints street-level maps and manifests for drivers that
include addresses and ETAs for each stop as well as notes on special or
time-sensitive stops.
YEAR 2000 ISSUE
The Company has investigated the impact of the Year 2000 issue on both
its own internal information systems and the products it develops, markets and
sells. During fiscal 1996, the Company purchased from a world-wide supplier and
developer of information systems an enterprise-wide information system with
written assurance from the developer that the system will correctly function
across the year 2000, as verified by previous systems tests. During fiscal 1997,
the Company reviewed all of the products it develops, markets and sells. The one
product that was not Year 2000 compliant was scheduled to be modified to be
compliant at a nominal cost before the end of fiscal 1998. This product was
modified and is now Year 2000 compliant. Therefore, Year 2000 is not expected to
have a material effect on the Company's financial position, operations or cash
flow
MARKETING
XATA sells its onboard computer systems to the fleet trucking industry
and logistics providers nationwide through its direct sales force and several
OEM agreements. The efforts of the direct sales force are supported, when
necessary, by systems engineers, who have a strong working knowledge of the
typical hardware and software configurations required by fleet operations, and
by technical support representatives with experience in integrating the XATA
system into fleets in similar industries under similar operating conditions.
XATA is currently focusing its sales and marketing efforts on transportation and
logistics companies operating fleets of 25 or more vehicles within specific
vertical markets that have experienced significant benefits with the XATA
system, including food distribution, petroleum production and marketing,
manufacturing and processing, and retail/wholesale delivery.
The Company uses a combination of integrated marketing activities,
including but not limited to advertising, trade shows, the Internet, and direct
mail to gain exposure within the marketplace. The Company uses exhibits at
selected industry conferences to promote XATA name awareness, demonstrate its
products, and obtain additional sales opportunities. XATA also actively pursues
speaking opportunities at such trade shows for its customers who have gained
efficiencies in fleet operations using the Company's technology.
12
<PAGE>
MAJOR CUSTOMERS
Net sales during the fiscal years ended September 30, 1998 and 1997 to
customers who accounted for more than ten percent of revenue in either of such
years are as follows:
Years Ended September 30,
---------------------------------------
1998 1997
---------------------------------------
Percent of Net Sales
---------------------------------------
Safeway, Inc. 17% *
Ryder Systems, Inc 16% 15%
Ameriserve Food Distribution, Inc. * 14%
* Net sales were less than ten percent of total net sales.
Although the Company anticipates growth in its customer base as its
sales volume increases, it is likely to continue to be dependent in the near
future on a few major customers who may change from year to year. Loss of any
major customer or failure to expand the Company's customer base could adversely
affect the Company.
MANUFACTURING, PRODUCTION, AND QUALITY CONTROL
The Company subcontracts the manufacture and assembly of its major
components, pursuant to the Company's specifications. All such suppliers have
entered into confidentiality agreements with respect to the Company's
proprietary technology used in manufacture and assembly. Although such suppliers
provide necessary labor and material components, the Company performs inventory
management, quality control management, and final system downloading at XATA's
facility. XATA believes its current suppliers can provide production volumes to
meet its anticipated increases in product demand and is not aware of any
difficulty experienced by its suppliers in obtaining raw materials for
manufacture. Other than purchase orders, the Company has no written supply
agreements with its suppliers.
PATENTS, TRADEMARKS, AND COPYRIGHTS
"XATA" is a trademark registered with the United States Patent and
Trademark office. All computer programs, report formats, and screen formats are
protected under United States copyright laws. In addition, the Company has been
issued a design patent by the United States Patent and Trademark Office which
covers the design of its computer display. The Company's software programs have
not been patented. The Company claims trademark and tradename protection for the
following: OpCenter, SmartCom, RouteView, Desktop Dispatch, and Transportation
Breakdown Management System. The Company intends to protect and defend its
intellectual property rights vigorously.
RESEARCH AND DEVELOPMENT
The Company's market position is based on its strong research and
development capability and its market technology leadership. Management believes
that product development must continue in order to maintain this market
position, to integrate industry requirements, to respond to market
opportunities, and to keep abreast of technological change, which is expected to
continue at a rapid pace. The Company employs systems engineers who are engaged
in numerous development projects led by
13
<PAGE>
William P. Flies, the Company's founder and Chief Technical Officer. Along with
customer-driven requirements, much of the impetus to adopt new technologies will
come from logistics providers, suppliers, shippers, government, and other
non-industry influences that are endorsing the use of reliable, low-cost
technologies to increase overall industry efficiency. These new technologies
include global positioning systems, onboard communications (cellular, satellite,
wireless, paging), and trailer identification. Research and development expense
was approximately $750,000 for fiscal 1998 and $828,000 for fiscal 1997.
Capitalized software development costs were $3,057,000 for fiscal 1998 and
$1,154,000 for fiscal 1997.
EMPLOYEES
As of September 30, 1998, XATA's staff included 76 employees and 11
contractors. Although employees are organized as an integral XATA team, their
primary assignments, including independent contractors, are as follows: 15 in
administrative, finance, and MIS; 24 in sales, marketing, and customer service;
3 in logistics; and 45 engineering, product design, and development.
RISK FACTORS
RECENT LOSSES; LIMITED HISTORY OF PROFITABLE OPERATIONS. The Company
incurred a loss of $4,249,000 for the fiscal year ended September 30, 1998, and
a loss of $2,421,079 for the fiscal year ended September 30, 1997. From
inception in 1985 through the fiscal year ended September 30, 1994, the Company
focused its efforts primarily on product development and had only limited
product marketing and distribution, incurring a cumulative loss of $5,809,000.
The Company experienced operating profits beginning in the fourth quarter of the
fiscal year ended September 30, 1994, and continuing throughout the fiscal year
ended September 30, 1996. Although, as of the date of this Report on Form
10-KSB, the Company expects to return to profitability in fiscal 1999, there can
be no assurance that profitability will be restored or sustained.
NEW AND UNPROVEN BUSINESS PLAN. In the first quarter of fiscal 1999,
the Company reassessed its product lines and its operations in light of the
losses incurred in 1998 and 1997 and adopted a plan to spin-off products and
services (principally XET and RouteView products and services) identified as
falling outside of its core competencies. Implementation of this plan and the
redeployment of resources within the Company may take up to 12 months and may
involve sales of business units, sales and subleasing of equipment and
facilities, lay-offs of employees, re-assignment of existing employees and other
actions which, in general, may be disruptive to existing operations.
DEPENDENCE ON KEY CUSTOMERS. Historically, the Company has sold large
orders to individual fleets and thus has been dependent upon a few major
customers each year whose volume of purchases is significantly greater than that
of other customers. During the fiscal year ended September 30, 1998, two (2)
customers, together, accounted for approximately 33% of net sales. During the
fiscal year ended September 30, 1997, two customers, together, accounted for
approximately 30% of net sales. Although the Company has experienced significant
growth in its customer base as its sales volume has increased, it is currently
still dependent on continued purchases by its present customers, who are
continuing to equip and upgrade their fleets. Loss of any significant current
customers or an inability to further expand its customer base would adversely
affect the Company.
SALES CYCLE. The period required to complete a sale of the Company's
systems can be as long as 12 months, due in large part to the technical
complexity of the system and the system's cost, which usually requires an
advance budget decision by the customer. In addition, the continuing emergence
of
14
<PAGE>
new technologies, as well as existing similar purpose technologies, may
complicate and delay a buying decision. The length of the sales cycle may result
in quarter to quarter fluctuations in the Company's purchase orders and
shipments. In addition, the Company has recently experienced delays in purchase
orders and shipments which it attributes to customers' uncertainties regarding
Year 2000 issues in general (not specific to the Company's products) and
diversion of resources by customers from buying decisions to Year 2000
evaluations and remediation.
COMPETITION. Products with certain features competitive with the
Company's systems are offered by companies with greater financial and other
resources than those of the Company. These competitors are based both in the
United States and in Europe and offer products ranging in sophistication and
cost from basic onboard recorders to advanced mobile satellite communication
systems. Such companies may produce and offer products equivalent or comparable
to those of the Company or products which are more effectively marketed to or
preferred by customers. In addition, the Company believes that the nature and
sources of competition in its industry are rapidly evolving and, in the future,
will be based upon the service provider's ability to deliver integration of
multiple information systems, including links between trucking operations and
all other facets of the supply chain through a variety of sophisticated software
and communications technologies, including but not limited to the Internet.
These efforts represent a trend toward integration of intracompany data with the
larger external supply chain involving the flow of goods to markets. The Company
believes that these changing markets will require it to adapt its existing
products and to develop new products which facilitate the collection,
integration, communication and optimal utilization of information throughout the
transportation network and the entire supply chain. This may entail the
development of new technologies and the adaptation of new and existing products
to be compatible with products and services provided by others in the industry,
including others who may be considered competitors of the Company in one or more
lines of business.
PRODUCT AND MARKET CONCENTRATION. Although the Company's system has
potential applications in a number of industries, to date, the Company has
targeted only the fleet trucking segment of the transportation industry. If this
market segment experiences a downturn which decreases the Company's sales. the
development of new applications and markets for the Company's system could take
several months or longer, and could require substantial funding. In addition,
the Company believes that its future success is dependent in part on developing
and marketing new applications. There can be no assurance that any such expanded
applications can be successfully developed or marketed.
CYCLICAL NATURE OF THE TRUCKING INDUSTRY. The fleet trucking segment of
the transportation industry is subject to fluctuations and business cycles.
Because mobile integrated information systems are a relatively new product, the
Company is unable to predict to what extent economic business cycles may result
in increases or decreases in capital purchases by fleet managers. A significant
downturn in the prospects of the fleet trucking segment of the transportation
industry could have a material adverse effect on the Company. Although the
Company had a backlog of approximately $ 530,000 as of January 4, 1999, which
the Company believes to be firm, there can be no assurance that such backlog
will not decrease as a result of cancellations or reductions of orders in
response to adverse economic conditions in the industry or other factors.
SALES AND MARKETING EFFORTS. Sales of the Company products are
dependent in part upon the salesperson's in-depth knowledge and understanding of
the XATA system, which requires experience and training over a period of several
months. While the Company believes the expansion of its previously limited sales
and marketing efforts will allow it to attract highly qualified sales and
marketing personnel, there can be no assurance that the Company will be able to
attract, train, and retain the qualified personnel necessary for its business.
Moreover, there is no assurance that the Company's
15
<PAGE>
augmented sales and marketing efforts will result in increased sales volume.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success is heavily
dependent upon proprietary technology. The Company has been issued a design
patent by the United States Patent and Trademark Office which covers the design
of its computer display. The Company's software programs have not been patented.
The Company relies primarily on a combination of copyright, trademark and trade
secret laws, confidentiality procedures, and contractual provisions to protect
its proprietary rights; however, these measures afford only limited protection
and there can be no assurance that competitors will not seek to use similar
computer displays or "touch screens." Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's systems or obtain and use information that the Company regards as
proprietary. Customer access to the Company's source code may increase the
possibility of misappropriation or other misuse of the Company's software. There
can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not independently
develop similar technology which could adversely affect the Company.
RISK OF TECHNOLOGICAL OBSOLESCENCE. The Company's systems utilize
proprietary software and an onboard touch-screen computer. Although the Company
believes its proprietary software is more important in the capture and
communication of operating data than the hardware in which the software is
encased, there can be no assurance that continued improvements in hardware will
not render the Company's technology, including its software, obsolete. The field
of PC-based software and hardware is constantly undergoing rapid technological
changes. In addition, the field of logistics management is rapidly changing and
developing more sophisticated, comprehensive solutions for users. There can be
no assurance that the Company will be able to react and adapt to changes in
these fields or that developments by its competitors will not render the
Company's system and services obsolete. Although the Company believes that
advancements in logistics management and in hardware and communications
technology provide opportunities for the Company to form alliances with
companies offering products complementary to the Company's system and services,
there can be no assurance that the Company can form alliances with such
companies or that any such alliance will be successful. The Company's success is
dependent in part upon its ability to anticipate changes in technology and
industry standards and to develop and introduce new features and enhancements to
its system on a timely basis. If the Company is unable to do so for
technological or other reasons or if new features or enhancements do not achieve
market acceptance. the Company's business could be materially and adversely
affected. There can be no assurance that the Company will not encounter
technical or other difficulties that could in the future delay the introduction
of new systems or system features or enhancements.
MANAGEMENT CONTROL. The officers and directors of the Company
beneficially own approximately 34% of the Company's outstanding shares of Common
Stock. Because of such ownership, management is able to significantly influence
the affairs of the Company, including the election of the Board of Directors.
There is no cumulative voting for the election of directors of the Company.
DEPENDENCE ON KEY PERSONNEL. The Company believes its future success
depends to a significant extent on the efforts of key management, technical, and
sales personnel, including Dennis R. Johnson, President and Chief Executive
Officer, and William P. Flies, Chief Technical Officer. The Company maintains
and is the beneficiary of keyperson life insurance policies on Dennis R. Johnson
and on William P. Flies, each in the amount of $1,000,000. The loss of Mr.
Johnson, Mr. Flies, or any other key employee. could have a material adverse
effect on the Company's business. Moreover, there can be no assurance that the
Company will be able to attract and retain the qualified personnel necessary for
its business. Except for William P. Flies, who has an agreement to refrain from
employment with any
16
<PAGE>
competitor of the Company for one year after leaving employment with the
Company, the Company's employees are not restricted as to future employment.
However, all employees are restricted as to use of information which is
confidential and proprietary to the Company.
RELIANCE ON MANUFACTURERS AND DISTRIBUTORS. The Company acquires most
of the components of its systems from suppliers who manufacture these components
pursuant to Company specifications. The Company currently has no supply
agreements with any of these manufacturers. Although the Company currently
purchases more than ten percent of the components for its systems from a single
supplier, and while the loss of any supplier could cause a short-term disruption
in the availability of components, the Company believes, although no assurance
can be given, that alternative sources could be obtained for such components
without materially affecting system costs or timely delivery.
NEED FOR ADDITIONAL CAPITAL OR FINANCING. During the last several
years, the Company has experienced rapid growth, including two business
acquisitions. The Company has recently experienced expenses in excess of cash
flow from operations and has been required to rely upon bank and other external
financing. As of the date of this Report on Form 10-KSB, the Company believes
that cash flow from operations will be sufficient to meet its capital
requirements for the foreseeable future if certain business operations are
discontinued and investment in R&D acquisition are strictly controlled. However,
it is possible that the Company's cash needs may vary significantly from its
predictions, due to failure to generate anticipated cash flow, growth at a rate
faster than anticipated, or other reasons. Moreover, any significant new product
development or acquisition in the near term will require external funding. No
assurance can be given that the Company's predictions regarding its cash needs
will prove accurate, that the Company will not require additional financing,
that the Company will be able to secure any required additional financing when
needed or at all, or that such financing, if obtained, will be on terms
favorable or acceptable to the Company. The Company's inability to obtain needed
financing could have a material adverse effect on operating results and any
future financings may result in dilution to holders of the Common Stock. In
addition, the Company's future growth and operating results will depend on
management's continuing ability to implement its growth strategy, as to which no
assurance can be given.
ISSUANCE OF ADDITIONAL SHARES. The Company has authorized 8,333,333
shares of Common Stock, of which 4,418,133 shares of Common Stock are issued and
outstanding as of December 21, 1998. The Company's Board of Directors has
authority, without action or vote of the shareholders, to issue all or part of
the authorized but unissued shares. Such additional shares may be issued in
connection with future financings, acquisitions, employee plans, or otherwise.
Any such issuance will dilute the percentage ownership interest of existing
shareholders, and may dilute the book value of the Common Stock. In addition,
the Company is authorized to issue up to 333,333 shares of preferred stock, no
designated par value (the "Preferred Stock"), none of which is currently
outstanding. The Preferred Stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors,
without approval by shareholders, and may include voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and liquidation, conversion and redemption rights and sinking fund provisions.
The issuance of any Preferred Stock could affect the rights of the holders of
Common Stock adversely and reduce the value of the Common Stock. In addition,
specific rights granted to future holders of Preferred Stock could be used to
restrict the Company's ability to merge with or sell its assets to a third
party, thereby preserving control of the Company by its then owners.
LIMITATIONS ON DIRECTORS' LIABILITY UNDER MINNESOTA LAW. Pursuant to
the Company's Articles of Incorporation, as amended and restated, as authorized
under applicable Minnesota law, directors of the
17
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Company are not liable for monetary damages for breach of fiduciary duty, except
in connection with a breach of the duty of loyalty, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, for dividend payments or stock repurchases illegal under Minnesota law or
for any transaction in which a director has derived an improper personal
benefit. In addition, the Company's bylaws provide that the Company shall
indemnify its officers and directors to the fullest extent permitted by
Minnesota law for all expenses incurred in the settlement of any actions against
such persons in connection with their having served as officers or directors of
the Company.
ANTITAKEOVER PROVISIONS. The Company is subject to certain antitakeover
provisions contained in the Minnesota Business Corporation Act which could delay
or prevent a change in control of the Company by requiring shareholder approval
of certain acquisitions of voting stock of the Company.
ITEM 2. DESCRIPTION OF PROPERTY
- - ------- -----------------------
On April 4, 1997, the Company moved into 20,588 square feet of new
office and warehouse space at 151 East Cliff Road in Burnsville, Minnesota. The
Company has signed a seven (7) year, non-cancelable operating lease for this
space, with initial rental payments of $12,010.00 per month, plus a pro rata
share of the building operating expenses commencing June 1, 1997. The base rent
will increase to $14,810.00 on February 1, 1999, in part due to occupancy on
March 1, 1999, of an additional 4,800 square feet of warehouse space adjacent to
the Company's current space. Base rent will increase to $16,291 on June 1, 2002,
the sixth year of the lease. To the extent any additional space is unused, the
Company will endeavor to sublease such space until such time as the Company
operations require additional space. The lease may be renewed for three (3)
additional terms of five (5) years each.
The Company's XET operation leases 3,150 square feet in an office
building in Peoria, Illinois. The lease terminates in the year 2000 and has a
monthly rental of $3,100, including operating costs. On July 1, 1998, XET
entered into a lease for 1290 square feet of additional space in a building
adjacent to its current location in Peoria, Illinois. The additional space was
leased from the current landlord and the lease will run co-terminus with the
original lease. The total monthly rental on the additional space is $980.
The Company believes that this space is adequate for its needs at this location
for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
- - ------- -----------------
The Company has been named as a defendant in an action based upon a
disputed account payable. The amount in controversy is less than $12,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------- ---------------------------------------------------
None
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PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- - ------- ------------------------------------------------------------
The Company's Common Stock is traded under the symbol "XATA" in the
Nasdaq National Market.
The following table sets forth the quarterly high and low sales prices
as reported by the Nasdaq National Market during the last two fiscal years ended
September 30, 1997 and September 30, 1998.
- - ---------------------------
SALE PRICE
----------
FISCAL YEAR 1997 LOW HIGH
--- ----
First Quarter
Second Quarter 6.250 10.500
Third Quarter 4.047 7.500
Fourth Quarter 3.500 6.125
3.375 5.375
SALE PRICE
----------
LOW HIGH
--- ----
FISCAL YEAR 1998 3.375 7.250
First Quarter 3.375 6.000
Second Quarter 5.750 2.000
Third Quarter 3.250 2.000
Fourth Quarter
As of December 21, 1998, the Company's Common Stock was held of record
by 87 holders. Registered ownership includes nominees who may hold securities on
behalf of multiple beneficial owners. The Company estimates the number of
beneficial owners of its Common Stock as 1,300 as of December 21, 1998 based
upon information provided by a proxy services firm.
DIVIDEND POLICY
The Company has never paid cash dividends on any of its securities. The
Company currently intends to retain any earnings for use in its operations and
does not anticipate paying cash dividends in the foreseeable future. Future
dividend policy will be determined by the Company's Board of Directors based
upon the Company's earnings, if any, its capital needs and other relevant
factors.
RECENT SALE OF UNREGISTERED SECURITIES
During the past three fiscal years, the Company has issued an aggregate
of 43,309 shares (9,375 in September 1996, 6,250 in May 1997, 12,500 in October
1997, 2,684 in April 1998 and 12,500 in August 1998) to 3 employees who joined
the Company in connection with the Company's acquisition of the Payne assets
from Computer Petroleum Corporation ("CPC"). Such employees were formerly
employees of CPC. Pursuant to the terms of their respective employment
agreements with the Company, an additional 12,500 shares will be issued in
October 1999 and, if certain performance objectives are attained, an additional
3,125 shares will be issued in October 1999.
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In October 1996, the Company issued an aggregate of 41,558 shares of
its Common Stock to the two shareholders of Key Logistics, Inc., in exchange for
all of the issued and outstanding stock of Key Logistics. An additional 10,390
shares were issued in August 1998.
All such shares have been or will be issued in reliance upon the
exemption from registration under Section 4(2) of the Securities Act of 1933.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- - ------- ---------------------------------------------------------
PREFACE
In August 1996, the Company purchased substantially all of the assets
of a business known as Payne & Associates ("Payne"), an unincorporated division
of Computer Petroleum Corporation, including software products that integrate
information, communication, and Internet based technologies for trucking
industry applications. The acquisition was accounted for as a purchase and
accordingly, the results of operations for Payne are included with the Company's
since the date of the acquisition. In June 1997, XATA formed a new
unincorporated business division, XATA Enterprise Technologies (XET), using
personnel and products acquired from Payne.
During the fourth quarter of 1997, the Company completed an evaluation
of the recoverability of assets (primarily purchased software and goodwill)
acquired from Payne in August 1996. Certain events occurred during fiscal 1997
which caused the full recoverability of those assets to be brought into
question. The largest customer of Payne was unexpectedly acquired by another
company resulting in the loss of this customer's business, the Company's sales
distribution channel, and a corresponding decrease in the revenue stream upon
which the software and goodwill values were based. The software product being
sold to this customer was interfaced to and dependent upon the functionality of
this customer's system as it had been designed specifically for that purpose. As
a result, the loss of this customer also has required the Company to
substantially redesign and rewrite the acquired software before it could be sold
to others and to establish an entirely new distribution channel to pursue the
redefined market opportunity. As a result of these events, which occurred after
the acquisition, it became clear that the investment in Payne had become
severely impaired. Management has determined the value of the remaining product
of Payne's being sold by the Company to be approximately $200,000. Accordingly,
the goodwill and acquired software relating to the Payne acquisition were
written down to this estimated value, resulting in a fourth quarter charge of
approximately $1.8 million.
During the third quarter of 1998, the Company decided to suspend sales
of its Desktop Dispatch software product. The Company suspended sales of this
product and reversed revenues on licenses sold as a result of the product's
unacceptable performance under actual service conditions. The Company expects to
re-introduce Desktop Dispatch to the market in spring of 1999, unless this
product division is sold, as discussed below.
Revenue for sales of the Company's systems is recognized when ownership
transfers to the customer, which is generally upon shipment. Pursuant to certain
contractual arrangements discussed above, revenues are recognized for completed
systems held at the Company's warehouse pending the receipt of delivery
instructions from the customer. These arrangements have not had and are not
expected to have a significant effect on the Company's working capital. Revenue
from extended warranty and service support contracts is deferred and recognized
ratably over the contract period.
The Company has investigated the impact of the Year 2000 issue on both
its own internal
20
<PAGE>
information systems and the products it develops, markets and sells. See
"Business-Year 2000 Issues". As discussed, Year 2000 is not expected to have a
material effect on the Company's financial position, operations or cash flow.
RESULTS OF OPERATIONS
NET SALES. The Company had net sales of $9,215,000 for fiscal 1998
compared to $10,404,000 in fiscal 1997. This represents a decrease of
$1,189,000, or 11%, for fiscal 1998 over the previous fiscal year; $490,000, or
41%, of this decrease resulted from a one-time charge against revenue for
previous sales related to the decision to suspend sales of the Desktop Dispatch
product. Onboard sales to private fleet customers for fiscal 1998 were
$8,411,000 compared to $9,758,000 in fiscal 1997. Sales of XET products were $
835,000 in fiscal 1998 compared to $616,000 in fiscal 1997. RouteView sales were
$258,000 in fiscal 1998 and $30,000 in fiscal 1997. The Company anticipates that
total revenue for fiscal 1999 will exceed fiscal 1998 levels.
GROSS PROFIT. The Company had a gross profit in fiscal 1998 of
$4,508,000 or 48.9% of net revenue compared to $4,728,000, 45.4% of net revenue,
for fiscal 1997. The increase in gross profit resulted primarily from an
increase in direct sales to private fleets. These were partially offset by the
increased amortization of capitalized software development. Gross margins are
dependent on product sales mix and discounts on volume shipments to certain
customers. The Company anticipates gross margins, as a percentage of sales, for
fiscal 1999 to be unchanged from fiscal 1998.
OPERATING EXPENSES. Operating expenses include sales and marketing
expenses, general and administrative expenses, and research and development.
Total operating expenses were $8,231,000 for fiscal 1998 (89.3% of net sales)
compared to $7,785000 for fiscal 1997 (74.8 % of net sales).
Operating expenses other than research and development were $7,481,000
in fiscal 1998 (81.2% of net sales) compared to $6,958,000 in fiscal 1997 (66.9%
of net sales). The increase of $523,000 in fiscal 1998 compared to fiscal 1997
was primarily due to a one-time charge to bad debt expense of $300,000
associated with the discontinuance of Desktop Dispatch. Operating expenses for
fiscal 1999 are expected to be lower than fiscal 1998.
The Company's market position is based on its strong research
capability and its technology leadership. The increases in research and
development in recent years occurred as the result of planned increases in
personnel and expenses related to new system capabilities. Expenditures for
research and development, net of capitalized software development costs, are
charged to operations as incurred. These charges amounted to $750,000 for fiscal
1998 and $828,000 for fiscal 1997. Software development costs are capitalized
after the establishment of technological feasibility and later amortized to cost
of goods sold based on the anticipated useful life of the product. The useful
life of each product is determined by its anticipated future net revenues.
Capitalized software development costs were $3,057,000 for 1998 compared to
$1,154,000 for 1997. This increase was due to development of new software to
respond to industry requirements and specific customer needs. The Company
anticipates that expenditures for research and development and software
development for fiscal 1999 will be similar to those experienced in fiscal 1998,
subject to available funding.
INCOME TAXES
Federal and State income tax benefit (expense) was ($573,000) in fiscal
1998 compared to a benefit of $510,000 in fiscal 1997. The 1998 income tax
expenses consists primarily of an increase in
21
<PAGE>
the valuation allowance on deferred tax assets as a result of a change in the
conclusion regarding the realizability of the deferred tax assets in the near
term. The Company believes it will realize an income tax benefit in future years
as a result of the loss incurred in 1997 and 1998. However, because of the
uncertainties involved in projecting Company operations so far into the future,
the Company has recorded the net deferred tax asset using management's estimate
of taxable earnings during a future time horizon of one year. Prior to 1998,
management used estimated taxable earnings for a future period of five years. At
September 30, 1998, the Company has federal net operating losses of
approximately $6,017,000. In 1996 and 1995, substantially all of the Company's
taxable income was offset by available net operating loss carry-forwards, and at
September 30, 1996, substantially all of the Company's net operation loss
carry-forwards had been utilized. Prior to 1996, the Company had recorded a
valuation allowance against its net deferred tax assets due to uncertainty of
realization
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit at the end of fiscal 1998 of
$991,000 compared to working capital of $4,849,000 at the end of fiscal 1997.
Cash flows used in operating activities during fiscal 1998 totaled
$1,591,000 resulting primarily from the net loss of $4,249,000 offset by
depreciation and amortization of $2,130,000, and non-cash charges of $580,000
for deferred income tax expense, $918,000 for provisions for bad debt and sales
returns and decreases in other working capital items of $1,049,000, primarily
increased accounts receivable. The Company anticipates that continued growth in
its business will result in further increases in accounts receivable and, to a
lesser extent, inventory.
Cash flows provided by investing activities of $78,000 during fiscal
1998 resulted primarily from expenditures for software development of $3,057,000
and capital expenditures of $523,000. These amounts were offset by the proceeds
from both the collection and sale of notes receivable related to the Company's
financing of certain onboard computer sales and the sale and maturity of
securities held-for-sale. The Company expects capital expenditures and product
development expenses for fiscal 1999 to be less than those incurred in fiscal
1998.
Cash provided by financing activities was $1,177,000 during fiscal
1998; $549,000 was provided under the Company's operating line of credit and a
$625,000 increase in long term debt, with GE Capital Corporation Commercial
Asset Funding.
During fiscal 1998, the Company had a $150,000 term debt facility
available for fixed asset additions, and a $1,000,000 line of credit with
Norwest Bank Minnesota, N.A., both of which were set to expire in March 1998.
The line of credit was extended through November 30, 1998. Advances under the
line of credit accrued interest at prime plus 1.0% with an effective rate of
9.50% as of October 15, 1998. The Company paid a minimum usage fee to maintain
the line of credit. The Company used approximately $550,000 of the line of
credit during fiscal 1998. In August 1998, the Company negotiated a long term
debt agreement secured by certain of its fixed assets with GE Capital's
Commercial Asset Funding group. Under this agreement, recorded as a note
payable, the Company received $625,000 and is obligated to make payments,
including interest at the rate of 10%, of approximately $28,000 per month for 24
months. In October, 1998 the Company replaced its bank credit facility with a
line of credit from Norwest Business Credit, Inc. See "Subsequent Events".
The Company believes its line of credit, and its current vendor terms
will provide adequate cash to fund anticipated revenue growth and operating
needs, for the foreseeable future, if certain business
22
<PAGE>
operations are discontinued and investment in product development are strictly
controlled. However, it is possible that the Company's cash needs may vary
significantly from its predictions, due to failure to generate anticipated cash
flow, growth at a rate faster than anticipated, or other reasons. Moreover, any
significant new product development in the near term will require external
funding. No assurance can be given that the Company's predictions regarding its
cash needs will prove accurate, that the Company will not require additional
financing, that the Company will be able to secure any required additional
financing when needed or at all, or that such financing, if obtained, will be on
terms favorable or acceptable to the Company.
SUBSEQUENT EVENTS
In October 23, 1998, the Company entered into an asset based financing
agreement with Norwest Business Credit, Inc. under which the Company was given a
line of credit, based on eligible accounts receivable and inventory of
$1,500,000. This new financing arrangement replaces the previous credit facility
of $1,000,000 with Norwest Bank, NA. The bank amended the October 23, 1998
agreement on November 30, 1998, increasing the line of credit to $2,000,000. On
January 8, 1999 the agreement was amended requiring the Company to maintain a
minimum net worth level which varies during the term of the agreement. During
fiscal 1999, the most restrictive of the net worth requirement occurs on
September 30, 1999, when the Company must have a net worth of not less than
$2,475,000.
ACCOUNTING PRONOUNCEMENTS
The FASB has issued Statement No. 128, "Earnings Per Share," which
supersedes APB Opinion No. 15. Statement No. 128 requires the presentation of
earnings per share by all entities that have common stock or potential common
stock, such as options, warrants and convertible securities, outstanding that
trade in a public market. Those entities that have only common stock outstanding
are required to present basic earnings per-share amounts. All other entities are
required to present basic and diluted per-share amounts. Diluted per-share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is to reduce a loss or increase the income
per common share from continuing operations. The Company initially applied
Statement No. 128 for the year ended September 30, 1998, and as required by the
Statement, has restated all per share information for prior years to conform to
the statement.
As of October 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income. Statement No. 130
establishes new rules for the reporting and display of comprehensive income and
its components. Statement No. 130 requires unrealized gains or losses on
available-for-sale securities and certain other items, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive income. The Company has no comprehensive income as defined by SFAS
No. 130.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and related Information. This
statement requires public enterprises to report selected information about
operating segments in annual and interim reports issued to shareholders. It is
effective for financial statements for fiscal years beginning after December 15,
1997, but it is not required to be applied to interim financial statements in
the initial year of its application. The statement will have no effect on the
Company's basic financial statements, but management is reviewing to determine
if additional disclosures will be required.
ITEM 7. FINANCIAL STATEMENTS
- - ------- --------------------
23
<PAGE>
XATA CORPORATION
FINANCIAL REPORT
SEPTEMBER 30, 1998
<PAGE>
CONTENTS
- - -------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT F-1
- - -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Balance sheets F-2 - F-3
Statements of operations F-4
Statements of changes in shareholders' equity F-5
Statements of cash flows F-6 - F-7
Notes to financial statements F-8 - F-17
- - -------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
XATA Corporation
Burnsville, Minnesota
We have audited the accompanying balance sheets of XATA Corporation as of
September 30, 1998 and 1997, and the related statements of operations, changes
in shareholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of XATA Corporation as of
September 30, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has incurred substantial losses and reductions in cash
and working capital during fiscal years 1998 and 1997. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
December 8, 1998 (January 8, 1999, as to Note 8)
F-1
<PAGE>
XATA CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS (NOTE 8) 1998 1997
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ -- $ 336,126
Available-for-sale securities (Note 5) -- 3,054,076
Trade receivables, less allowances for doubtful accounts and sales
returns of $1,047,000 in 1998 and $275,000 in 1997 (Note 14) 1,942,458 2,613,039
Current maturities of notes receivable (Note 7) 44,496 --
Inventories (Note 6) 474,011 434,836
Prepaid expenses 104,480 115,334
Deferred income taxes (Note 10) -- 1,040,000
--------------------------------
TOTAL CURRENT ASSETS 2,565,445 7,593,411
--------------------------------
Equipment and Leasehold Improvements, at cost
Engineering and manufacturing equipment 844,438 759,181
Office furniture and equipment 1,677,269 1,310,079
Leasehold improvements 38,417 38,417
--------------------------------
2,560,124 2,107,677
Less accumulated depreciation and amortization 1,331,571 885,425
--------------------------------
TOTAL EQUIPMENT AND LEASEHOLD IMPROVEMENTS 1,228,553 1,222,252
--------------------------------
Other Assets (Note 3)
Capitalized software development costs, less accumulated
amortization of $2,395,993 in 1998 and $1,495,369 in 1997 2,685,324 1,065,633
Acquired software, less accumulated amortization of $1,135,243
in 1998 and $1,000,000 in 1997 264,757 400,000
Goodwill, less accumulated amortization of $1,393,866 in 1998
and $1,365,294 in 1997 145,237 173,809
Notes receivable (Note 7) 54,436 --
Other 42,217 54,873
--------------------------------
TOTAL OTHER ASSETS 3,191,971 1,694,315
--------------------------------
TOTAL ASSETS $ 6,985,969 $ 10,509,978
================================
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Bank line of credit (Note 8) $ 548,996 $ --
Current maturities of long-term debt 309,534 --
Accounts payable 1,122,754 648,175
Accrued expenses:
Compensation 520,822 706,915
Other 325,024 273,312
Deferred revenue 729,820 1,116,106
---------------------------------
TOTAL CURRENT LIABILITIES 3,556,950 2,744,508
---------------------------------
Long-Term Debt (Note 9) 461,491 156,256
---------------------------------
Deferred Income Taxes (Note 10) -- 460,000
---------------------------------
Commitments and Contingencies (Notes 2, 11, and 12)
Shareholders' Equity (Notes 12 and 13)
Common stock, par value $0.01 per share; authorized 8,333,333
shares; issued 4,430,633 shares in 1998 and 4,383,035 shares
in 1997 44,306 43,830
Additional paid-in capital 9,398,821 9,195,771
Common stock to be issued, 12,500 shares in 1998 and 25,000
shares in 1997 135,688 271,875
Retained earnings (accumulated deficit) (6,611,287) (2,362,262)
---------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,967,528 7,149,214
---------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,985,969 $ 10,509,978
=================================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
XATA CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales (Note 14) $ 9,214,893 $ 10,404,477
Cost of goods sold 4,707,375 5,676,123
---------------------------------
GROSS PROFIT 4,507,518 4,728,354
Operating expenses:
Selling, development, general, and administrative 8,231,032 5,978,521
Write-down of goodwill and acquired software (Note 3) -- 1,806,860
---------------------------------
OPERATING LOSS (3,723,514) (3,057,027)
Nonoperating income (expense):
Interest income 93,516 140,848
Interest expense (36,997) (14,900)
Other (9,030) --
---------------------------------
LOSS BEFORE INCOME TAXES (3,676,025) (2,931,079)
Federal and state income tax provision (benefit) (Note 10) 573,000 (510,000)
---------------------------------
NET LOSS $ (4,249,025) $ (2,421,079)
=================================
Basic and diluted net loss per share $ (0.97) $ (0.55)
Weighted-average common shares outstanding 4,394,714 4,420,672
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
XATA CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Common Retained
Common Stock Additional Stock Earnings
------------------------ Paid-In To Be (Accumulated
Shares Amount Capital Issued Deficit) Total
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 4,342,481 $ 43,425 $ 8,701,956 $ 407,812 $ 58,817 $ 9,212,010
Common stock issued in connection
with the acquisition of Key Logistics,
Inc. (Note 4) 41,558 416 399,584 -- -- 400,000
Common stock issued on exercise of
options and warrants 5,780 58 16,980 -- -- 17,038
Repurchase of common stock by
company (25,534) (255) (95,219) -- -- (95,474)
Issuance of common stock 18,750 186 172,470 (135,937) -- 36,719
Net loss -- -- -- -- (2,421,079) (2,421,079)
------------------------------------------------------------------------------------
Balance, September 30, 1997 4,383,035 43,830 9,195,771 271,875 (2,362,262) 7,149,214
Common stock issued on exercise of
options and warrants 9,524 95 14,905 -- -- 15,000
Issuance of common stock (Note 4) 38,074 381 188,145 (136,187) -- 52,339
Net loss -- -- -- -- (4,249,025) (4,249,025)
------------------------------------------------------------------------------------
Balance, September 30, 1998 4,430,633 $ 44,306 $ 9,398,821 $ 135,688 $(6,611,287) $ 2,967,528
====================================================================================
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
XATA CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(4,249,025) $(2,421,079)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Write-down of goodwill and acquired software (Note 3) -- 1,806,860
Depreciation 502,608 389,564
Amortization 1,626,909 1,283,977
Provisions for bad debt and sales returns 918,000 119,000
Common stock issued for compensation 40,261 --
Accrued income on available-for-sale securities -- 6,223
Loss on sale of note receivable 31,379 --
Loss on sale of equipment 8,410 20,870
Deferred income taxes 580,000 (510,000)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (975,364) 631,724
Inventories (39,175) (60,945)
Accounts payable 474,579 (347,858)
Accrued expenses and deferred revenue (520,667) 790,123
Other 10,854 (39,034)
-------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,591,231) 1,669,425
-------------------------------
Cash Flows From Investing Activities
Principal payments received on notes receivable 48,651 --
Proceeds from sale of note receivable 548,983 --
Purchase of available-for-sale securities -- (4,884,703)
Proceeds from sale and maturity of available-for-sale securities 3,054,076 4,850,924
Purchase of equipment (522,588) (750,130)
Proceeds from sale of equipment 5,269 15,125
Addition to software development costs (3,056,728) (1,154,436)
Purchase of other assets -- (108,447)
-------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 77,663 (2,031,667)
-------------------------------
</TABLE>
(Continued)
F-6
<PAGE>
XATA CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Financing Activities
Net borrowings on revolving credit agreements 548,996 --
Proceeds from borrowings on long-term debt 625,000 --
Payments on long-term debt (23,632) --
Proceeds from common stock issued 12,078 36,719
Proceeds from options and warrants exercised 15,000 17,038
Repurchase of common stock -- (95,474)
-------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,177,442 (41,717)
-------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (336,126) (403,959)
Cash and Cash Equivalents
Beginning 336,126 740,085
-------------------------------
Ending $ -- $ 336,126
===============================
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 23,596 $ 14,900
Cash payments for income taxes -- 38,770
===============================
Supplemental Schedule of Noncash Investing and Financing Activities
Accounts receivable converted into notes receivable $ 727,945 $ --
Common stock issued in connection with acquisition of Key
Logistics, Inc. (Note 4) -- 400,000
Discount on interest-free note payable 13,401 13,401
===============================
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: XATA Corporation (the Company) develops, markets, and
services fully integrated, mobile information systems for the fleet trucking
segment of the transportation industry in the United States. XATA systems
utilize proprietary software, onboard touch-screen computers, and related
hardware components and accessories to capture, analyze, and communicate
operating information that assists fleet management in improving productivity
and profitability.
The majority of the Company's sales are on a credit basis to customers located
throughout the United States.
A summary of the Company's significant accounting policies follows:
REVENUE RECOGNITION: Revenue for sales of the Company's systems is recognized
when ownership transfers to the customer, which is generally upon shipment.
Pursuant to certain contractual arrangements, revenues are recognized for
completed systems held at the Company's warehouse pending the receipt of
delivery instructions from the customer. At September 30, 1998, the Company had
approximately $963,000 of systems awaiting specific delivery instructions on
hand that had been billed to those customers. Revenue from extended warranty and
service support contracts is deferred and recognized ratably over the contract
period.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all unrestricted cash and any Treasury bills, commercial paper, and
money market funds with an original maturity of three months or less to be cash
equivalents. The Company maintains its cash in bank deposit and money market
accounts, which, at times, exceed federally insured limits. The Company has not
experienced any losses in such accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The financial statements include the
following financial instruments: cash and cash equivalents, investment in debt
securities, trade accounts receivable, notes receivable, accounts payable, and
long-term debt. At September 30, 1998 and 1997, no separate comparison of fair
values versus carrying values is presented for the aforementioned financial
instruments since their fair values are not significantly different than their
balance sheet carrying amounts. The aggregate fair values of the financial
instruments would not represent the underlying value of the Company.
INVESTMENT IN DEBT SECURITIES: Management determines the appropriate
classification of the securities at the time they are acquired and evaluates the
appropriateness of such classifications at each balance sheet date. The Company
classified its investment in debt securities as available-for-sale securities.
The available-for-sale securities were stated at fair value, and unrealized
holding gains and losses, if any, net of related deferred tax effect, are
reported as a separate component of shareholders equity.
Realized gains and losses, including losses from declines in value of specific
securities determined by management to be other-than-temporary, are included in
income. Realized gains and losses are determined on the basis of the specific
cost of the securities sold.
F-8
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined on the weighted-average method.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS: Software development costs incurred
after the establishment of technological feasibility are capitalized and later
amortized to cost of goods sold at the greater of the amount computed using the
ratio of current gross revenues for the product to the total of current and
anticipated future gross revenues or the straight-line method over the remaining
estimated economic life (normally two years) of the product.
RESEARCH AND DEVELOPMENT COSTS: Expenditures for research and development
activities performed by the Company are charged to operations as incurred.
Research and development expense was approximately $750,000 and $828,000 for the
years ended September 30, 1998 and 1997, respectively.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are provided using
the straight-line method based on the estimated useful lives of individual
assets over the following periods:
Years
- - --------------------------------------------------------------------------------
Engineering and manufacturing equipment 3-7
Office furniture and equipment 3-7
Leasehold improvements 3-15
Goodwill 7
Acquired software 4
The Company reviews its long-lived assets periodically to determine potential
impairment by comparing the carrying value of the long-lived assets with
estimated future cash flows expected to result from the use of the assets,
including cash flows from disposition. Should the sum of the expected future
cash flows be less than the carrying value, the Company would recognize an
impairment loss. An impairment loss would be measured by comparing the amount by
which the carrying value exceeds the fair value o the long-lived assets. During
1997, management determined the goodwill and software related to the Payne
acquisition were impaired (see Note 3).
PRODUCT WARRANTIES: The Company sells its systems with a limited warranty, with
an option to purchase extended warranties. The Company provides for estimated
warranty costs at the time of sale and for other costs associated with specific
items at the time their existence and amount are determinable.
INCOME TAXES: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than no that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
F-9
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
401(k) PLAN: The Company has a 401(k) plan covering substantially all employees.
The Company may make annual contributions to the plan at the discretion of the
Board of Directors. Company contributions for the years ended September 30, 1998
and 1997, were $-0- and $25,000, respectively.
NET LOSS PER SHARE: The Company adopted Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), EARNINGS PER SHARE, which supersedes APB
Opinion No. 15. SFAS No. 128 requires the presentation of earnings per share by
all entities that have common stock or potential common stock, such as options,
warrants, and convertible securities, outstanding that trade in a public market.
Those entities that have only common stock outstanding are required to present
basic earnings per share amounts. Basic per share amounts are computed,
generally, by dividing net income or loss by the weighted-average number of
common shares outstanding. All other entities are required to present basic and
diluted per share amounts. Diluted per share amounts assume the conversion,
exercise, or issuance of all potential common stock instruments unless the
effect is antidilutive, thereby reducing a loss or increasing the income per
common share. The Company initially applied Statement No. 128 for the year ended
September 30, 1998, and, as required by the statement, has restated the per
share information for the prior year to conform to the statement. As described
in Note 12, at September 30, 1998 and 1997, the Company had options and warrants
outstanding to purchase a total of 751,820 and 592,670 shares of common stock,
respectively, at a weighted-average exercise price of approximately $5.31 and
$5.86, respectively. However, because the Company has incurred a loss in all
periods presented, the inclusion of those potential common shares in the
calculation of diluted loss per share would have an antidilutive effect.
Therefore, basic and diluted loss per share amounts are the same in each period
presented.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates made by management include the remaining
value of the Payne acquisition (see Note 3), the allowance for doubtful accounts
and sales returns, valuation allowance on deferred tax assets, and the inventory
obsolescence reserve. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS: As of October 1, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME. Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components. Statement No. 130
requires unrealized gains or losses on available-for-sale securities and certain
other items, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. The Company has no
comprehensive income as defined by SFAS No. 130.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This
statement requires public enterprises to report selected information about
operating segments in annual and interim reports issued to shareholders. It is
effective for financial statements for fiscal years beginning after December 15,
1997, but it is not required to be applied to interim financial statements in
the initial year of its application. The statement will have no effect on the
Company's basic financial statements, but management is reviewing if additional
disclosures will be required.
F-10
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 2. CORPORATE LIQUIDITY
During fiscal years 1998 and 1997, the Company incurred losses of approximately
$4.2 million and $2.4 million, respectively. During fiscal 1998, working capital
fell from approximately $4.8 million at September 30, 1997, to a working capital
deficit of $1.0 million. Without the discontinuance of certain business
operations, further reductions in operating costs and/or additional financing,
the Company may not be able to fund future operations. These circumstances raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not reflect any adjustments that might result from
the outcome of this uncertainty.
The Company's plans in fiscal 1999 include an increased emphasis on promoting
its core onboard computing products. As a result, the Company is planning on
selling, divesting, or finding partners for certain product lines that have not
proven to be essential to its core business. Management does not expect any
material loss to result from the disposition of these product lines. The Company
intends to invest the resulting proceeds into the further development of its
onboard computing platform. Management believes that the disposition of these
noncomplementary and underperforming product lines and significant operational
cost-reduction efforts will provide positive cash flow from operations. Also,
additional cost reductions will be initiated during fiscal 1999 if working
capital requirements exceed available borrowings under the current financing
agreements. However, there can be no assurance that the current financing
arrangements will be sufficient or that additional financing, if needed, can be
obtained on terms acceptable to the Company.
NOTE 3. WRITE-DOWN OF GOODWILL AND ACQUIRED SOFTWARE
During the fourth quarter of fiscal 1997, the Company completed an evaluation of
the recoverability of assets (primarily purchased software and goodwill)
acquired from Payne & Associates (Payne) in August 1996. Certain events occurred
during fiscal 1997 which caused the full recoverability of those assets to be
brought into question. The largest customer of Payne was unexpectedly acquired
by another company, resulting in the loss of this customer's business, and a
corresponding decrease in the revenue stream upon which the software and
goodwill values were based. The loss of this customer also has required the
Company to substantially modify the acquired software before it can be sold to
others.
As a result of these events which occurred after the acquisition, it became
clear that the investment in Payne had become severely impaired. Management has
determined the value of the remaining product of Payne's being sold by the
Company to be approximately $200,000. Accordingly, the goodwill and acquired
software relating to the Payne acquisition were written down to this estimated
value, resulting in a fourth quarter 1997 charge of approximately $1.8 million.
NOTE 4. ACQUISITION OF KEY LOGISTICS, INC.
On October 28, 1996, the Company acquired certain assets of Key Logistics, Inc.
(Key). The acquisition has been accounted for as a purchase. The Company issued
41,558 shares of common stock with a fair value of $400,000. The assets acquired
consisted solely of software with an estimated value of $200,000. The remaining
unallocated purchase price of $200,000 was allocated to goodwill. An additional
10,390 shares of company common stock was issued during fiscal 1998 as certain
financial goals related to Key were achieved. Accordingly, the fair value of the
shares issued of approximately $40,300 was recognized as compensation expense in
fiscal 1998.
F-11
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 5. INVESTMENT IN DEBT SECURITIES
The following is a summary of the Company's investment in available-for-sale
securities as of September 30, 1997:
Commercial paper $ 1,394,869
Corporate bonds 149,996
Government bonds 1,010,461
U.S. Treasury notes 498,750
--------------
$ 3,054,076
==============
The cost of available-for-sale securities approximated fair value. The Company
realized no gains or losses on available-for-sale securities during the years
ended September 30, 1998 and 1997.
NOTE 6. INVENTORIES
Inventories consisted of the following:
September 30
-----------------------------
1998 1997
- - --------------------------------------------------------------------------------
Raw materials and subassemblies $ 369,511 $ 339,000
Finished goods 203,500 149,619
Obsolescence reserve (99,000) (53,783)
-----------------------------
$ 474,011 $ 434,836
=============================
NOTE 7. NOTES RECEIVABLE
September 30
-----------------------------
1998 1997
- - --------------------------------------------------------------------------------
Note receivable, customer, due in monthly
installments of $2,082, including
interest at 9.5%, through March 2001,
secured by equipment $ 55,397 $ --
Note receivable, customer, due in monthly
installments of $1,626, including
interest at 6.5%, through January 2001,
secured by equipment 43,535 --
-----------------------------
98,932 --
Less current maturities 44,496 --
-----------------------------
$ 54,436 $ --
=============================
F-12
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 8. LINE OF CREDIT
The Company has a credit line agreement with a financial institution consisting
of a $2,000,000 line of credit. Advances under the line of credit accrue
interest at prime rate (8.25 percent at September 30, 1998) plus 2.0 percent and
are due on demand. The line is subject to borrowing base requirements and is
secured by substantially all the assets of the Company. The agreement expires
October 31, 1999. The agreement requires the Company to maintain certain
financial requirements, including a minimum net worth level, of which the
Company was in violation. To cure this violation, the bank amended the agreement
on January 8, 1999. The amended agreement requires the Company to maintain a
minimum net worth level which varies during the term of the agreement. During
fiscal 1999, the most restrictive of the net worth requirement occurs on
September 30, 1999, when the Company must maintain a net worth of not less than
$2,475,000.
NOTE 9. LONG-TERM DEBT
Long-term debt consisted of the following:
September 30
------------------------------
1998 1997
- - --------------------------------------------------------------------------------
Note payable, noninterest-bearing, discounted
at 9%, due December 1999, unsecured $ 169,657 $ 156,256
Note payable, due in monthly installments of
$28,840 including interest at 10% through
July 2000, secured by equipment and
leasehold improvements 601,368 --
------------------------------
771,025 156,256
Less current maturities 309,534 --
------------------------------
$ 461,491 $ 156,256
==============================
NOTE 10. INCOME TAXES
The tax effects of the Company's deferred tax assets and liabilities are as
follows:
September 30
-----------------------------
1998 1997
- - --------------------------------------------------------------------------------
Goodwill and acquired software amortization $ 862,000 $ 862,000
Inventory and warranty reserve 223,000 206,000
Accrued expenses and deferred revenue 425,000 274,000
Federal and state net operating loss carryforwards 2,589,000 506,000
-----------------------------
Gross deferred tax assets 4,099,000 1,848,000
Valuation allowance on deferred tax assets (2,900,000) (700,000)
-----------------------------
Net deferred tax assets 1,199,000 1,148,000
-----------------------------
Software development costs (1,071,000) (464,000)
Depreciation (128,000) (104,000)
-----------------------------
Gross deferred tax liabilities (1,199,000) (568,000)
-----------------------------
Net deferred tax asset $ -- $ 580,000
=============================
F-13
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES (CONTINUED)
The Company's deferred tax assets and liabilities are shown in the accompanying
balance sheets as follows:
September 30
------------------------------
1998 1997
- - --------------------------------------------------------------------------------
Current deferred tax assets $ -- $ 1,040,000
Long-term deferred tax liabilities -- (460,000)
------------------------------
$ -- $ 580,000
==============================
The Company's income tax expense (benefit) differed from the statutory federal
rate as follows:
September 30
-----------------------------
1998 1997
- - --------------------------------------------------------------------------------
Statutory rate applied to income before tax $ (1,287,000) $ (1,026,000)
State income tax (benefit), net of federal tax
effect (67,000) (20,000)
Effect of net operating loss carryforwards with
no current benefit 1,335,000 553,000
Change in valuation allowance 580,000 --
Other 12,000 (17,000)
-----------------------------
$ 573,000 $ (510,000)
=============================
Currently refundable $ (7,000) $ --
Deferred 580,000 (510,000)
-----------------------------
$ 573,000 $ (510,000)
=============================
At September 30, 1998, the Company has federal net operating losses of
approximately $6,017,000 expiring as follows: $221,000 in 2009, $1,255,000 in
2012, and $4,541,000 in 2018.
The Company has recorded the valuation allowance on its deferred tax assets to
reduce the total to an amount that management believes is more likely than not
to be realized. Realization of deferred tax assets is dependent upon sufficient
future taxable income during periods when deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. The
increase in the valuation allowance during 1998 and 1997 was primarily the
result of the net operating loss (NOL) carryforward which was generated during
those years. The 1998 increase was also affected as a result of a change in the
conclusion regarding the need for a valuation allowance relative to $580,000 of
deferred tax assets.
NOTE 11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES: The Company leases its office, warehouse, and certain office
equipment under noncancelable operating leases. The facility lease requires that
the Company pay a portion of the real estate taxes, maintenance, utilities, and
insurance.
F-14
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Approximate future minimum rental commitments excluding common area costs under
these noncancelable operating leases are:
Years ending September 30:
1999 $ 262,000
2000 272,000
2001 218,000
2002 222,000
2003 209,000
Thereafter 196,000
--------------
$ 1,379,000
==============
Rental expense, including common area costs, was approximately $232,000 and
$173,000 for the years ended September 30, 1998 and 1997, respectively.
NOTE 12. STOCK OPTIONS AND WARRANTS
STOCK OPTION PLAN: The Company has a 1991 Long-Term Incentive and Stock Option
Plan (Plan). The Plan permits the granting of "incentive stock options" meeting
the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended, and nonqualified options which do not meet the requirements of Section
422. Stock appreciation rights and restricted stock awards may also be granted
under the Plan. A total of 875,000 shares of the Company's common stock has been
reserved for issuance pursuant to options granted or shares awarded under the
Plan. Generally, the options that have been granted under the Plan are
exercisable for a period of five years from the date of grant and vest over a
period of up to three years from the date of grant. All stock options have been
granted at fair market value, and accordingly, no compensation expense has been
recorded for all periods presented.
Grants under the Plan are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
grants under the Plan. Had compensation cost for the plan been determined based
on the fair values of options granted (the method described in FASB Statement
No. 123), reported net loss and basic and diluted net loss per common share on a
pro forma basis as compared to reported results would have been as follows:
1998 1997
- - --------------------------------------------------------------------------------
Net loss:
As reported $ (4,249,025) $ (2,421,079)
Pro forma (4,562,325) (2,618,800)
Basic and diluted net loss per common share:
As reported (0.97) (0.55)
Pro forma (1.04) (0.59)
F-15
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 12. STOCK OPTIONS AND WARRANTS (CONTINUED)
For purposes of the aforementioned pro forma information, the fair value of each
option is estimated at the grant date using the Black-Scholes option-pricing
model with the following weighted-average assumptions for grants in 1998 and
1997, respectively: dividend rate of zero for both years; price volatility of
127.0 and 64.0 percent; risk-free interest rate of 6.1 and 6.2 percent; and
expected lives of approximately four years in both periods. The weighted-average
fair value per option, of options granted in 1998 and 1997, was $3.49 and $2.59,
respectively.
COMMON STOCK WARRANTS: The Company has, on occasion, issued warrants for the
purchase of Company stock to consultants and placement agents. Compensation
expense associated with the warrants issued to consultants has not been
material. At September 30, 1998, warrants were outstanding to purchase a total
of 59,334 shares of company stock at a weighted-average exercise price of $7.43
per share, with a weighted-average remaining life of approximately 1.9 years.
Additional information relating to all outstanding options as of September 30,
1998 and 1997, is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- ------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
year 530,736 $ 5.85 447,183 $ 5.90
Options granted 206,750 4.26 96,000 5.46
Options exercised (5,780) 3.12 (5,780) 2.90
Options canceled (39,220) 4.87 (6,667) 7.26
----------------------------------------------------
Options outstanding at end of year 692,486 $ 5.31 530,736 $ 5.85
====================================================
</TABLE>
The following table further summarizes information about stock options
outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- ----------------------------
Weighted-
Number Average Weighted- Number Weighted-
Outstanding at Remaining Average Exercisable at Average
September 30, Contractual Exercise September 30, Exercise
Range of Exercise Price 1998 Life (Years) Price 1998 Price
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.12 - $5.00 369,267 2.8 $ 3.44 212,737 $ 3.43
$5.01 - $9.50 323,219 4.1 7.44 214,549 7.19
-----------------------------------------------------------------------------------
$2.12 - $9.50 692,486 3.4 $ 5.31 427,286 $ 5.32
===================================================================================
</TABLE>
F-16
<PAGE>
XATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 13. PREFERRED STOCK
The Company is authorized to issue 333,333 shares of preferred stock. The Board
of Directors is empowered to determine the rights, preferences, privileges, and
restrictions, including dividend rights and rates, liquidation preferences,
conversion or exchange rights, and redemption or sinking fund provisions of the
Company's preferred stock prior to issuance. The issuance of preferred stock
may, in some circumstances, deter or discourage takeover attempts or other
changes in the control of the Company.
As of September 30, 1998, no shares of preferred stock have been issued.
NOTE 14. MAJOR CUSTOMERS
Net sales include sales to major customers as follows:
Years Ended September 30
---------------------------
1998 1997
- - --------------------------------------------------------------------------------
Revenue percentage:
Customer A 17% *
Customer B 16% 15%
Customer C * 14%
Ending receivable balance:
Customer A $ 907,000 $ --
Customer B 230,000 417,000
Customer C -- 76,000
*Net sales were less than 10 percent of total net sales.
F-17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
- - ------- --------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
24
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- - ------- --------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
Information called for by this Item is set forth under the captions
"Election of Directors," and "Management" (and the subcaption "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" thereunder) in the
Company's definitive proxy statement to be filed pursuant to Regulation 14A,
which information is hereby incorporated by reference and made a part hereof.
ITEM 10. EXECUTIVE COMPENSATION
- - -------- ----------------------
Information called for by this Item is set forth under the captions
"Management" (and the subcaptions "Director Compensation" and ""Executive
Compensation" thereunder) in the Company's definitive proxy statement to be
filed pursuant to Regulation 14A, which information is hereby incorporated by
reference and made a part hereof.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - -------- --------------------------------------------------------------
Information called for by this Item is set forth under the caption
"Principal Shareholders and Ownership of Management" in the Company's definitive
proxy statement to be filed pursuant to Regulation 14A, which information is
hereby incorporated by reference and made a part hereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - -------- ----------------------------------------------
None
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- - -------- --------------------------------
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
last quarter of the fiscal year ended September 30, 1998.
EXHIBITS
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- - ----------------------------------------
<S> <C>
3.1 Restated Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
4.1 Form of certificate representing the Common Stock (1)
5.1 Opinion and Consent of Counsel to the Company (1)
10.1 Lease (for Office and Manufacturing Facilities), dated September 11, 1986,
Letter Agreement and Amendment No. 1 to lease dated July 10, 1992, and
Amendment No. 2 to Lease (1)
10.2 Agreements with Dennis R. Johnson regarding employment (1)
10.3 Agreements with William P. Flies regarding employment (1)
10.4 1991 Long-Term Incentive and Stock Option Plan, as amended by the Board of Directors
in May 1997 subject to ratification by the shareholders
10.5 Purchase Agreement with Ryder Dedicated Logistics, Inc. dated December 31,
1994, with supplemental agreement dated September 1, 1995 (2)
10.7 Lease dated December 26, 1996 with Hoyt Properties, Inc. for new corporate headquarters. (3)
10.8 Letter of Agreement with William Callahan regarding compensation (4)
10.9 Credit Agreement with Norwest Business Credit, Inc., dated October 23, 1998 and Amendments dated
November 30, 1998 and January 8, 1999.
10.10 Master Security Agreement and Promissory Note with GE Capital Corporation Commercial Asset Funding,
dated August 6, 1998.
13 1998 Definitive Proxy Materials (portions of which are incorporated herein
by reference).(5)
21 Subsidiaries of the Company
23 Consent of McGladrey & Pullen, LLP, independent certified public accountants
27 Financial Data Schedule
</TABLE>
- - --------------------
(1) Incorporated by reference to exhibit filed as a part of Registration
Statement on Form S-2 (Commission File No. 33-98932).
(2) Incorporated by reference to exhibit filed as a part of Report on Form
10-QSB for the fiscal quarter ended March 31, 1995. Certain segments
have been granted confidential treatment.
(3) Incorporated by reference to exhibit filed as a part of Report on Form
10-QSB for the fiscal quarter ended March 31, 1997.
(4) Incorporated by reference to exhibit filed as part of Report on Form
10-KSB for fiscal year ended September 30, 1997.
(5) To be filed in definitive form not later than January 28, 1998.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
XATA CORPORATION
Dated: January 13, 1999 By: /s/ Dennis R. Johnson
------------------------------------------
Dennis R. Johnson, Chief Executive Officer
(Principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Dated: January 13, 1999 By: /s/ Dennis R. Johnson
--------------------------------------------------------
Dennis R. Johnson, Director, Chief Executive Officer and
President (Principal executive officer)
Dated: January 13, 1999 By: /s/ Gary C. Thomas
--------------------------------------------------------
Gary C. Thomas, Chief Financial Officer and Treasurer
(Principal accounting and financial officer)
Dated: January 13, 1999 By: /s/ William P. Flies
--------------------------------------------------------
William P. Flies, Director, Chief Technical Officer and
Secretary
Dated: January 13, 1999 By: /s/ Stephen A. Lawrence
--------------------------------------------------------
Stephen A. Lawrence, Director
Dated: January 13, 1999 By: /s/ Roger W. Kleppe
--------------------------------------------------------
Roger W. Kleppe, Director
Dated: January 13, 1999 By: /s/ Carl M. Fredericks
--------------------------------------------------------
Carl M. Fredericks, Director
</TABLE>
<PAGE>
INDEX TO EXHIBITS
INDEX
NUMBER DESCRIPTION
- - --------------------------------------------------------------------------------
10.9 Credit Agreement with Norwest Business Credit, Inc.
10.10 Master Security Agreement and Promissory Note with GE Capital
Corporation Commercial Asset Funding, dated August 6, 1998.
21 Subsidiaries of the Company
23 Consent of McGladrey & Pullen, LLP, independent public accountants
27 Financial Data Schedule
EXHIBIT 10.9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ARTICLE I DEFINITIONS............................................................................1
SECTION 1.1 DEFINITIONS......................................................................1
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY...............................................6
SECTION 2.1 REVOLVING ADVANCES...............................................................6
SECTION 2.2 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST..............................7
SECTION 2.3 FEES.............................................................................7
SECTION 2.4 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE AND PAYABLE..................7
SECTION 2.5 DISCRETIONARY NATURE OF CREDIT FACILITY; AUTOMATIC RENEWAL.......................7
SECTION 2.6 VOLUNTARY PREPAYMENT; TERMINATION OF THE CREDIT FACILITY BY THE BORROWER.........8
SECTION 2.7 TERMINATION PREPAYMENT FEES; WAIVER OF TERMINATION FEES..........................8
SECTION 2.8 MANDATORY PREPAYMENT.............................................................8
SECTION 2.9 ADVANCES WITHOUT REQUEST.........................................................8
ARTICLE III SECURITY INTEREST....................................................................9
SECTION 3.1 GRANT OF SECURITY INTEREST.......................................................9
SECTION 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS..............................10
SECTION 3.3 ASSIGNMENT OF INSURANCE.........................................................10
SECTION 3.4 OCCUPANCY.......................................................................10
SECTION 3.5 LICENSE.........................................................................11
SECTION 3.6 FILING A COPY...................................................................11
ARTICLE IV CONDITIONS OF LENDING................................................................11
SECTION 4.1 CONDITIONS PRECEDENT TO THE LENDER'S WILLINGNESS TO CONSIDER MAKING ADVANCES....11
SECTION 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES............................................12
ARTICLE V REPRESENTATIONS AND WARRANTIES........................................................13
SECTION 5.1 NAME; LOCATIONS; TAX ID NO.; SUBSIDIARIES.......................................13
SECTION 5.2 FINANCIAL CONDITION; NO ADVERSE CHANGE..........................................13
ARTICLE VI COVENANTS OF THE BORROWER............................................................13
SECTION 6.1 REPORTING REQUIREMENTS..........................................................13
SECTION 6.2 INSPECTION......................................................................15
SECTION 6.3 ACCOUNT VERIFICATION............................................................15
SECTION 6.4 NO OTHER LIENS..................................................................16
SECTION 6.5 INSURANCE.......................................................................16
SECTION 6.6 PERFORMANCE BY THE LENDER.......................................................16
SECTION 6.7 MINIMUM BOOK NET WORTH..........................................................16
SECTION 6.8 NEW COVENANTS...................................................................17
SECTION 6.9 CAPITAL EXPENDITURES............................................................17
SECTION 6.10 NO SALE OR TRANSFER OF COLLATERAL AND OTHER ASSETS.............................17
SECTION 6.11 PLACE OF BUSINESS; NAME........................................................17
ARTICLE VII EVENTS OF DEFAULT, RIGHTS AND REMEDIES..............................................18
SECTION 7.1 EVENTS OF DEFAULT...............................................................18
SECTION 7.2 RIGHTS AND REMEDIES.............................................................18
SECTION 7.3 CERTAIN NOTICES.................................................................18
ARTICLE VIII MISCELLANEOUS......................................................................19
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 8.1 NO WAIVER; CUMULATIVE REMEDIES..................................................19
SECTION 8.2 AMENDMENTS, ETC.................................................................19
SECTION 8.3 ADDRESSES FOR NOTICES, ETC......................................................19
SECTION 8.4 COSTS AND EXPENSES..............................................................19
SECTION 8.5 INDEMNITY.......................................................................19
SECTION 8.6 BINDING EFFECT; ASSIGNMENT; COUNTERPARTS; EXCHANGING INFORMATION................20
SECTION 8.7 FURTHER DOCUMENTS...............................................................21
SECTION 8.8 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL........................21
EXHIBIT A TO CREDIT AND SECURITY AGREEMENT REVOLVING NOTE................................1
EXHIBIT B TO CREDIT AND SECURITY AGREEMENT COMPLIANCE CERTIFICATE........................1
</TABLE>
-ii-
<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of October 23, 1998
XATA CORPORATION, a Minnesota corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
"Accounts" means the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale or lease of
goods or rendition of services by the Borrower on an open account or
deferred payment basis, whether now existing or hereafter arising.
"Advance" means a Revolving Advance.
"Affiliate" means any Person controlled by, controlling or under
common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control,"
when used with respect to any specified Person, means the power to direct
the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented and restated from time to time.
"Base Rate" means the rate of interest publicly announced from time
to time by Norwest Bank Minnesota, National Association as its "base rate"
or, if such bank ceases to announce a rate so designated, any similar
successor rate designated by the Lender.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP,
provided that Debt subordinated to the Obligations that is converted to
equity shall be excluded when determining the Borrower's compliance with
any financial covenant using this definition.
"Borrowing Base" means, at any time and subject to change from time
to time in the Lender's sole discretion, the lesser of:
<PAGE>
(a) the Maximum Line; or
(b) the sum of:
(i) the lesser of (A) 80% of Eligible Accounts, plus
(ii) the lesser of (A) 50% of Eligible Inventory or
(B) $25,000.
"Capital Expenditures" for a period means any expenditure of money
for the lease; purchase or other acquisition of any capitalized asset,
except capital software, or for the lease of any other asset whether
payable currently or in the future.
"Collateral" has the meaning given in Section 3.1.
"Collateral Account" has the meaning given in the Collateral Account
Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrower, Norwest Bank
Minnesota, National Association and the Lender.
"Credit Facility" means the discretionary credit facility made
available to the Borrower pursuant to Article II.
"Debt" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined. For purposes
of determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three percent (3.00%)
over the Floating Rate, which rate shall change when and as the Floating
Rate changes.
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"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts, other than Accounts owed by
Ryder, over 90 days past invoice date or, if the Lender in its
discretion has determined that a particular dated Account of 120
days or less from invoice date may be eligible, that portion of such
Account which is more than 30 days past the stated due date;
(ii) That portion of Accounts owed by Ryder over 120 days past
invoice date;
(iii) That portion of Accounts that are disputed or subject to
a claim of offset or a contra account;
(iv) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(v) Accounts owed by any unit of government, whether foreign
or domestic (provided, however, that there shall be included in
Eligible Accounts that portion of Accounts owed by such units of
government for which the Borrower has provided evidence satisfactory
to the Lender that (A) the Lender has a first priority perfected
security interest and (B) such Accounts may be enforced by the
Lender directly against such unit of government under all applicable
laws);
(vi) Accounts owed by an account debtor located outside the
United States which are not backed by a bank letter of credit
assigned to the Lender, in the possession of the Lender and
acceptable to the Lender in all respects, in its sole discretion;
(vii) Accounts owed by an account debtor that is the subject
of bankruptcy proceedings or has gone out of business;
(viii) Accounts owed by a shareholder, subsidiary, affiliate,
officer or employee of the Borrower;
(ix) Accounts not subject to a duly perfected security
interest in favor of the Lender or which are subject to any lien,
security interest or claim in favor of any Person other than the
Lender including without limitation any payment or performance bond;
(x) That portion of Accounts that have been restructured,
extended, amended or modified;
(xi) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes;
(xii) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if 10% or more of the total amount due
under Accounts from such debtor is ineligible under clauses (i),
(ii), (iii) or (x) above; and
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(xiii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at the
lower of cost or market value as determined in accordance with GAAP;
provided, however, that the following shall not in any event be deemed
Eligible Inventory:
(i) Inventory that is: in-transit; located at any warehouse,
job site or other premises not approved by the Lender in writing;
located outside of the states, or localities, as applicable, in
which the Lender has filed financing statements to perfect a first
priority security interest in such Inventory; covered by any
negotiable or non-negotiable warehouse receipt, bill of lading or
other document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment unless such
consignee or bailee has executed an agreement with the Lender;
(ii) Supplies, packaging or parts Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, slow moving, obsolete or not
currently saleable in the normal course of the Borrower's
operations;
(v) Inventory that is perishable or live;
(vi) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to
permit the Lender to exercise its rights and remedies against such
Inventory;
(vii) Inventory that the Borrower has returned, has attempted
to return, is in the process of returning or intends to return to
the vendor thereof;
(viii) Inventory that is subject to a security interest in
favor of any Person other than the Lender;
(ix) Sample Inventory;
(x) Inventory at a particular location if the value of the
same is less than 10% of total Inventory; and
(xi) Inventory otherwise deemed ineligible by the Lender in
its sole discretion.
"Event of Default" has the meaning specified in Section 7.1.
"Floating Rate" means an annual rate equal to the sum of the Base
Rate plus two percent (2.00%), which annual rate shall change when and as
the Base Rate changes.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.2.
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"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired.
"Loan Documents" means this Agreement, the Note, the Security
Documents, the Support Agreement and the Disclosure by the Borrower in
favor of the Lender of even date herewith.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among the
Borrower, Norwest Bank Minnesota, National Association and, the Lender, of
even date herewith.
"Maturity Date" has the meaning given in Section 2.5.
"Maximum Line" means $1,500,000.
"Minimum Interest Charge" has the meaning given in Section 2.2(b).
"Offset Waiver Agreement" means the Agreement to Waive Setoff Rights
of even date herewith by and between Ryder and the Lender.
"Note" means the Revolving Note.
"Obligations" means each and every debt, liability and obligation of
every type and description which the Borrower may now or at any time
hereafter owe to the Lender, including all indebtedness arising under this
Agreement, the Note or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"Offset Waiver Agreement" means the Agreement to Waive Setoff Rights
of even date herewith by and between Ryder and the Lender.
"Original Maturity Date" means the one year anniversary of the date
of this Agreement.
"Permitted Lien" means mortgages, deeds of trust, pledges, liens,
security interests, adverse claims, assignments or transfers of interests
in the Collateral acceptable to the Lender in its sole discretion.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession.
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"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto and any note or notes issued in substitution therefor, as the same
may hereafter be amended, supplemented or restated from time to time.
"Ryder" means Ryder Dedicated Logistics, Inc., a ____________
corporation.
"Security Documents" means this Agreement, the Collateral Account
Agreement and the Lockbox Agreement.
"Security Interest" has the meaning given in Section 3.1.
"Support Agreement" means the Support Agreement of even date
herewith by and between the Lender and Dennis R. Johnson.
"Termination Date" means the Maturity Date or the date the Lender
demands payment pursuant to Section 2.5 or Section 7.2, or the Borrower
terminates the Credit Facility pursuant to Section 2.6, as the case may
be.
"UCC" means the Uniform Commercial Code as in effect from time to
time in the State of Minnesota.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 Revolving Advances. The Lender may, in its sole
discretion, make advances to the Borrower from time to time from the date this
Agreement is signed and delivered to the Termination Date, on the terms and
subject to the conditions herein set forth (each a "Revolving Advance"). The
Lender shall not consider any request for a Revolving Advance if, after giving
effect to such requested Revolving Advance, the sum of the outstanding and
unpaid Revolving Advances would exceed the Borrowing Base. The Borrower's
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral. Within the limits set forth in this
Section 2.1, the Borrower may request Revolving Advances, prepay, and request
additional Revolving Advances. The Borrower shall make each request for a
Revolving Advance to the Lender before 11:00 a.m. (Minneapolis time) of the day
of the requested Revolving Advance. Requests may be made in writing or by
telephone.
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Section 2.2 Interest; Minimum Interest Charge; Default Interest. All
interest shall be payable monthly in arrears on the first day of the month and
on demand.
(a) REVOLVING NOTE. Except as set forth in subsections (c) and (d),
the outstanding principal balance of the Revolving Note shall bear
interest at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to subsection (a), the Borrower shall pay to the Lender interest
of not less than $72,000 per calendar year (the "Minimum Interest Charge")
during the term of this Agreement, and the Borrower shall pay any
deficiency between the Minimum Interest Charge and the amount of interest
otherwise calculated under subsection (a) on the date and in the manner
provided in Section 2.4.
(c) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) USURY. In any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by
law.
Section 2.3 Fees.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable origination fee of $15,000, due and
payable upon the execution of this Agreement. The Lender acknowledges
receipt of $5,000.00 toward payment of this fee and the fees, costs and
expenses described in Sections 2.3(b) and 8.4.
(b) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business
at the rates established from time to time by the Lender as its audit fees
(which fees are currently $62.50 per hour per auditor), together with all
actual out-of-pocket costs and expenses incurred in conducting any such
audit or inspection.
Section 2.4 Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
Section 2.5 Discretionary Nature of Credit Facility; Automatic
Renewal. THE LENDER MAY AT ANY TIME AND FOR ANY REASON REFUSE TO MAKE AN
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ADVANCE AND/OR DEMAND PAYMENT OF THE ADVANCES AND TERMINATE THIS AGREEMENT
WHETHER BORROWER IS OR IS NOT IN COMPLIANCE WITH THIS AGREEMENT. The Lender need
not show that an adverse change has occurred in the Borrower's condition,
financial or otherwise, in order to refuse to make any requested Advance or to
demand payment of the Advances. Unless terminated by the Lender at any time or
by the Borrower pursuant to Section 2.6, this Agreement shall remain in effect
until the Original Maturity Date and, thereafter, shall automatically renew for
successive one year periods. Each such anniversary date is herein referred to as
a "Maturity Date".
Section 2.6 Voluntary Prepayment; Termination of the Credit Facility
by the Borrower. Except as otherwise provided herein, the Borrower may prepay
the Revolving Advances in whole at any time or from time to time in part. The
Borrower may terminate the Credit Facility at any time if it (i) gives the
Lender at least 30 days' prior written notice and (ii) pays the Lender the
termination fees in accordance with Section 2.7. If the Borrower terminates the
revolving Credit Facility, all Obligations shall be immediately due and payable.
Upon termination of the Credit Facility and payment and performance of all
Obligations, the Lender shall release or terminate the Security Interest and the
Security Documents to which the Borrower is entitled by law.
Section 2.7 Termination Prepayment Fees; Waiver of Termination Fees.
(a) TERMINATION FEES. If the Credit Facility is terminated for any
reason as of a date other than the Maturity Date the Borrower shall pay
the Lender a fee in an amount equal to the greater of (i) three percent
(3%) of the Maximum Line, or (ii) the minimum interest charge payable
pursuant to Section 2.2(b) less the amount of interest actually paid by
the Borrower (i) if there has been no automatic renewal pursuant to
Section 2.5, from the date hereof to such termination; or (ii) if there
has been automatic renewal pursuant to Section 2.5, from the last Maturity
Date to such termination.
(b) WAIVER OF TERMINATION FEES. The Borrower will not be required to
pay the termination fees otherwise due under this Section 2.7 if such
termination is made because of refinancing by an affiliate of the Lender.
Section 2.8 Mandatory Prepayment. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances
to the extent necessary to eliminate such excess.
Section 2.9 Advances Without Request. The Borrower hereby authorizes
the Lender, in its discretion, at any time or from time to time without the
Borrower's request, to make Revolving Advances to pay accrued interest, fees,
uncollected items that have been applied to the Obligations, and other
Obligations due and payable from time to time.
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ARTICLE III
SECURITY INTEREST
Section 3.1 Grant of Security Interest. The Borrower hereby grants
to the Lender a security interest (the "Security Interest") in the following
collateral (the "Collateral"), as security for the payment and performance of
the Obligations:
INVENTORY: All inventory of Borrower, as such term is defined in the UCC,
whether now owned or hereafter acquired, whether consisting of whole
goods, spare parts or components, supplies or materials, whether acquired,
held or furnished for sale, for lease or under service contracts or for
manufacture or processing, and wherever located;
ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Borrower to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a rendering
of services, out of a loan, out of the overpayment of taxes or other
liabilities, or otherwise arises under any contract or agreement, whether
such right to payment is created, generated or earned by Borrower or by
some other Person who subsequently transfers such Person's interest to
Borrower, whether such right to payment is or is not already earned by
performance, and howsoever such right to payment may be evidenced,
together with all other rights and interests (including all liens and
security interests) which Borrower may at any time have by law or
agreement against any account debtor or other obligor obligated to make
any such payment or against any property of such account debtor or other
obligor; all including all of Borrower's rights to payment in the form of
all present and future accounts, contract rights, loans and obligations
receivable, chattel papers, bonds, notes and other debt instruments, tax
refunds and rights to payment in the nature of general intangibles;
GENERAL INTANGIBLES: All of Borrower's general intangibles, as such term
is defined in the UCC, whether now owned or hereafter acquired, including
all present and future contract rights, patents, patent applications,
copyrights, trademarks, trade names, trade secrets, customer or supplier
lists and contracts, manuals, operating instructions, permits, franchises,
the right to use Borrower's name, and the goodwill of Borrower's business;
and
INVESTMENT PROPERTY: All of Borrower's investment property, as such term
is defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all securities, security entitlements, securities
accounts, commodity contracts, commodity accounts, stocks, bonds, mutual
fund shares, money market shares and U.S. Government securities;
together with (i) all other collateral described in any Security Document,
(ii) all substitutions and replacements for and products of any of the
foregoing property,
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(iii) in the case of all tangible property, together with (A) all
accessions, accessories, attachments, parts, equipment and repairs now or
hereafter attached or affixed to or used in connection with any such
goods, and (B) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods, and (iv) all proceeds of
any and all of the foregoing property.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time (either before or after the occurrence of an Event of
Default) notify any account debtor or other Person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right
to take exclusive possession of the Premises at any time during any
Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender in good faith considers related.
(c) The Lender's right to hold the Premises shall terminate upon the
earlier of payment in full of all Obligations, or final sale or
disposition of all goods constituting Collateral and delivery of all such
goods to purchasers.
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(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession or use of any of the Premises;
provided, however, that if the Lender does pay or account for any rent or
other compensation for the possession or use of any of the Premises, the
Borrower shall reimburse the Lender promptly for the full amount thereof
and for, all taxes, fees, duties, imposts, charges and expenses at any
time incurred by or imposed upon the Lender in connection the possession
or use of any of the Premises.
Section 3.5 License. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral following an Event of Default.
Section 3.6 Filing a Copy. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by Borrower is
sufficient as a financing statement.
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 Conditions Precedent to the Lender's Willingness to
Consider Making Advances. The Lender's willingness to consider making an initial
Advance hereunder shall be subject to the condition precedent that the Lender
shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to which
the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(d) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank Minnesota, National Association.
(e) The Lockbox Agreement, properly executed by the Borrower and
Norwest Bank Minnesota, National Association.
(f) Current searches of appropriate filing offices showing that (i)
no state or federal tax liens have been filed and remain in effect against
the Borrower, (ii) no financing statements have been filed and remain in
effect against the Borrower except those financing statements relating to
Permitted Liens or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations satisfactory to the Lender, and (iii) the
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Lender has duly filed all financing statements necessary to perfect the
Security Interest, to the extent the Security Interest is capable of being
perfected by filing.
(g) A certificate of the Borrower's secretary or assistant secretary
certifying as to (i) the resolutions of the Borrower's directors and if
required, shareholders, authorizing the execution, delivery and
performance of the Loan Documents, (ii) the Borrower's articles of
incorporation and bylaws, and (iii) the signatures of the Borrower's
officers or agents authorized to execute and deliver the Loan Documents
and other instruments, agreements and certificates, including Advance
requests, on the Borrower's behalf.
(h) A current certificate issued by the Secretary of State of
Minnesota, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Minnesota.
(i) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(j) A certificate of one of the Borrower's officers confirming, in
his personal capacity, the representations and warranties set forth in
Article V and in the Disclosure.
(k) The Support Agreement in favor of the Lender, properly executed
by the Borrower's president in his personal capacity.
(l) An opinion of counsel to the Borrower, addressed to the Lender.
(m) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(n) Payment of the fees and commissions due through the date of the
initial Advance and expenses incurred by the Lender through such date and
required to be paid by the Borrower under Section 8.4, including all legal
expenses incurred through the date of this Agreement.
(o) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances. The Lender will
not consider any request for an Advance unless on such date:
(a) the representations and warranties contained in Article V and
the Disclosure are correct on and as of the date of such Advance as though
made on and
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as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from
such Advance which constitutes a Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Name; Locations; Tax ID No.; Subsidiaries. During its
existence, the Borrower has done business solely under its corporate name as set
forth herein and under such trade names and such other corporate names as
disclosed to Lender in writing before this Agreement is signed and delivered.
The address of Borrower's chief executive office and principal place of business
and its federal tax identification number are set forth below its signature to
this Agreement. All Inventory is located at that location or at one of the other
locations disclosed to Lender in writing before this Agreement is signed and
delivered. The Borrower has no subsidiaries except as disclosed to Lender in
writing before this Agreement is signed and delivered.
Section 5.2 Financial Condition; No Adverse Change. Before this
Agreement was signed and delivered, the Borrower furnished the Lender certain of
its unaudited financial statements certified by the Borrower. Those statements
fairly present the Borrower's financial condition as of the dates indicated
therein and the results of its operations for the periods then ended and were
prepared in accordance with generally accepted accounting principles. Since the
date of the most recent financial statements, there has been no material adverse
change in the business, properties or condition (financial or otherwise) of the
Borrower.
ARTICLE VI
COVENANTS OF THE BORROWER
So long as the Advances or any amount owing to Lender hereunder
shall remain unpaid, the Borrower will comply with the requirements in this
Article, unless the Lender shall otherwise consent in writing.
Section 6.1 Reporting Requirements. The Borrower will deliver to the
Lender each of the following in form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower, the Borrower's audited financial
statements prepared in accordance with GAAP by a firm chosen by the
Borrower and acceptable to the Lender in its sole discretion; together
with (i) copies of all management letters
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prepared by such accountants; (ii) a report signed by such accountants
stating that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or
Event of Default hereunder and all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.7, and 6.9; (iii)
a certificate of the Borrower's chief financial officer stating that such
financial statements have been prepared in accordance with GAAP, that they
fairly present the Borrower's financial condition and the results of its
operations, and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after the
end of each month, an unaudited/internal balance sheet and statement of
income and retained earnings of the Borrower as at the end of and for such
month and for the year to date period then ended, prepared in accordance
with GAAP, subject to year-end audit adjustments; and accompanied by a
certificate of the Borrower's chief financial officer, substantially in
the form of Exhibit B hereto stating (i) that such financial statements
have been prepared in accordance with GAAP, subject to year-end audit
adjustments and fairly represent the Borrower's financial condition and
the results of its operations, (ii) whether or not such officer has
knowledge of the occurrence of any Default or Event of Default hereunder
not theretofore reported and remedied and, if so, stating in reasonable
detail the facts with respect thereto, and (iii) all relevant facts in
reasonable detail to evidence, and the computations as to, whether or not
the Borrower is in compliance with the requirements set forth in Sections
6.7, and 6.9;
(c) within 15 days after the end of each month or more frequently if
the Lender so requires, agings of the Borrower's accounts receivable and
its accounts payable, an inventory certification report and perpetual
listing, and a calculation of the Borrower's Accounts, Eligible Accounts,
Inventory and Eligible Inventory as at the end of such month or shorter
time period;
(d) as soon as available, a copy of the checking account statement
of the Borrower as of the last day of each month from each bank with which
Borrower maintains a checking account, such statements to be provided to
the Lender directly by each such bank or by the Borrower with respect to a
bank that is unwilling to send them to the Lender;
(e) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the Borrower's
good faith projections and certified by the Borrower's chief financial
officer as being the most accurate projections available and identical to
the projections used by the Borrower for internal planning purposes,
together with such supporting schedules and information as the Lender may
in its discretion require;
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<PAGE>
(f) as soon as available and in any event within 3 days after they
are due, copies of tax payments due and paid and written notice of any and
all taxes due but not paid;
(g) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower concerning any environmental
issue or which seek a monetary recovery against the Borrower in excess of
$10,000;
(h) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement
by a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(i) as promptly as practicable, notice of any change in the persons
constituting the Borrower's officers and directors;
(j) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request;
(k) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any Collateral
or such other collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders; and
(m) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange.
Section 6.2 Inspection. Upon the Lender's request, the Borrower will
permit any officer, employee, attorney, agent or accountant for the Lender to
audit, review, make extracts from or copy any and all records of the Borrower
and to inspect the Collateral at all times during ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and
from time to time send, or request the Borrower to send, requests for
verification of Accounts or notices of assignment to account debtors and other
obligors. The Borrower authorizes the Lender to
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<PAGE>
verify Accounts as frequently as daily and the Borrower understands the Lender
intends to do so by telephone and/or in writing.
Section 6.4 No Other Liens. The Borrower will keep all Collateral
free and clear of all security interests, liens and encumbrances except the
Security Interest, purchase money security interests in equipment, and other
security interests approved by the Lender in writing.
Section 6.5 Insurance. The Borrower will at all times keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
a lender's loss payable clause in favor of Lender to the extent of its interest.
Section 6.6 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of five calendar days after the Lender gives the Borrower written notice
thereof, the Lender may, but need not, perform or observe such covenant on
behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure and the
Borrower shall thereupon pay to the Lender on demand the amount of all monies
expended and all costs and expenses (including reasonable attorneys' fees and
legal expenses) incurred by the Lender in connection therewith, together with
interest thereon from the date expended or incurred at the Default Rate. To
facilitate the Lender's performance or observance of such covenants of the
Borrower, the Borrower hereby irrevocably appoints the Lender, or the Lender's
delegate, acting alone, as the Borrower's attorney in fact (which appointment is
coupled with an interest) with the right (but not the duty) from time to time to
create, prepare, complete, execute, deliver, endorse or file in the name and on
behalf of the Borrower any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or endorsed
by the Borrower under this Section 6.6.
Section 6.7 Minimum Book Net Worth. The Borrower will maintain, as
of each month end described below, its Book Net Worth at an amount not less than
the amount set forth opposite such month end:
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<PAGE>
---------------------------- -------------------------------
Month Ending Minimum Book Net Worth
---------------------------- -------------------------------
October 31, 1998 $3,225,000
---------------------------- -------------------------------
November 30, 1998 $2,925,000
---------------------------- -------------------------------
December 31, 1998 $2,925,000
---------------------------- -------------------------------
January 31, 1999 $2,650,000
---------------------------- -------------------------------
February 28, 1999 $2,575,000
---------------------------- -------------------------------
March 31, 1999 $2,925,000
---------------------------- -------------------------------
April 30, 1999 $2,625,000
---------------------------- -------------------------------
May 31, 1999 $2,625,000
---------------------------- -------------------------------
June 30, 1999 $2,975,000
---------------------------- -------------------------------
July 31, 1999 $2,750,000
---------------------------- -------------------------------
August 31, 1999 $2,875,000
---------------------------- -------------------------------
September 30, 1999 $3,375,000
---------------------------- -------------------------------
Section 6.8 New Covenants. On or before August 31, 1999, the
Borrower and the Lender shall agree on new covenant levels for Section 6.7 for
periods after such date. The new covenant levels will be based on the Borrower's
projections for such periods and shall be no less stringent than the present
levels.
Section 6.9 Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures of more than $3,000,000 in the aggregate
during any fiscal year.
Section 6.10 No Sale or Transfer of Collateral and Other Assets. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the
stock of any subsidiary, (ii) all or a substantial part of its assets, or (iii)
any Collateral or any interest therein (whether in one transaction or in a
series of transactions) to anyone other than the sale of Inventory in the
ordinary course of business.
Section 6.11 Place of Business; Name. The Borrower will not change
the location of its chief executive office or principal place of business from
that disclosed pursuant to Section 5.1. The Borrower will not permit any
tangible Collateral to be located in any state or area in which, in the event of
such location, a financing statement covering such Collateral would be required
to be, but has not in fact been, filed in order to perfect the Security
Interest. The Borrower will not change its name.
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<PAGE>
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.1 Events of Default. An "Event of Default" as used herein
shall mean any of the following:
(a) Failure to pay the Note when demanded, and in this connection
Borrower hereby waives presentment, notice of dishonor and protest;
(b) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor;
(c) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any
lease of any of the Premises, and the expiration of the applicable period
of grace, if any, specified in such evidence of indebtedness, indenture,
other instrument or lease;
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in any Loan Document.
Section 7.2 Rights and Remedies. As provided in Section 2.5, the
Lender may, at any time and for any reason, refuse to make any requested Advance
or demand payment of the Obligations. In addition, upon the occurrence of an
Event of Default or at any time thereafter, the Lender may exercise any or all
of the following rights and remedies:
(a) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of any
or all of the Collateral, and in connection therewith, the Borrower will
on demand assemble the Collateral and make it available to the Lender at a
place to be designated by the Lender which is reasonably convenient to
both parties;
(b) The Lender may exercise any other rights and remedies available
to it by law or agreement.
The remedies provided hereunder are cumulative.
Section 7.3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner
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<PAGE>
specified in Section 8.3) at least 10 calendar days before the date of intended
disposition or other action.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 No Waiver; Cumulative Remedies. No failure or delay by
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
Section 8.2 Amendments, Etc. No amendment, modification, termination
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 8.3 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be (i)
personally delivered, or (ii) sent by first class United States mail, or (iii)
sent by overnight courier of national reputation, or (iv) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopy number as set forth below its signature
to this Agreement.
Section 8.4 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses (including reasonable legal fees) incurred by the Lender
in connection with the Loan Documents and any other document or agreement
related thereto, and the transactions contemplated hereby, including wire
transfer and ACH charges, the cost of credit reports, overadvance fees, and fees
and expenses in amending and enforcing this Agreement.
Section 8.5 Indemnity. In addition to the payment of expenses
pursuant to Section 8.4, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution and
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<PAGE>
delivery of this Agreement and the other Loan Documents or the making of
the Advances;
(ii) any and all liabilities, losses, damages, penalties, judgments,
suits, claims, costs and expenses of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with any investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be designated a party
thereto, which may be imposed on, incurred by or asserted against any such
Indemnitee, in any manner related to or arising out of or in connection
with the making of the Advances, this Agreement and the other Loan
Documents or the use or intended use of the proceeds of the Advances; and
(iii) any claim, loss or damage to which any Indemnitee may be
subjected as a result of any violation of any federal, state, local or
other governmental statute, regulation, law, or ordinance dealing with the
protection of human health and the environment.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, then the Borrower or counsel
designated by the Borrower and satisfactory to the Indemnitee, will resist and
defend such action, suit or proceeding to the extent and in the manner directed
by the Indemnitee. Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 8.5 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 8.6 Binding Effect; Assignment; Counterparts; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Without limiting the Lender's right to share
information regarding the Borrower and its Affiliates with the Lender's
participants, accountants, lawyers and other advisors, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information.
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<PAGE>
Section 8.7 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 8.8 Governing Law; Jurisdiction, Venue; Waiver of Jury
Trial. This Agreement and the Note shall be governed by and construed in
accordance with the laws (other than conflict laws) of the State of Minnesota.
Each party consents to the personal jurisdiction of the state and federal courts
located in the State of v in connection with any controversy related to this
Agreement, waives any argument that venue in any such forum is not convenient
and agrees that any litigation initiated by any of them in connection with this
Agreement shall be venued in either the District Court of Hennepin County,
Minnesota, or the United States District Court, District of Minnesota, Fourth
Division. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the date first above written.
NORWEST BUSINESS CREDIT, INC. XATA CORPORATION
By /s/ Roger Pfiffner By /s/ Dennis R. Johnson
---------------------------------- ------------------------------------
Roger Pfiffner Dennis R. Johnson
Its Vice President Its President and Chief Executive
Officer
Address: Address:
Roanoke Building, Suite 400 151 East Cliff Road, Ste 10
Seventh Street and Marquette Avenue Burnsville, Minnesota 55337
Minneapolis, Minnesota 55479-0152 Telecopy No. 612-894-2463
Telecopy No. 612-341-2472
Federal Tax ID No. 41-1237652 Federal Tax I.D. No. 41-1641815
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<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$1,500,000 Minneapolis, Minnesota
October 23, 1998
For value received, the undersigned, XATA CORPORATION, a Minnesota
corporation (the "Borrower"), hereby promises to pay ON DEMAND to the order of
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its
main office in Minneapolis, Minnesota, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of One Million Five Hundred
Thousand Dollars and No Cents ($1,500,000) or, if less, the aggregate unpaid
principal amount of all Advances made by the Lender to the Borrower under the
Credit and Security Agreement of even date herewith by and between the Lender
and the Borrower (as the same may hereafter be amended, supplemented or restated
from time to time, the "Credit Agreement") together with interest on the
principal amount hereunder remaining unpaid from time to time (computed on the
basis of actual days elapsed in a 360-day year) from the date of the initial
Advance until this Note is fully paid at the rate from time to time in effect
under the Credit Agreement.
This Note is the Revolving Note as defined in the Credit Agreement
and is subject to the Credit Agreement.
XATA CORPORATION
By
-----------------------------------------
Dennis R. Johnson
Its President and Chief Executive Officer
A-1
<PAGE>
Exhibit B to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: Michael Guillou
Norwest Business Credit, Inc.
Date: __________________, 199___
Subject: XATA Corporation
Financial Statements
In accordance with our Credit and Security Agreement dated as of
October 23, 1998 (the "Credit Agreement"), attached are the financial statements
of XATA Corporation (the "Borrower") as of and for ________________, 19___ (the
"Reporting Date") and the year-to-date period then ended (the "Current
Financials"). All terms used in this certificate have the meanings given in the
Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition as of the date thereof.
Events of Default. (Check one):
|_| The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
|_| The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement and attached hereto is a
statement of the facts with respect to thereto.
Financial Covenants. I further hereby certify as follows:
1. Minimum Book Net Worth. Pursuant to Section 6.7 of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
$____________ which |_| satisfies |_| does not satisfy the requirement
that such amount be not less than $_____________ on the Reporting Date as
set forth in the table below:
<PAGE>
---------------------------- -------------------------------
Month Ending Minimum Book Net Worth
---------------------------- -------------------------------
October 31, 1998 $3,225,000
---------------------------- -------------------------------
November 30, 1998 $2,925,000
---------------------------- -------------------------------
December 31, 1998 $2,925,000
---------------------------- -------------------------------
January 31, 1999 $2,650,000
---------------------------- -------------------------------
February 28, 1999 $2,575,000
---------------------------- -------------------------------
March 31, 1999 $2,925,000
---------------------------- -------------------------------
April 30, 1999 $2,625,000
---------------------------- -------------------------------
May 31, 1999 $2,625,000
---------------------------- -------------------------------
June 30, 1999 $2,975,000
---------------------------- -------------------------------
July 31, 1999 $2,750,000
---------------------------- -------------------------------
August 31, 1999 $2,875,000
---------------------------- -------------------------------
September 30, 1999 $3,375,000
---------------------------- -------------------------------
2. Capital Expenditures. Pursuant to Section 6.9 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the _____________
year ended ______________, 199___, for Capital Expenditures,
$__________________ in the aggregate, which |_| satisfies |_| does not
satisfy the requirement that such expenditures not exceed $3,000,000 in
the aggregate during such year.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
XATA CORPORATION
By
--------------------------------------
Its Chief Financial Officer
B-2
FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Amendment, dated as of November 30, 1998, is made by and
between XATA CORPORATION, a Minnesota corporation ("the Borrower") and NORWEST
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into a Credit and
Security Agreement dated as of October 23, 1998 (the "Credit Agreement").
Capitalized terms used in these recitals have the meanings given to them in the
Credit Agreement unless otherwise specified.
The Borrower has requested that the Lender increase the
Maximum Line to $2,000,000. The Lender is willing to grant the Borrower's
requests pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, it is agreed as follows:
1. Defined Terms. Capitalized terms used in this Amendment
which are defined in the Credit Agreement shall have the same meanings as
defined therein, unless otherwise defined herein. In addition, Section 1.1 of
the Credit Agreement is amended by adding or amending, as the case may be, the
following definitions:
"First Amendment" means the First Amendment to Credit and
Security Agreement by and between the Borrower and the Lender, dated as
of November 30, 1998."
"Maximum Line" means $2,000,000."
"Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A to the First Amendment and any note or notes issued in
substitution therefor, as the same may hereafter be amended,
supplemented or restated from time to time."
2. No Other Changes. Except as explicitly amended by this
Amendment, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect and shall apply to any advance or letter of credit
thereunder.
3. Conditions Precedent. This Amendment shall be effective
when the Lender shall have received an executed original hereof, together with
each of the following, each in substance and form acceptable to the Lender in
its sole discretion:
<PAGE>
(a) The Note, substantially in the form of Exhibit A hereto,
duly executed on behalf of the Borrower (the "Replacement Note").
(b) A Certificate of the Secretary of the Borrower certifying
as to (i) the resolutions of the board of directors of the Borrower
approving the execution and delivery of this Amendment, (ii) the fact
that the articles of incorporation and bylaws of the Borrower, which
were certified and delivered to the Lender pursuant to its Certificate
of Authority dated as of October 23, 1998 continue in full force and
effect and have not been amended or otherwise modified except as set
forth in the Certificate to be delivered, and (iii) certifying that the
officers and agents of the Borrower who have been certified to the
Lender, pursuant to the Certificate of Authority dated as of October
23, 1998, as being authorized to sign and to act on behalf of the
Borrower continue to be so authorized or setting forth the sample
signatures of each of the officers and agents of the Borrower
authorized to execute and deliver this Amendment and all other
documents, agreements and certificates on behalf of the Borrower.
(c) Such other matters as the Lender may require.
4. Representations and Warranties. The Borrower hereby
represents and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and the Replacement Note and to perform all of
its obligations hereunder, and this Amendment and the Replacement Note
have been duly executed and delivered by the Borrower and constitute
the legal, valid and binding obligation of the Borrower, enforceable in
accordance with their terms.
(b) The execution, delivery and performance by the Borrower of
this Amendment and the Replacement Note have been duly authorized by
all necessary corporate action and do not (i) require any
authorization, consent or approval by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or
of any order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation or
by-laws of the Borrower, or (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other
agreement, lease or instrument to which the Borrower is a party or by
which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in
Article V of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
5. References. All references in the Credit Agreement to "this Agreement" shall
be deemed to refer to the Credit Agreement as amended hereby; and any and all
references in the Security Documents to the Credit Agreement shall be deemed to
<PAGE>
refer to the Credit Agreement as amended hereby.
6. No Waiver. The execution of this Amendment and the
Replacement Note and acceptance of any documents related hereto shall not be
deemed to be a waiver of any Default or Event of Default under the Credit
Agreement or breach, default or event of default under any Security Document or
other document held by the Lender, whether or not known to the Lender and
whether or not existing on the date of this Amendment.
7. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
8. Costs and Expenses. The Borrower hereby reaffirms its
agreement under the Credit Agreement to pay or reimburse the Lender on demand
for all costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Security Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender
for the services performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make an Advance
under the Credit Agreement, or apply the proceeds of any Advance, for the
purpose of paying any such fees, disbursements, costs and expenses.
<PAGE>
9. Miscellaneous. This Amendment may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
NORWEST BUSINESS CREDIT, INC. XATA CORPORATION
By__________________________________ By _______________________________
Roger Pfiffner Dennis R. Johnson
Its Vice President Its President and Chief
Executive Officer
<PAGE>
Exhibit A to First Amendment
to Credit and Security Agreement
REVOLVING NOTE
$2,000,000 Minneapolis, Minnesota
November 30, 1998
For value received, the undersigned, XATA CORPORATION, a
Minnesota corporation (the "Borrower"), hereby promises to pay ON DEMAND to the
order of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"),
at its main office in Minneapolis, Minnesota, or at any other place designated
at any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of Two Million
Dollars and No Cents ($2,000,000) or, if less, the aggregate unpaid principal
amount of all Advances made by the Lender to the Borrower under the Credit and
Security Agreement dated as of October 23, 1998 by and between the Lender and
the Borrower as amended by a First Amendment to Credit and Security Agreement
dated as of November 30, 1998 (as the same may hereafter be amended,
supplemented or restated from time to time, the "Credit Agreement") together
with interest on the principal amount hereunder remaining unpaid from time to
time (computed on the basis of actual days elapsed in a 360-day year) from the
date of the initial Advance until this Note is fully paid at the rate from time
to time in effect under the Credit Agreement.
To the extent this Note evidences the Borrower's obligation to
pay existing Revolving Advances, this Note is issued in substitution for and
replacement of but not in payment of the Borrower's promissory note dated as of
October 23,1 998.
This Note is the Revolving Note as defined in the Credit
Agreement and is subject to the Credit Agreement.
XATA CORPORATION
By _______________________________
Dennis R. Johnson
Its President and Chief Executive Officer
<PAGE>
SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Amendment, dated as of January 8, is made by and between
XATA CORPORATION, a Minnesota corporation (the "Borrower"), and NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into a Credit and
Security Agreement dated as of October 23, 1998, as amended by a First Amendment
to Credit and Security Agreement dated as of November 30, 1998 (as so amended,
the "Credit Agreement"). Capitalized terms used in these recitals have the
meanings given to them in the Credit Agreement unless otherwise specified.
The Borrower has requested that certain amendments be made to
the Credit Agreement, which the Lender is willing to make pursuant to the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, it is agreed as follows:
1. Defined Terms. Capitalized terms used in this Amendment
which are defined in the Credit Agreement shall have the same meanings as
defined therein, unless otherwise defined herein. In addition, Section 1.1 of
the Credit Agreement is amended by amending the following definition:
Clause (vi) of the definition of "Eligible Accounts" is hereby
amended to read:
"(vi) Accounts owed by an account debtor
located outside the United States which are not
backed by a bank letter of credit assigned to the
Lender, in the possession of the Lender and
acceptable to the Lender in all respects, in its sole
discretion; provided however, that Accounts owed by
Canadian account debtors can be Eligible Accounts if
not otherwise ineligible;"
2. Minimum Book Net Worth. Section 6.7 of the Credit Agreement
is hereby amended to read as follows:
"Section 6.7 Minimum Book Net Worth. The Borrower will
maintain, as of each month end described below, its Book Net Worth at
an amount not less than the amount set forth opposite such month end:
<PAGE>
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Month Ending Minimum Book Net Worth
- - ---------------------------------------- -------------------------------------
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October 31, 1998 $2,325,000
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November 30, 1998 $2,025,000
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December 31, 1998 $2,025,000
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January 31, 1999 $1,750,000
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February 28, 1999 $1,650,000
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March 31, 1999 $2,025,000
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April 30, 1999 $1,725,000
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May 31, 1999 $1,725,000
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June 30, 1999 $2,075,000
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July 31, 1999 $1,850,000
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August 31, 1999 $1,975,000
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September 30, 1999 $2,475,000
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3. No Other Changes. Except as explicitly amended by this
Amendment, all of the terms and conditions of the Credit Agreement shall remain
in full force and effect and shall apply to any advance or letter of credit
thereunder.
4. Conditions Precedent. This Amendment shall be effective
when the Lender shall have received an executed original hereof.
5. Representations and Warranties. The Borrower hereby
represents and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to
execute this Amendment and to perform all of its obligations hereunder,
and this Amendment has been duly executed and delivered by the Borrower
and constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate
action and do not (i) require any authorization, consent or approval by
any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any
law, rule or regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrower, or the
articles of incorporation or by-laws of the Borrower, or (iii) result
in a breach of or constitute a default under any indenture or loan or
credit agreement or any other
-2-
<PAGE>
agreement, lease or instrument to which the Borrower is a party or by
which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in
Article V of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
6. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
7. No Waiver. The execution of this Amendment and acceptance
of any documents related hereto shall not be deemed to be a waiver of any
Default or Event of Default under the Credit Agreement or breach, default or
event of default under any Security Document or other document held by the
Lender, whether or not known to the Lender and whether or not existing on the
date of this Amendment.
8. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
9. Costs and Expenses. The Borrower hereby reaffirms its
agreement under the Credit Agreement to pay or reimburse the Lender on demand
for all costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Security Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender
for the services performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.
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<PAGE>
10. Miscellaneous. This Amendment may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
NORWEST BUSINESS CREDIT, INC. XATA CORPORATION
By _______________________________
Dennis R. Johnson
By _________________________________ Its President and Chief
Roger Pfiffner Executive Officer
Its Vice President
EXHIBIT 10.10
PROMISSORY NOTE
------------------
(DATE)
151 EAST CLIFF ROAD, SUITE 10, BURNSVILLE, DAKOTA COUNTY, MN 55337
-------------------------------------------------------------------
(ADDRESS OF MAKER)
FOR VALUE RECEIVED, XATA CORPORATION ("MAKER") promises, jointly and severally
if more than one, to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION or
any subsequent holder hereof (each, a "PAYEE") at its office located at 44 OLD
RIDGEBURY ROAD, DANBURY, CT 06810 or at such other place as Payee or the holder
hereof may designate, the principal sum of SIX HUNDRED TWENTY FIVE THOUSAND AND
00/100 DOLLARS ($625,000.00), with interest on the unpaid principal balance,
from the date hereof through and including the dates of payment, at a fixed,
simple interest rate of Ten percent (10%) per annum, to be paid in lawful money
of the United States, in Twenty Four (24) consecutive monthly installments of
principal and interest as follows:
Periodic
Installment Amount
----------- ------
1-23 $28,840.58
each ("Periodic Installment") and a final installment which shall be in the
amount of the total outstanding principal and interest. The first Periodic
Installment shall be due and payable on _______________ and the following
Periodic Installments and the final installment shall be due and payable on the
same day of each succeeding period (each, a "Payment Date"). All payments shall
be applied first to interest and then to principal. The acceptance by Payee of
any payment which is less than payment in full of all amounts due and owing at
such time shall not constitute a waiver of Payee's right to receive payment in
full at such time or at any prior or subsequent time. Interest shall be
calculated on the basis of a 365 day year (366 day leap year). The payment of
any Periodic Installment after its due date shall result in a corresponding
decrease in the portion of the Periodic Installment credited to the remaining
unpaid principal balance. The payment of any Periodic Installment prior to its
due date shall result in a corresponding increase in the portion of the Periodic
Installment credited to the remaining unpaid principal balance.
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a "SECURITY
AGREEMENT.")
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
its due date, the Maker agrees to pay, in addition to the amount of each such
installment or other sum, a late payment charge of five percent (5%) of the
amount of said installment or other sum, but not exceeding any lawful maximum.
If (i) Maker fails to make payment of my amount due hereunder within ten (10)
days after the same becomes due and payable; or (ii) Maker is in default under,
or fails to perform under any term or condition contained in any Security
Agreement, then the entire principal sum remaining unpaid, together with all
accrued interest thereon and any other sum payable under this Note or any
Security Agreement, at the election of Payee, shall immediately become due and
payable, with interest thereon at the lesser of eighteen percent (18%) per annum
or the highest rate not prohibited by applicable law from the date of such
accelerated maturity until paid (both before and after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness hereunder
upon payment of the entire indebtedness plus an additional sum as a premium
equal to the following percentages of the original principal balance for the
indicated period:
<TABLE>
<S> <C> <C>
Prior to the first annual anniversary date of this Note: Five percent (5%)
Thereafter and prior to the second annual anniversary date of this Note: Three percent (3%)
and zero percent (0%) thereafter, plus all other sums due hereunder or under any
Security Agreement.
</TABLE>
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or any Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the provisions of this paragraph shall govern and control, (b)
neither Maker nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or refunded
to Maker, at the option of the Payee, and (d) the effective rate of interest
shall be automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
this Note or any Security Agreement which are made for the purpose of
determining whether such rate exceeds the maximum lawful contract rate, shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full stated
term of the indebtedness evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise by Payee in connection with
such indebtedness; provided, however, that if any applicable state law is
amended or the law of the United States of America preempts any applicable state
law, so that it becomes lawful for the Payee to receive a greater interest per
annum rate than is presently allowed, the Maker agrees that, on the effective
date of such amendment or preemption, as the case may be, the lawful maximum
hereunder shall be increased to the maximum interest per annum rate allowed by
the amended state law or the law of the United States of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "OBLIGOR") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made, granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee
<PAGE>
without joinder of any other as a party thereto, and that Payee shall not be
required first to foreclose, proceed against, or exhaust any security hereof in
order to enforce payment of this Note. The Maker and each Obligor hereby waives
presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as
well as filing of suit (if permitted by law) and diligence in collecting this
Note or enforcing any of the security hereof, and agrees to pay (if permitted by
law) all expenses incurred in collection, including Payee's actual attorneys'
fees. Maker and each Obligor agrees that fees not in excess of twenty percent
(20%) of the amount then due shall be deemed reasonable.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATION THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.)
THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supercedes all
prior understandings, agreements and representations, express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.
XATA CORPORATION
By: /s/ Dennis R. Johnson (L.S.)
- - ---------------------------- -------------------------------------
(Witness) (Signature)
President & CEO
- - ---------------------------- -------------------------------------
(Print name) Print name (and title, if applicable)
411641815
- - ---------------------------- -------------------------------------
(Address) (Federal tax identification number)
<PAGE>
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made as of _____________ ("AGREEMENT"),
by and between GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation with
an address at 44 OLD RIDGEBURY ROAD, DANBURY, CT 06810 ("SECURED PARTY"), and
XATA CORPORATION, a corporation organized and existing under the laws of the
state of Minnesota with its chief executive offices located at 151 EAST CLIFF
ROAD SUITE 10, BURNSVILLE, MN 55337 ("DEBTOR").
In consideration of the promises herein contained and of certain other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor and Secured Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST.
Debtor hereby gives, grants and assigns to Secured Party, its successors
and assigns forever, a security interest in and against any and all property
listed on any collateral schedule now or hereafter annexed hereto or made a part
hereof ("COLLATERAL SCHEDULE"), and in and against any and all additions,
attachments, accessories and accessions thereto, any and all substitutions,
replacements or exchanges therefor, and any and all insurance and/or other
proceeds thereof (all of the foregoing being hereinafter individually and
collectively referred to as the "COLLATERAL"). The foregoing security interest
is given to secure the payment and performance of any and all debts, obligations
and liabilities of any kind, nature or description whatsoever (whether primary,
secondary, direct, contingent, sole, joint or several, or otherwise, and whether
due or to become due) of Debtor to Secured Party, now existing or hereafter
arising, including but not limited to the payment and performance of certain
Promissory Notes from time to time identified on any Collateral Schedule
(collectively "NOTES" and each a "NOTE"), and any renewals, extensions and
modifications of such debts, obligations and liabilities (all of the foregoing
being hereinafter referred to as the "INDEBTEDNESS"). Notwithstanding the
foregoing, and notwithstanding anything to the contrary contained elsewhere in
this Agreement, to the extent that Secured Party asserts a purchase money
security interest in any items of Collateral ("PMSI COLLATERAL"): (i) the PMSI
Collateral shall secure only that portion of the Indebtedness which has been
advanced by Secured Party to enable Debtor to purchase, or acquire rights in or
the use of such PMSI Collateral (the "PMSI INDEBTEDNESS"), and (ii) no other
Collateral shall secure the PMSI Indebtedness.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the date hereof
and as of the date of execution of each Collateral Schedule hereto that:
(a) Debtor is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the first paragraph of this
Agreement, has its chief executive offices at the location set forth in such
paragraph, and is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations;
(b) Debtor has adequate power and capacity to enter into, and to perform
its obligations, under this Agreement, each Note and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing being hereinafter referred to as the "DEBT DOCUMENTS");
(c) This Agreement and the other Debt Documents have been duly
authorized, executed and delivered by Debtor and constitute legal, valid and
binding agreements enforceable under all applicable laws in accordance with
their terms, except to the extent that the enforcement of remedies may be
limited under applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into, or
performance by, Debtor of any of the Debt Documents, except such as may have
already been obtained;
(e) The entry into, and performance by, Debtor of the Debt Documents will
not (i) violate any of the organizational documents of Debtor or any judgment,
order, law or regulation applicable to Debtor, or (ii) result in any breach of,
constitute a default under, or result in the creation of any lien, claim or
encumbrance on any of Debtor's property (except for liens in favor of Secured
Party) pursuant to, any indenture mortgage, deed of trust, bank loan, credit
agreement, or other agreement or instrument to which Debtor is a party;
(f) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Debtor which could, in the aggregate, have a material adverse effect on Debtor,
its business or operations, or its ability to perform its obligations under the
Debt Documents;
(g) All financial statements delivered to Secured Party in connection
with the Indebtedness have been prepared in accordance with generally accepted
accounting principles, and since the date of the most recent financial
statement, there has been no material adverse change;
(h) The Collateral is not, and will not be, used by Debtor for personal,
family or household purposes;
(i) The Collateral is, and will remain, in good condition and repair and
Debtor will not be negligent in the care and use thereof;
(j) Debtor is, and will remain, the sole and lawful owner, and in
possession of, the Collateral, and has the sole right and lawful authority to
grant the security interest described in this Agreement; and
(k) The Collateral is, and will remain, free and clear of all liens,
claims and encumbrances of every kind, nature and description, except for (i)
liens in favor of Secured Party, (ii) liens for taxes not yet due or for taxes
being contested in good faith and which do not involve, in the reasonable
judgment of Secured Party, any risk of the sale, forfeiture or loss of any of
the Collateral, and (iii) inchoate materialmen's, mechanic's, repairmen's and
similar liens arising by operation of law in the normal course of business for
amounts which are not delinquent (all of such permitted liens being hereinafter
referred to as "PERMITTED LIENS").
3. COLLATERAL.
(a) Until the declaration of any default hereunder, Debtor shall remain
in possession of the Collateral; provided, however, that Secured party shall
have the right to possess (i) any chattel paper or instrument that constitutes a
part of the Collateral, and (ii) any other Collateral which because of its
<PAGE>
nature may require that Secured Party's security interest therein be perfected
by possession. Secured Party, its successors and assigns, and their respective
agents, shall have the right to examine and inspect any of the Collateral at
any time during normal business hours. Upon any request from Secured Party,
Debtor shall provide Secured Party with notice of the then current location of
the Collateral.
(b) Debtor shall (i) use the Collateral only in its trade or business,
(ii) maintain all of the Collateral in good condition and working order, (iii)
use and maintain the Collateral only in compliance with all applicable laws, and
(iv) keep all of the Collateral free and clear of all liens, claims and
encumbrances (except for Permitted Liens).
(c) Debtor shall not, without the prior written consent of Secured Party,
(i) Part with possession of any of the Collateral (except to Secured Party or
for maintenance and repair), (ii) remove any of the Collateral from the
continental United States, or (iii) sell, rent, lease, mortgage, grant a
security interest in or otherwise transfer or encumber (except for Permitted
Liens) any of the Collateral.
(d) Debtor shall pay promptly when due all taxes, license fees,
assessments and public and private charges levied or assessed on any of the
Collateral, on the use thereof, or on this Agreement or any of the other Debt
Documents. At its option, Secured Party may discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral
and may pay for the maintenance, insurance and preservation of the Collateral or
to effect compliance with the terms of this Agreement or any of the other Debt
Documents. Debtor shall reimburse Secured Party, on demand, for any and all
costs and expenses incurred by Secured Party in connection therewith and agrees
that such reimbursement obligation shall be secured hereby.
(e) Debtor shall, at all times, keep accurate and complete records of the
Collateral, and Secured Party, its successors and assigns, and their respective
agents, shall have the right to examine, inspect, and make extracts from all of
Debtor's books and records relating to the Collateral at any time during normal
business hours.
(f) If agreed by the parties, Secured Party may, but shall in no event be
obligated to, accept substitutions and exchanges of property for property, and
additions to the property, constituting all or any part of the Collateral. Such
substitutions, exchanges and additions shall be accomplished at any time and
from time to time, by the substitution of a revised Collateral Schedule for the
Collateral Schedule now or hereafter annexed. Any property which may be
substituted, exchanged or added as aforesaid shall constitute a portion of the
Collateral and shall be subject to the security interest granted herein.
Additions to, reductions or exchanges of, or substitutions for, the Collateral,
payments on account of any obligation or liability secured hereby, increases in
the obligations and liabilities secured hereby, or the creation of additional
obligations and liabilities secured hereby, may from time to time be made or
occur without affecting the provisions of this Agreement or the provisions of
any obligation or liability which this Agreement secures.
(g) Any third person at any time and from time to time holding all or any
portion of the Collateral shall be deemed to, and shall, hold the Collateral as
the agent of, and as pledge holder for, Secured Party. At any time and from time
to time, Secured Party may give notice to any third person holding all or any
portion of the Collateral that such third person is holding the Collateral as
the agent of, and as pledge holder for, the Secured Party.
4. INSURANCE.
The Collateral shall at all times be held at Debtor's risk, and Debtor
shall keep it insured against loss or damage by fire and extended coverage
perils, theft, burglary, and for any or all Collateral which are vehicles, for
risk of loss by collision, and where requested by Secured Party, against other
risks as required thereby, for the full replacement value thereof, with
companies, in amounts and under policies acceptable to Secured Party. Debtor
shall, if Secured Party so requires, deliver to Secured Party policies or
certificates of insurance evidencing such coverage. Each policy shall name
Secured Party as loss payee thereunder, shall provide for coverage to Secured
Parry regardless of the breach by Debtor of any warranty or representation made
therein, shall not be subject to co-insurance, and shall provide for thirty (30)
days written notice to Secured Party of the cancellation or material
modification thereof. Debtor hereby appoints Secured Party as its attorney in
fact to make proof of loss, claim for insurance and adjustments with insurers,
and to execute or endorse all documents, checks or drafts in connection with
payments made as a result of any such insurance policies. Proceeds of insurance
shall be applied, at the option of Secured Party, to repair or replace the
Collateral or to reduce any of the Indebtedness secured hereby.
5. REPORTS.
(a) Debtor shall promptly notify Secured Party in the event of (i) any
change in the name of Debtor, (ii) any relocation of its chief executive
offices, (iii) any relocation of any of the Collateral, (iv) any of the
Collateral being lost, stolen, missing, destroyed, materially damaged or worn
out, or (v) any lien, claim or encumbrance attaching or being made against any
of the Collateral other than Permitted Liens.
(b) Debtor agrees to furnish its annual financial statements and such
interim statements as Secured Party may require in form satisfactory to Secured
Party. Any and all financial statements submitted and to be submitted to Secured
Party have and will have been prepared on a basis of generally accepted
accounting principles, and are and will be complete and correct and fairly
present Debtor's financial condition as at the date thereof. Secured Party may
at any reasonable time examine the books and records of Debtor and make copies
thereof.
6. FURTHER ASSURANCES.
(a) Debtor shall, upon request of Secured Party, furnish to Secured Party
such further information. execute and deliver to Secured Party such documents
and instruments (including, without limitation, Uniform Commercial Code
financing statements) and do such other acts and things, as Secured Party may
at any time reasonably request relating to the perfection or protection of the
security interest created by this Agreement or for the purpose of carrying out
the intent of this Agreement. Without limiting the foregoing, Debtor shall
cooperate and do all acts deemed necessary or advisable by Secured Party to
continue in Secured Party a perfected first security interest in the Collateral,
and shall obtain and furnish to Secured Party any subordinations, releases,
landlord, lessor, or mortgagee waivers, and similar documents as may be from
time to time requested by, and which are in form and substance satisfactory to,
Secured Party.
(b) Debtor hereby grants to Secured Party the power to sign Debtor's name
and generally to act on behalf of Debtor to execute and file applications for
title, transfers of title, financing statements, notices of lien and other
documents pertaining to any or all of the Collateral. Debtor shall, if any
certificate of title be required or permitted by law for any of the Collateral,
obtain such certificate showing the lien hereof with respect to the Collateral
and promptly deliver same to Secured Party.
(c) Debtor shall indemnify and defend the Secured Party, its successors
and assigns, and their respective directors, officers and employees, from and
against any and all claims, actions and suits (including, without limitation,
related attorneys' fees) of any kind, nature or description whatsoever arising,
directly or indirectly, in connection with any of the Collateral except to the
extent of claims, actions suits and expenses resulting from Secured Party's
gross negligence or willful misconduct.
<PAGE>
7. EVENTS OF DEFAULT.
Debtor shall be in default under this Agreement and each of the other
Debt Documents upon the occurrence of any of the following "Event(s) of
Default":
(a) Debtor fails to pay any installment or other amount due or coming due
under any of the Debt Documents within ten (10) days after its due date;
(b) Any attempt by Debtor, without the prior written consent of Secured
Party, to sell, rent, lease, mortgage, grant a security interest in, or
otherwise transfer or encumber (except for Permitted Liens) any of the
Collateral;
(c) Debtor fails to procure, or maintain in effect at all times, any of
the insurance on the Collateral in accordance with Section 4 of this Agreement;
(d) Debtor breaches any of its other obligations under any of the Debt
Documents and fails to cure the same within thirty (30) days after written
notice thereof;
(e) Any warranty, representation or statement made by Debtor in any of
the Debt Documents or otherwise in connection with any of the Indebtedness shall
be false or misleading in any material respect;
(f) Any of the Collateral being subjected to, or being threatened with,
attachment, execution, levy, seizure or confiscation in any legal proceeding or
otherwise;
(g) Any default by Debtor under any other agreement between Debtor and
Secured Party;
(h) Any dissolution, termination of existence, insolvency or business
failure of Debtor or any guarantor or other obligor for any of the Indebtedness
(collectively "GUARANTOR"), or if Debtor or any Guarantor is a natural person,
any death or incompetency of Debtor or such Guarantor;
(i) The appointment of a receiver for all or of any part of the property
of Debtor or any Guarantor, or any assignment for the benefit of creditors by
Debtor or any Guarantor; or
(j) The filing of a petition by Debtor or any Guarantor under any
bankruptcy, insolvency or similar law, or the filing of any such petition
against Debtor or any Guarantor if the same is not dismissed within thirty (30)
days of such filing.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement, the
Secured Party, at its option, may declare any or all of the Indebtedness,
including without limitation the Notes, to be immediately due and payable,
without demand or notice to Debtor or any Guarantor. The obligations and
liabilities accelerated thereby shall bear interest (both before and after any
judgment) until paid in full at the lower of eighteen percent (18%) per annum or
the maximum rate not prohibited by applicable law.
(b) Upon such declaration of default, Secured Party shall have all of the
rights and remedies of a Secured Party under the Uniform Commercial Code, and
under any other applicable law. Without limiting the foregoing, Secured Party
shall have the right to (i) notify any account debtor of Debtor or any obligor
on any instrument which constitutes part of the Collateral to make payment to
the Secured Party, (ii) with or without legal process, enter any premises where
the Collateral may be and take possession and/or remove said Collateral from
said premises, (iii) sell the Collateral at public or private sale, in whole or
in part, and have the right to bid and purchase at said sale, and/or (iv) lease
or otherwise dispose of all or part of the Collateral, applying proceeds
therefrom to the obligations then in default. If requested by Secured Party,
Debtor shall promptly assemble the Collateral and make it available to Secured
Party at a place to be designated by Secured Party which is reasonably
convenient to both parties. Secured Party may also render any or all of the
Collateral unusable at the Debtor's premises and may dispose of such Collateral
on such premises without liability for rent or costs. Any notice which Secured
Party is required to give to Debtor under the Uniform Commercial Code of the
time and place of any public sale or the time after which any private sale or
other intended disposition of the Collateral is to be made shall be deemed to
constitute reasonable notice if such notice is given to the last known address
of Debtor at least five (5) days prior to such action.
(c) Proceeds from any sale or lease or other disposition shall be
applied: first, to all costs of repossession, storage, and disposition including
without limitation attorneys', appraisers', and auctioneers' fees; second, to
discharge the obligations then in default; third, to discharge any other
Indebtedness of Debtor to Secured Party, whether as obligor, endorsor,
guarantor, surety or indemnitor, fourth, to expenses incurred in paying or
settling liens and claims against the Collateral; and lastly, to Debtor, if
there exists any surplus. Debtor shall remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt Documents are
placed in the hands of an attorney for collection of money due or to become due
or to obtain performance of any provision hereof, Debtor agrees to pay all
reasonable attorneys' fees incurred by Secured Party, and further agrees that
payment of such fees is secured hereunder. Debtor and Secured Party agree that
such fees to the extent not in excess of twenty percent (20%) of subject amount
owing after default (if permitted by law, or such lesser sum as may otherwise be
permitted by law) shall be deemed reasonable.
(e) Secured Party's rights and remedies hereunder or otherwise arising
are cumulative and may be exercised singularly or concurrently. Neither the
failure nor any delay on the part of the Secured Party to exercise any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. Secured Party shall not be deemed to have waived any of its rights
hereunder or under any other agreement, instrument or paper signed by Debtor
unless such waiver be in writing and signed by Secured Party. A waiver on any
one occasion shall not be construed as a bar to or waiver of any right or remedy
on any future occasion.
(f) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE
INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED
PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH
<PAGE>
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.
9. MISCELLANEOUS.
(a) This Agreement, any Note and/or any of the other Debt Documents may
be assigned, in whole or in part, by Secured Party without notice to Debtor, and
Debtor hereby waives any defense, counterclaim or cross-complaint by Debtor
against any assignee, agreeing that Secured Party shall be solely responsible
therefor.
(b) All notices to be given in connection with this Agreement shall be in
writing, shall be addressed to the parties at their respective addresses set
forth hereinabove (unless and until a different address may be specified in a
written notice to the other party), and shall be deemed given (i) on the date of
receipt if delivered in hand or by facsimile transmission, (ii) on the next
business day after being sent by express mail, and (iii) on the fourth business
day after being sent by regular, registered or certified mail. As used herein,
the term "business day" shall mean and include any day other than Saturdays,
Sundays, or other days on which commercial banks in New York, New York are
required or authorized to be closed.
(c) Secured Party may correct patent errors herein and fill in all blanks
herein or in any Collateral Schedule consistent with the agreement of the
parties.
(d) Time is of the essence hereof. This Agreement shall be binding,
jointly and severally, upon all parties described as the "Debtor" and their
respective heirs, executors, representatives, successors and assigns, and shall
inure to the benefit of Secured Party, its successors and assigns.
(e) This Agreement and its Collateral Schedules constitute the entire
agreement between the parties with respect to the subject matter hereof and
supercede all prior understandings (whether written, verbal or implied) with
respect thereto. This Agreement and its Collateral Schedules shall not be
changed or terminated orally or by course of conduct, but only by a writing
signed by both parties hereto. Section headings contained in this Agreement have
been included for convenience only, and shall not affect the construction or
interpretation hereof.
(f) This Agreement shall continue in full force and effect until all of
the Indebtedness has been indefeasibly paid in full to Secured Party. The
surrender, upon payment or otherwise, of any Note or any of the other documents
evidencing any of the Indebtedness shall not affect the right of Secured Party
to retain the Collateral for such other Indebtedness as may then exist or as it
may be reasonably contemplated will exist in the future. This Agreement shall
automatically be reinstated in the event that Secured Party is ever required to
return or restore the payment of all or any portion of the Indebtedness (all as
though such payment had never been made).
IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound
hereby, have duly executed this Agreement in one or more counterparts, each of
which shall be deemed to be an original, as of the day and year first aforesaid.
SECURED PARTY: DEBTOR:
GENERAL ELECTRIC CAPITAL CORPORATION XATA CORPORATION
By: By: /s/ Dennis R. Johnson
-------------------------------- ---------------------------------
Title: Title: President & CEO
---------------------------- ------------------------------
<PAGE>
[EQUIPMENT LIST OMITTED INTENTIONALLY]
EXHIBIT 21
XATA Corporation has one wholly-owned subsidiary, which is Key Logistics, Inc.,
a Minnesota corporation. All business of Key Logistics, Inc. is conducted under
the "XATA" name and mark.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statements of Form S-8 relate to the 1991 Long-Term Incentive and Stock Option
Plan and subsequent amendment (commission file No.'s 33-74148, 33-89222,
33-28337 and 33-33670) and the Registration Statement on Form S-8 for the
registration of 31,389 shares (commission file No. 33-94006), of our report,
dated December 8, 1998 (January 8, 1999, as to Note 8), with respect to the
financial statements of XATA Corporation, appearing in this Annual Report on
Form 10-KSB for the year ended September 30, 1998.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
January 14, 1999
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<ARTICLE> 5
<CIK> 0000854398
<NAME> XATA CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,088,390
<ALLOWANCES> 1,047,000
<INVENTORY> 474,011
<CURRENT-ASSETS> 2,565,445
<PP&E> 2,560,124
<DEPRECIATION> 1,331,571
<TOTAL-ASSETS> 6,985,969
<CURRENT-LIABILITIES> 3,556,950
<BONDS> 461,491
0
0
<COMMON> 44,306
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<TOTAL-LIABILITY-AND-EQUITY> 6,985,969
<SALES> 9,214,893
<TOTAL-REVENUES> 9,214,893
<CGS> 4,707,375
<TOTAL-COSTS> 8,231,032
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<INTEREST-EXPENSE> 36,997
<INCOME-PRETAX> (3,676,025)
<INCOME-TAX> 573,000
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