Document:

exv4w2

THIS WARRANT AND THE SECURITIES WHICH MAY BE ISSUED UPON EXERCISE OF THIS WARRANT (THE “WARRANT
SHARES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY
STATE BLUE SKY LAW AND THE HOLDER OF THIS WARRANT OR ANY WARRANT SHARES MAY NOT TRANSFER ANY
BENEFICIAL INTEREST THEREIN ABSENT REGISTRATION OR EXEMPTION FROM REGISTRATION UNDER THE ACT AND
APPLICABLE BLUE SKY LAWS.

WARRANT

To Purchase Shares of

Common Stock of

XATA CORPORATION

     THIS CERTIFIES THAT for good and valuable consideration, [____________] (the “Initial Holder”)
or registered assigns is entitled to subscribe for and purchase from XATA Corporation, a Minnesota
corporation (the “Company”), at any time after February 12, 2009 (the “Issue Date”), to and
including February 12, 2016 (the “Expiration Date”), subject to the terms and conditions set forth
herein, [____________] fully paid and nonassessable shares of the Common Stock of the Company at the
price of $2.22 per share (the “Warrant Exercise Price”), subject to Section 1 hereof and the other
provisions of this Warrant. The shares which may be acquired upon exercise of this Warrant are
referred to herein as the “Warrant Shares.” As used herein the term “Holder” means the Initial
Holder, any party who acquires all or a part of this Warrant as a registered transferee of the
Initial Holder, or any record holder or holders of the Warrant Shares issued upon exercise, whether
in whole or in part, of the Warrant; and the term “Common Stock” means and includes the Company’s
presently authorized common stock, $.0l par value. This Warrant is being issued pursuant to the
terms of that certain Common Stock Warrant and Series E Preferred Stock Purchase Agreement by and
between the Company and the Initial Holder, dated February 12, 2009 (the “Purchase Agreement”). On
the date of the Purchase Agreement, the parties thereto also entered into an Exchange Agreement
(the “Exchange Agreement”).

          This Warrant is subject to the following provisions, terms and conditions:

     1. Exercise; Transferability.

     (a) The rights represented by this Warrant may be exercised for purchase, in whole or in part
(but not as to a fractional share), of Warrant Shares by written notice of exercise (in the form
attached hereto) delivered to the Company at the principal office of the Company prior to the
expiration of this Warrant and accompanied or preceded by the surrender of this manually signed
Warrant along with a cashier’s or certified check or wire transfer made payable to the order of the
Company in payment of the Warrant Exercise Price for such shares.

     (b) In the alternative to exercise pursuant to Subsection 1(a), above, if the Fair Market
Value (as defined below) of one share of Common Stock of the Company is greater than the
Warrant Exercise Price (at the date of calculation as set forth below), in lieu of exercising the

 

 

rights represented by this Warrant for cash as provided in Subsection 1(a), the Holder may elect to
receive Warrant Shares equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of the Company
together with a notice of such election, in which event the Company shall issue to the Holder
hereof a number of Warrant Shares computed using the following formula:

	 	 	 	 	 
	 

	 	X =
	 	Y (A-B)
	 

	 	 	 	     A
	 
	 	 	 	 
	Where

	 	X =
	 	the number of Warrant Shares to be issued to the Holder
	 
	 	 	 	 
	 

	 	Y =
	 	the number of Warrant Shares purchasable under this Warrant, or if only a portion of this Warrant is being
exercised, the portion of the Warrant being canceled (at the date of such calculation)
	 
	 	 	 	 
	 

	 	A =
	 	the Fair Market Value of one share of Common Stock (at the date of such calculation)
	 
	 	 	 	 
	 

	 	B =
	 	Warrant Exercise Price (as adjusted to the date of such calculation)

For purposes of the above calculation, Fair Market Value of one share of Common Stock shall be
determined as follows:

     (i) If the Company’s Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq Global Select Market, the
Nasdaq Global Market and the Nasdaq Capital Market, the Fair Market Value of one share of
Common Stock shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such system or exchange (or the exchange with the greatest
volume of trading in the Common Stock) on the last market trading day prior to the day of
calculation, as reporting in the Wall Street Journal or such other source as the Board of
Directors of the Company deems reliable;

     (ii) If the Company’s Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of one share of Common
Stock shall be the mean between the bid and asked prices for the Common Stock on the last
market trading day prior to the day of calculation, as reported in the Wall Street Journal
or such other source as the Board of Directors of the Company deems reliable;

     (iii) In the absence of an established market for the Company’s Common Stock, the Fair
Market Value of one share of Common Stock shall be determined in good faith by the Board of
Directors of the Company.

     (c) This Warrant may not be sold, transferred, assigned, hypothecated or divided into two or
more Warrants of smaller denominations, nor may any Warrant Shares issued pursuant to exercise of
this Warrant be transferred, except as provided in Section 8 hereof.

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     (d) If, on the Expiration Date, any portion of this Warrant has not been exercised and the
Fair Market Value of one share of Common Stock (calculated as set forth in Section 1(b)) exceeds
the Warrant Exercise Price, then on the Expiration Date any remaining unexercised portion of this
Warrant will be automatically exercised pursuant to the cashless exercise provisions set forth in
Section 1(b); provided that the Holder, upon the request of the Company, must deliver to the
Company a written notice of exercise and surrender to the Company this Warrant (the “Subscription
Documents”), each within 30 days of a request for delivery of these documents by the Company. If
the Holder does not deliver the Subscription Documents within such time period, this Warrant will
be deemed to not have been exercised under this Section and will terminate and no longer be
exercisable. The Holder will not be deemed a stockholder of the Company with respect to any
Warrant Shares under this Section unless and until the Subscription Documents are delivered to the
Company as provided above and the Company has issued the Warrant Shares to the Holder.

     2. Exchange and Replacement. Subject to Sections 1 and 8 hereof, this Warrant is
exchangeable upon the surrender hereof by the Holder to the Company at its office for new Warrants
of like tenor and date representing in the aggregate the right to purchase the number of Warrant
Shares purchasable hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable hereunder) as shall
be designated by the Holder at the time of such surrender. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and,
in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu of this Warrant. This Warrant shall be promptly canceled by the
Company upon the surrender hereof in connection with any exchange or replacement. The Company
shall pay all expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to this Section 2.

     3. Issuance of the Warrant Shares.

     (a) The Company agrees that the shares of Common Stock purchased hereby shall be and are
deemed to be issued to the Holder as of the close of business on the date on which this Warrant
shall have been surrendered and the payment made for such Warrant Shares as aforesaid.
Certificates for the Warrant Shares so purchased shall be delivered to the Holder within a
reasonable time, not exceeding five business days after the rights represented by this Warrant
shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the
right to purchase the number of Warrant Shares, if any, with respect to which this Warrant shall
not then have been exercised shall also be delivered to the Holder within such time.

     (b) Notwithstanding the foregoing, however, the Company shall not be required to deliver any
certificate for Warrant Shares upon exercise of this Warrant except in accordance with exemptions
from the applicable securities registration requirements or registrations under applicable
securities laws. Nothing herein, however, shall obligate the Company to effect
registrations under federal or state securities laws. The Holder agrees to execute such
documents

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and make such representations, warranties, and agreements as may be required solely to
comply with the exemptions relied upon by the Company, or the registrations made, for the issuance
of the Warrant Shares.

     4. Covenants of the Company.

     (a) The Company covenants and agrees that all Warrant Shares will, upon issuance, be duly
authorized and issued, fully paid, nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved, free from preemptive rights, for the purpose of issue or transfer
upon exercise of the subscription rights evidenced by this Warrant a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this Warrant. If at any
time during the period in which the Warrant may be exercised, the number of authorized but unissued
shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for
such purposes.

     (b) In the event the Holder is not also a holder of capital stock of the Company, the Company
shall provide the Holder with any information, notices or such other correspondence that the
Company’s stockholders are entitled to receive.

     5. Antidilution Adjustments. The provisions of this Warrant are subject to adjustment
as provided in this Section 5.

     (a) The Warrant Exercise Price and the number of Warrant Shares shall be adjusted from time to
time such that in case the Company shall hereafter: (i) pay a dividend or make a distribution on
its Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares, (iv) issue by reclassification of its Common Stock any shares of capital
stock of the Company, or (v) make any exchange of shares, subdivisions, reorganizations,
liquidations or the like (excluding the transactions contemplated by the Exchange Agreement). In
such event, the Warrant Exercise Price and the number of Warrant Shares shall be correspondingly
adjusted to give the Holder, on exercise for the same aggregate Exercise Price, the total number,
class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to
the event and had the Holder continued to hold such shares until after the event requiring
adjustment. To effect such adjustment, the Warrant Exercise Price in effect immediately prior to
such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to
a price (calculated to the nearest full cent) determined by dividing (a) the total number of shares
of Common Stock outstanding immediately prior to such event, multiplied by the then existing
Warrant Exercise Price, by (b) the total number of shares of Common Stock outstanding immediately
after such event, and the resulting quotient shall be the adjusted Warrant Exercise Price per
share. An adjustment made pursuant to
this Subsection shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the effective date in

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the
case of a subdivision, combination or reclassification. If, as a result of an adjustment made
pursuant to this Subsection, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or shares of Common Stock
and other capital stock of the Company, the Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted Warrant Exercise Price between or among
shares of such classes of capital stock or shares of Common Stock and other capital stock. All
calculations under this Subsection shall be made to the nearest cent or to the nearest 1/100 of a
share, as the case may be. In the event that at any time as a result of an adjustment made
pursuant to this Subsection, the holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any shares of the Company other than shares of Common Stock, thereafter
the Warrant Exercise Price of such other shares so receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in this Section.

     (b) Adjustment of Exercise Price upon Sale of Shares Below Fair Market Value.

          (i) If at any time or from time to time after the Issue Date, the Company issues or sells, or
is deemed by the provisions of this Section 5(b) to have issued or sold, Equity Securities (as
defined below), other than as provided in Section 5(a) above, for an Effective Price (as defined
below) less than the then current Fair Market Value (as defined below) of the Company’s Common
Stock, then and in each such case, the then existing Warrant Exercise Price shall be reduced, as of
the opening of business on the date of such issue or sale, to a price determined by multiplying the
Warrant Exercise Price in effect immediately prior to such issuance or sale by a fraction equal to:

               (A) the numerator of which shall be (A) the number of shares of Common Stock deemed
outstanding (as determined below) immediately prior to such issue or sale, plus (B) the number of
shares of Common Stock which the Aggregate Consideration (as defined below) received or deemed
received by the Company for the total number of Additional Shares of Common Stock so issued would
purchase at the then-current Fair Market Value, and

               (B) the denominator of which shall be the number of shares of Common Stock deemed outstanding
(as determined below) immediately prior to such issue or sale plus the total number of Additional
Shares of Common Stock so issued.

For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be
outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock
outstanding, (B) the number of shares of Common Stock into which the then outstanding shares of
preferred stock could be converted if fully converted on the day immediately preceding the given
date, and (C) the number of shares of Common Stock which are issuable upon the exercise or
conversion of all other rights, options and convertible securities outstanding on the day
immediately preceding the given date.

               (C) For the purposes of this Section 6(F), the “Fair Market Value” of the Company’s Common
Stock shall mean:

5

 

                    (a) If the Company’s Common Stock is traded on a securities exchange (which shall include the
Nasdaq Capital Market), the value shall be deemed to be the average of the closing prices of the
Common Stock on such exchange over the thirty (30) day period ending on the date prior to the
closing of the sale and issuance of the Additional Shares of Common Stock;

                    (b) If Company’s Common Stock is traded over-the-counter, the value shall be deemed to be the
average of the closing bid or sale prices (whichever are applicable) over the thirty (30) day
period ending on the date prior to the closing of the sale and issuance of the Additional Shares of
Common Stock; and

                    (c) If there is no public market for the Company’s Common Stock, the value shall be the fair
market value thereof, as determined in good faith by the Board of Directors of the Company.

          (ii) No adjustment shall be made to the Warrant Exercise Price in an amount less than one cent
per share. Any adjustment otherwise required by this Section 5(b) that is not required to be made
due to the preceding sentence shall be included in any subsequent adjustment to the Warrant
Exercise Price.

          (iii) For the purpose of making any adjustment required under this Section 5(b), the aggregate
consideration received by the Company for any issue or sale of securities (the “Aggregate
Consideration”) shall be defined as: (A) to the extent it consists of cash, be computed at the
gross amount of cash received by the Company before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in connection with such
issue or sale and without deduction of any expenses payable by the Company, (B) to the extent it
consists of property other than cash, be computed at the fair value of that property as determined
in good faith by the Board, and (C) if Additional Shares of Common Stock, Convertible Securities
(as defined below) or rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or securities or other assets
of the Company for a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the Board to be
allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options.

6

 

          (iv) For the purpose of the adjustment required under this Section 5(b), if the Company issues
or sells (x) Preferred Stock or other stock, options, warrants, purchase rights or other securities
convertible into, Additional Shares of Common Stock (such convertible stock or securities being
herein referred to as “Convertible Securities”) or (y) rights or options for the purchase of
Additional Shares of Common Stock or Convertible Securities and if the Effective Price of such
Additional Shares of Common Stock is less than then-current Fair Market Value, in each case the
Company shall be deemed to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common
Stock issuable upon exercise or conversion thereof and to have received as consideration for
the issuance of such shares an amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such rights or options or Convertible Securities plus:

               (A) in the case of such rights or options, the minimum amounts of consideration, if any,
payable to the Company upon the exercise of such rights or options; and

               (B) in the case of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Company upon the conversion thereof (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities); provided that if the minimum amounts of such
consideration cannot be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of consideration without
reference to such clauses.

               (C) If the minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or on the occurrence
or non-occurrence of specified events other than by reason of antidilution adjustments, the
Effective Price shall be recalculated using the figure to which such minimum amount of
consideration is reduced; provided further, that if the minimum amount of consideration payable to
the Company upon the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using the increased minimum
amount of consideration payable to the Company upon the exercise or conversion of such rights,
options or Convertible Securities.

               (D) No further adjustment of the Warrant Exercise Price, as adjusted upon the issuance of such
rights, options or Convertible Securities, shall be made as a result of the actual issuance of
Additional Shares of Common Stock or the exercise of any such rights or options or the conversion
of any such Convertible Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been exercised, the
Warrant Exercise Price as adjusted upon the issuance of such rights, options or Convertible
Securities shall be readjusted to the Warrant Exercise Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common Stock so issued were
the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such
rights or options or rights of conversion of such Convertible Securities, and such Additional
Shares of Common Stock, if any, were issued or sold for the consideration actually received by the
Company upon such exercise, plus the consideration, if any, actually received by the Company for
the granting of all such rights or options, whether or

7

 

not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Company (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) on the conversion of such Convertible
Securities, provided that such readjustment shall not apply to prior conversions of preferred
stock.

          (v) For the purpose of making any adjustment to the Warrant Exercise Price required under this
Section 5(b), “Additional Shares of Common Stock” shall mean all shares of Common Stock issued by
the Company or deemed to be issued pursuant to this Section 5(b)
(including shares of Common Stock subsequently reacquired or retired by the Company), other
than:

                         (A) shares of Common Stock issued upon conversion of the Company’s preferred stock outstanding
as of the Issue Date;

                         (B) shares of Common Stock or Convertible Securities issued to employees, officers or
directors of, or consultants or advisors to the Company or any subsidiary pursuant to stock
purchase or stock option plans or other arrangements that are approved by the Board provided that,
(i) such options were granted with an exercise price equal to or greater than the then-current fair
market value (as “fair market value” is defined in the relevant plan) or (ii) such shares were
issued pursuant to a IRC 423 plan with an exercise price equal to or greater than 85% of the
then-current fair market value (as such “fair market value” is defined in the relevant plan);

                         (C) shares of Common Stock issued pursuant to the exercise of Convertible Securities
outstanding as of the Issue Date;

                         (D) shares of Common Stock or Convertible Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition, strategic alliance or similar business
combination approved by the Board; and

                         (E) shares of Common Stock or Convertible Securities issued pursuant to the Exchange
Agreement.

     References to Common Stock in the subsections of this clause (v) above shall mean all shares
of Common Stock issued by the Company or deemed to be issued pursuant to this Section 5(b). The
“Effective Price” of Additional Shares of Common Stock shall mean the quotient determined by
dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have
been issued or sold by the Company under this Section 5(b), into the Aggregate Consideration
received, or deemed to have been received by the Company for such issue under this Section 5(b),
for such Additional Shares of Common Stock. In the event that the number of shares of Additional
Shares of Common Stock or the Effective Price cannot be ascertained at the time of issuance, such
Additional Shares of Common Stock shall be deemed issued immediately upon the occurrence of the
first event that makes such number of shares or the Effective Price, as applicable, determinable.

8

 

          (vi) Notwithstanding anything to the contrary contained herein, no adjustment under this
Section 5(b) shall reduce the Warrant Exercise Price below $2.22 (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to the Company’s
Common Stock after the Issue Date).

     (c) Upon each adjustment of the Warrant Exercise Price pursuant to Section 5(a) or 5(b) above,
the Holder of each Warrant shall thereafter (until another such adjustment) be entitled to purchase
at the adjusted Warrant Exercise Price the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the adjusted Warrant Exercise Price.

     (d) In case of any consolidation or merger to which the Company is a party other than a merger
or consolidation in which the Company is the continuing corporation, or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety or substantially as
an entirety, or in the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third corporation into the
Company), there shall be no adjustment under Subsection (a) of this Section above but the Holder of
each Warrant then outstanding shall have the right thereafter to convert such Warrant into the kind
and amount of shares of stock and other securities and property which he, she or it would have
owned or have been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale, or conveyance and in any such case,
if necessary, appropriate adjustment shall be made in the application of the provisions set forth
in this Section with respect to the rights and interests thereafter of any Holders of the Warrant,
to the end that the provisions set forth in this Section shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of stock and other securities
and property thereafter deliverable on the exercise of the Warrant. The provisions of this
Subsection shall similarly apply to successive consolidations, mergers, statutory exchanges, sales
or conveyances.

     (e) Upon any adjustment pursuant to this Section 5, the Company shall give written notice
thereof, addressed to the Holder as shown on the Common Stock register of the Company, which notice
shall state the Warrant Exercise Price resulting from such adjustment and the increase or decrease,
if any, in the number of shares of Common Stock or other securities and/or property purchasable at
such price upon the exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.

     6. No Voting Rights. This Warrant shall not entitle the Holder to any voting rights
or other rights as a shareholder of the Company.

     7. Registration Rights. The shares of Common Stock issuable upon exercise of this
Warrant shall be registered pursuant to Section 9 of the Purchase Agreement, subject to any
limitations on the assignment of such registration rights as set forth in Section 9.7 of the
Purchase Agreement.

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     8. Notice of Transfer of Warrant or Resale of the Warrant Shares.

     (a) The Holder, by acceptance hereof, agrees to give written notice to the Company before
transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so,
describing briefly the manner of any proposed transfer. Promptly upon receiving such written
notice, the Company shall present copies thereof to the Company’s counsel. If in the opinion of
such counsel the proposed transfer may be effected without registration or
qualification (under any federal or state securities laws), the Company, as promptly as
practicable, shall notify the Holder of such opinion, whereupon the Holder shall be entitled to
transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this
Warrant, all in accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the certificates for such
Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion
of counsel and satisfactory to the Company to prevent further transfers which would be in violation
of Section 5 of the Securities Act of 1933, as amended (the “1933 Act”) and applicable state
securities laws; and provided further that the prospective transferee or purchaser shall execute
such documents and make such representations, warranties, and agreements as may be required solely
to comply with the exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.

     (b) If in the opinion of counsel to the Company, the proposed transfer or disposition of this
Warrant or such Warrant Shares described in the written notice given pursuant to this Section 8 may
not be effected without registration or qualification of the Warrant or such Warrant Shares, the
Company shall promptly give written notice thereof to the Holder, and the Holder will limit its
activities in respect to such as, in the opinion of both such counsel, are permitted by law.

     (c) Notwithstanding the provisions of subsection (a) above, no such opinion of counsel
requirement shall apply to a transfer by a Holder that is (A) a partnership transferring, not for
value, to its partners or former partners in accordance with partnership interests, (B) a
corporation transferring, not for value, to a wholly-owned subsidiary or a parent corporation that
owns all of the capital stock of the Holder or (C) a limited liability company transferring, not
for value, to its members or former members in accordance with their interest in the limited
liability company.

     9. Fractional Shares. Fractional shares shall not be issued upon the exercise of this
Warrant, but in any case where the Holder would, except for the provisions of this Section, be
entitled under the terms hereof to receive a fractional share, the Company shall, upon the exercise
of this Warrant for the largest number of whole shares then called for, pay a sum in cash equal to
the excess, if any, of the Fair Market Value (as defined in Section 1(b) hereof) of such fractional
share over the proportional part of the Warrant Exercise Price represented by such fractional
share.

     10. Notices. All notices required in connection with this Warrant shall be in writing
and shall be deemed effectively given upon the earlier of actual receipt of: (a) personal
delivery

10

 

to the party to be notified, (b) one business day after the date of confirmed transmission
by facsimile, (c) five days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one business day after the business day of deposit with a
nationally recognized overnight courier, specifying next day delivery, freight prepaid, with
written notification of receipt, at the address or addresses furnished to the Company in writing.

     11. Governing Law. This Warrant and all rights, obligations and liabilities hereunder
shall be governed by and construed in accordance with the corporate laws of the State of Minnesota
and, with respect to matters of law other than corporate law, the laws of the State of Minnesota as
applied to contracts entered into and performed entirely in Minnesota by Minnesota residents,
without regard to conflicts of law principles.

[Signature page follows]

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     IN WITNESS WHEREOF, XATA Corporation has caused this Warrant to be signed by its duly
authorized officer and this Warrant to be dated as of February ___, 2009.

	 	 	 	 	 
	 	XATA CORPORATION

 	 
	 	By  	 	 
	 	 	Wesley C. Fredenburg 	 
	 	 	General Counsel 	 

 

 

	 	 	 	 	 

To: XATA Corporation

NOTICE OF EXERCISE OF WARRANT

To Be Executed by the Registered Holder in Order to Exercise the Warrant

The undersigned hereby irrevocably elects to exercise the attached Warrant to purchase [check
applicable method] _________ for cash/_________* pursuant to the “cashless” exercise
provisions of Section 1(b) of the Warrant, _________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a new Warrant to
purchase the number of shares, if any, remaining under this Warrant after exercise) shall be issued
in the name of:

	 	 	 	 	 
	 	  	

 	 
	 	 	(Print Name) 	 
	 	 	 	 
	Please insert social security
or other identifying number

of registered holder of
certificate (_________) 	  	
 	 
	 	(Address) 	 
	 	 	 
	Date:  ________________          	  	
 	 
	 	 	Signature** 	 
	 

 

			
	*	 	If exercise is a “cashless” exercise pursuant to Section 1(b), enclose computation of shares
purchased, date of determination of Fair Market Value, and computation of Fair Market Value.
	 
	**	 	The signature on the Notice of Exercise of Warrant must correspond to the name as written
upon the face of the Warrant in every particular without alteration or enlargement or any
change whatsoever. When signing on behalf of a corporation, partnership, trust or other
entity, PLEASE indicate your position(s) and title(s) with such entity.

 

 

ASSIGNMENT FORM

To be signed only upon authorized transfer of Warrants.

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the right to
purchase the securities of XATA Corporation to which the _______________ within Warrant
relates and appoints _______________, attorney,
to transfer said _______________ right on
the books of XATA Corporation with full power of substitution in the premises.

	 	 	 	 	 
	Dated: ____________ 	  	 	 
	 	 	(Signature) 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	(Address)exv10w1

IN MAKING AN INVESTMENT DECISION PURCHASERS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND
THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE,
THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS
SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.

XATA CORPORATION

COMMON STOCK WARRANT AND SERIES E PREFERRED STOCK

PURCHASE AGREEMENT

February 12, 2009

 

 

COMMON STOCK WARRANT AND SERIES E PREFERRED STOCK

PURCHASE AGREEMENT

     This Common Stock Warrant and Series E Preferred Stock Purchase Agreement (the
“Agreement”) is made as of the 12th day of February, 2009 (the “Effective Date”), by and
among Xata Corporation, a Minnesota corporation (the “Company”) and each of those persons
and entities, severally and not jointly, listed as a Purchaser on the Schedule of Purchasers
attached as Exhibit 2.1 hereto (each, a “Purchaser” and collectively, the “Purchasers”).

AGREEMENT

     In consideration of the mutual covenants contained in this Agreement, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the Company and each Purchaser
(severally and not jointly) hereby agree as follows:

SECTION 1. Authorization of Sale of the Securities. 

Subject to the terms and conditions of this Agreement, the Company has, or before the Initial
Closing Date (as defined in Section 3) will have, authorized (a) the sale and issuance of 1,355,857
shares of its Series E Preferred Stock (the “Shares”) having rights, preferences and privileges as
set forth in the Company’s Certificate of Designation of Preferences of Series E Preferred Stock
(the “Certificate of Designation”) attached hereto as Exhibit 1, (b) the issuance of shares of
common stock (the “Common Stock”) to be issued upon conversion of the Shares (the “Conversion
Shares”), (c) the issuance of warrants to purchase 406,759 shares of Common Stock (the “Warrants”)
and (d) the issuance of shares of Common Stock to be issued upon exercise of the Warrants (the
“Warrant Shares”). The Shares, the Conversion Shares, the Warrants and the Warrant Shares shall be
referred to herein as the “Securities.”

SECTION 2. Agreement to Sell and Purchase the Shares and the Warrants. 

     2.1 Sale of Shares. At each Closing (as defined in Section 3), the Company will sell and
issue to each Purchaser participating in such Closing, and each Purchaser participating in such
Closing will purchase from the Company at a purchase price per Share equal to $2.22, the number of
Shares set forth next to such Purchaser’s name on the Schedule of Purchasers attached hereto as
Exhibit 2.1 (the “Schedule of Purchasers”).

     2.2 Issuance of Warrants. At the Closing (as defined in Section 3), the Company will sell and
issue to each Purchaser participating in such Closing, and each Purchaser participating in such
Closing will purchase from the Company a Warrant in the form attached hereto at Exhibit 2.2
exercisable into the number of Warrant Shares set forth next to such Purchaser’s name on the
Schedule of Purchasers with a purchase price equal to $0.125 per Warrant Share.

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SECTION 3. Closing and Delivery. 

     3.1 Closing. The initial closing of the purchase and sale of the Shares and the Warrants to
be sold pursuant to this Agreement shall be held immediately following the satisfaction of the
closing conditions contained herein, at the offices of Faegre & Benson LLP, 2200 Wells Fargo
Center, Minneapolis, Minnesota, or on such other date and place as may be agreed to by the Company
and the Purchasers. The date of the closing of the initial purchase and sale of the Shares and the
Warrants is referred to herein as the “Initial Closing Date”, and such closing is referred to as
the “Initial Closing.” The terms “Closing Date” and “Closing” shall refer to the Initial Closing
Date and the Initial Closing and, in the event there are one or more additional closings
thereafter, shall also apply with respect to each such subsequent closing (unless otherwise
specified).

     3.2 Delivery of the Shares and the Warrants at the Closing. At each Closing, the Company
shall deliver to each Purchaser participating in such Closing (i) a stock certificate registered in
the name of such Purchaser, or in such nominee name(s) as designated by such Purchaser,
representing the Shares to be purchased by such Purchaser as set forth in the Schedule of
Purchasers and (ii) a Warrant registered in the name of such Purchaser or in such nominee name(s)
as designated by such Purchaser representing the Warrant Shares issuable to such Purchaser as set
forth in the Schedule of Purchasers.

SECTION 4. Representations, Warranties and Covenants of the Company. 

     Except as set forth in the Schedule of Exceptions dated as of even date herewith and provided
to the Purchasers separately from this Agreement, the Company hereby represents and warrants to,
and covenants with, the Purchasers as follows:

     4.1 Organization and Qualification. Each of the Company and each Subsidiary (as defined
below) has been duly incorporated and is a validly existing corporation in good standing under the
laws of the jurisdiction of its incorporation, with requisite corporate power and authority to own
its properties and conduct its business as presently conducted. The Company and each Subsidiary are
duly qualified to do business as foreign corporations in good standing in each jurisdiction in
which their ownership or lease of property or the conduct of their businesses require such
qualification, except where the failure to be so qualified would not have a Material Adverse Effect
on the Company. The Company has furnished representatives of the Purchasers with correct and
complete copies of the charter and by-laws of the Company, both as amended and currently in effect.
Except as set forth in the Schedule of Exceptions, the Company does not presently own, directly or
indirectly, any of the stock or other equity interests in any entity other than GeoLogic Solutions,
Inc. “Subsidiary” shall mean any corporation or other entity of which a majority of the capital
stock or other ownership interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly or indirectly
owned by the Company. For the purposes of this Agreement, a “Material Adverse Effect” means with
respect to the Company, any change or effect that is or reasonably could be materially adverse to
the business, properties, results of operations and condition (financial or other) or anticipated future results of operations or condition (financial or
other) of the Company and the Subsidiaries, or that has or reasonably could have a material adverse
effect on the transactions contemplated by this Agreement.

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     4.2 Capitalization.

          (a) The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock,
par value $0.01 per share and 10,000,000 shares of preferred stock, with no stated par value, of
which (1) 8,775,769 shares of Common Stock are issued and outstanding, (2) 2,250,000 shares of the
preferred stock are designated as Series B Preferred Stock, 1,964,429 of which are issued and
outstanding, (3) 1,400,000 shares of the preferred stock are designated as Series C Preferred
Stock, 1,269,036 of which are issued and outstanding, (4) 1,600,000 shares of the preferred stock
are designated as Series D Preferred Stock, 1,566,580 of which are issued and outstanding (5)
options to purchase 0 shares of Common Stock are outstanding under the Company’s 1991 Long Term
Incentive and Stock Option Plan and no additional shares of Common Stock available for issuance
pursuant to such plan, (6) options to purchase 0 shares of Common Stock are outstanding under the
Company’s 2001 Interim Incentive and Stock Option Plan and no additional shares of Common Stock
available for issuance pursuant to such plan, (7) options to purchase 459,000 shares of Common
Stock are outstanding under the Company’s 2002 Long Term Incentive and Stock Option Plan and no
additional shares of Common Stock are available for issuance pursuant to such plan, (8) options to
purchase 2,248,322 shares of Common Stock are outstanding under the Company’s 2007 Long-term
Incentive Stock Option Plan and an additional 591,236 shares of Common Stock are available for
issuance pursuant to such plan, (9) options to purchase an additional 190,000 shares of Common
Stock are outstanding, which options were issued outside of any equity incentive plan of the
Company, (10) 1,544,119 shares of Common Stock have been reserved for issuance upon the exercise of
outstanding warrants to purchase Common Stock (excluding the Warrants), (11) 158,706 shares of
Common Stock have been reserved for issuance upon the conversion of Senior Subordinated Convertible
Promissory Notes issued by the Company on January 31, 2008, in connection with the acquisition of
GeoLogic Solutions, Inc., and (12) 1,400,000 shares of the preferred stock are designated as Series
E Preferred Stock, none of which are issued or outstanding prior to the Initial Closing Date.
Other than the Series B, Series C, Series D or Series E Preferred Stock, there are no other
authorized or designated series of preferred stock. The Series E Preferred Stock has the rights,
preferences and privileges set forth in the Certificate of Designation. All outstanding shares of
the Company have been duly authorized, validly issued, fully paid and are non-assessable and free
of any liens or encumbrances created by the Company. Other than as contemplated by this Agreement
(including the Exchange Agreement and the Investor Rights Agreement) or under the stock plans
described in this Section 4.2(a), and except as described in this Section 4.2, there are no other
options, warrants, calls, rights, commitments, preemptive rights, rights of first refusal or other
rights or agreements to which the Company is a party or by which it is bound obligating the Company
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of the Company or obligating the Company to grant,
extend or enter into any such option, warrant, call, right, commitment or agreement.

          (b) All of the issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued and is fully paid and nonassessable and is owned of record by the
Company, free and clear of any lien, charge, security interest, encumbrance or claim.

     4.3 Authorization of Securities. The Securities have been duly authorized and when (i) the
Shares have been delivered and paid for in accordance with this Agreement, (ii) the

3

 

Warrant Shares
have been delivered and paid for in accordance with the Warrants, and (iii) the Conversion Shares
have been delivered in accordance with the Certificate of Designation, such Shares, Warrant Shares
and Conversion Shares will have been validly issued, fully paid and non-assessable. None of the
Securities are or will be subject to any preemptive right or any right of refusal. The Company has
reserved for issuance a number of shares of Common Stock that equals or exceeds (i) the number of
shares of Common Stock issuable upon conversion of outstanding preferred stock and warrants to
purchase capital stock of the Company, plus (ii) the number of Conversion Shares (as of immediately
following all Closings hereunder), plus (iii) the number of Warrant Shares issuable upon exercise
of the Warrants (as of immediately following all Closings hereunder).

     4.4 Governmental Consents. No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the consummation of the transactions
contemplated by this Agreement in connection with the issuance and sale of the Shares by the
Company, except for the filing of a Form D with the Securities and Exchange Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “Securities Act”), and such similar filings as
may be required following each Closing under state securities laws.

     4.5 Due Authorization, Execution and Delivery of Agreement, Warrants and Amended and Restated
Investor Rights Agreement. This Agreement, the Warrants and the Amended and Restated Investor
Rights Agreement attached hereto as Exhibit 4.5 (the “Investor Rights Agreement”) have been duly
authorized, executed and delivered by the Company. All corporate action on the part of the Company
and its directors and officers necessary for the authorization, execution and delivery of this
Agreement, the Warrants and the Investor Rights Agreement, the performance of all the Company’s
obligations hereunder and thereunder and for the authorization, issuance or reservation for
issuance, sale and delivery of the Securities has been taken, except only that the Certificate of
Designation, the form of which is attached hereto as Exhibit 1 which has been duly approved by the
Board of Directors of the Company, has not yet been filed with the Secretary of State of the State
of Minnesota and will be so filed prior to the Initial Closing. No approval by the stockholders of
the Company is required for the authorization, execution and delivery of this Agreement, the
performance of all the Company’s obligations hereunder and thereunder and for the authorization,
issuance or reservation for issuance, sale and delivery of the Securities. This Agreement, the
Warrants and the Investor Rights Agreement constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of debtors, (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies, and (iii) the
limitations imposed by applicable law or public policy on provisions relating to indemnity or
contribution.

     4.6 No Conflicts. The execution, delivery and performance of this Agreement, the Warrants and
the Investor Rights Agreement, and the issuance and sale of the Securities, will not conflict with,
or result in a breach or violation of (i) any of the terms and provisions of the charter or bylaws
of the Company or any Subsidiary, (ii) any statute, rule, regulation or order of any governmental
agency or body, any court, domestic or foreign, or any self-regulatory organization having
jurisdiction over the Company or any Subsidiary or any of their respective properties, or (iii) any
of the terms and provisions of, or constitute a default (with or without notice or lapse of time)
under, or give to any third party a right of termination, amendment,

4

 

acceleration or cancellation
(with or without notice or lapse of time) of, any agreement or instrument to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which any of the
properties of the Company or any Subsidiary is subject. The Company has full power and authority to
authorize, issue and sell the Securities as contemplated by this Agreement.

     4.7 Title to Assets. The Company and each Subsidiary have good and marketable title to all
real properties and all other properties and assets owned by it that are material to the operation
of the business of the Company or each Subsidiary, in each case free from liens and defects that
would materially affect the value thereof or materially interfere with the use made or to be made
thereof by them; and the Company and each Subsidiary hold all leased real and personal property
that are material to the operation of their respective businesses under valid and enforceable
leases with no exceptions that would materially interfere with the use made or to be made thereof
by them.

     4.8 Permits. The Company and each Subsidiary possess all certificates, authorizations and
permits issued by appropriate governmental agencies or bodies necessary to conduct the business now
operated by them and to own, lease, license and use their respective properties in the manner so
owned, leased, licensed and used, except to the extent that the failure to so possess could not
individually or in the aggregate reasonably be expected to have or result in a Material Adverse
Effect. Neither the Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization or permit that, if determined
adversely to the Company or the Subsidiary would individually or in the aggregate have a Material
Adverse Effect.

     4.9 Legal Actions. There are no pending legal, governmental or administrative actions, suits
or proceedings against or affecting the Company or any Subsidiary or any of their respective
properties or any director, officer or employee (related to any such person’s services as a
director, officer or employee of the Company or any Subsidiary) that, if determined adversely to
the Company or the Subsidiary would individually or in the aggregate have a Material Adverse
Effect, or could materially and adversely affect the ability of the Company to perform its
obligations under this Agreement, or which are otherwise material in the context of the sale of the
Shares and the Warrants and, to the knowledge of the Company’s executive officers, no such actions,
suits or proceedings are threatened or contemplated. Neither the Company nor any Subsidiary has
initiated and neither has any plan to initiate any action, suit or proceeding.

     4.10 Labor. No material labor dispute exists or, to the knowledge of the Company’s executive
officers, is imminent with respect to any of the employees of the Company or any Subsidiary.

     4.11 No Violations. Neither the Company nor any Subsidiary is (i) in default under or in
violation of (and no event has occurred that has not been waived that, with notice or lapse of time
could reasonably be expected to result in a default by the Company or the Subsidiary under), nor
has the Company or any Subsidiary received notice of a claim that it is in default under or that it
is in violation of, any agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) in violation of any order of any court, arbitrator,

5

 

governmental body or
self-regulatory organization, or (iii) in violation of any statute, rule or regulation of any
governmental authority or self-regulatory organization, including, without limitation, any foreign,
federal, state and local laws relating to taxes, environmental protection, occupational health and
safety, product quality and safety and employment and labor matters, except in each case as would
not, individually or in the aggregate, reasonably be expected to have or result in a Material
Adverse Effect.

     4.12 Insurance. The Company maintains insurance and in such coverage amounts as is customary
in the business in which the Company is engaged. The Company believes that such insurance is
sufficient against such losses and risks and in such amounts as are reasonably necessary for the
business in which the Company is engaged.

     4.13 Company Contracts. Except as filed under the SEC Documents (defined below), neither the
Company nor any Subsidiary is a party to any material contract, as such contracts are defined in
Item 601(a)(10) of Regulation S-K under the Securities Act (each such contract, a “Company
Contract”). To the knowledge of the executive officers of the Company, each Company Contract is
valid, binding and in full force and effect and is enforceable by the Company or the Subsidiary in
accordance with its terms subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws affecting creditors’ rights generally and to general
equitable principles. As of the date hereof, no party to any such Company Contract has notified the
Company or any Subsidiary that it intends to terminate such Company Contract. The Company and each
Subsidiary have performed, in all respects, all obligations required to be performed by it to date
under the Company Contracts, as amended, and neither the Company nor any Subsidiary is (with or
without the lapse of time or the giving of notice, or both) in breach or default in any respect
thereunder and, to the knowledge of the executive officers of the Company, no other party to any of
the Company Contracts, as of the date hereof, is (with or without the lapse of time or the giving
of notice, or both) in breach or default in any respect thereunder, except in each case to the
extent that such breach or default could not reasonably likely result in a Material Adverse Effect.

     4.14 SEC Documents. Reference is hereby made to all registration statements, proxy statements
and other statements, reports, schedules, forms and other documents filed by the Company or any
affiliate of the Company with the SEC since January 1, 2008, including copies of all the exhibits
referenced therein (the “SEC Documents”). All statements, reports, schedules, forms and other
documents required to have been filed by the Company with the SEC since January 1, 2008 have been
so timely filed and the Company is currently in compliance with its filing obligations under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). As of their respective dates (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of such amendment or
superseding filing): (i) each of the SEC Documents complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the
rules and regulations thereunder; and (ii) none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which they were made, not
misleading.

     4.15 Related Party Transactions. Except as set forth in the SEC Documents, none of the
officers or directors of the Company and, to the knowledge of the executive officers of the

6

 

Company, none of the employees of the Company is presently a party to any transaction with the
Company (other than customary transactions involving reasonable amounts for services as employees,
officers and directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such employee or, to the knowledge
of the executive officers of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or partner.

     4.16 Financial Statements. The financial statements included in the SEC Documents (the
“Financial Statements”) present fairly the financial position of the Company as of the dates shown
and its results of operations and cash flows for the periods shown, and such Financial Statements
have been prepared in conformity with the generally accepted accounting principles in the United
States (“GAAP”) applied on a consistent basis (except as may be indicated in the audit report or
notes to such Financial Statements or, in the case of unaudited statements, as permitted by Form
10-Q of the SEC, and except that the unaudited Financial Statements may not have contained
footnotes and were subject to normal and recurring year-end adjustments which were not, or are not
reasonably expected to be, individually or in the aggregate, material in amount), and complied as
to form in all material respects with the published rules and regulations of the SEC applicable
thereto at the time of filing. Except as and to the extent disclosed or reserved against in the
Financial Statements and the notes thereto, neither the Company nor any Subsidiary has any
liability, debt or obligation, whether accrued, absolute, contingent or otherwise, and whether due
or to become due which, individually or in the aggregate, are material to the Company and the
Subsidiaries, taken as a whole. Neither the Company nor any Subsidiary has incurred any
liabilities, debts or obligations of any nature whatsoever which are, individually or in the
aggregate, material to the Company and the Subsidiaries, taken as a whole, other than those
incurred in the ordinary course of its business, other than as disclosed in the SEC Documents. The
Financial Statements present the Company and all Subsidiaries of the Company on a consolidated
basis, to the extent required by GAAP.

     4.17 Receivables. The accounts receivable reflected on the balance sheet of the Company as of
September 30, 2008 in the September 30, 2008 Financial Statements represent valid obligations of
customers of the Company arising from bona fide transactions entered into in the ordinary course of
business and, to the knowledge of the Company, will be collected in full no later than 90 days after the respective date on
which each such receivable is due (without any counterclaim or set off).

     4.18 Intellectual Property. The Company and each Subsidiary own or possess, or can acquire on
reasonable terms that could not individually or in the aggregate reasonably be expected to have a
Material Adverse Effect, sufficient legal rights to all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable
propriety or confidential information, systems or procedures), trademarks, service marks and trade
names (collectively, “Intellectual Property Rights”) necessary to conduct its business as now
operated by it and as currently proposed to be operated by it. To the knowledge of the executive
officers of the Company, the methods, products, services, works, technologies, systems and
processes employed by the Company to conduct its business do not infringe upon or misappropriate
any Intellectual Property Rights of any person or entity anywhere in the world,

7

 

except for
Intellectual Property Rights which the Company can acquire on reasonable terms that could not
individually or in the aggregate reasonably be expected to have a Material Adverse Effect. No
claims or written notice (i) challenging the validity, effectiveness or ownership by the Company or
the Subsidiary of any of the Intellectual Property Rights of the Company or the Subsidiary, or (ii)
to the effect that the use, distribution, licensing, sublicensing, sale or any other exercise of
rights in any product, service, work, technology or process as now used or offered or proposed for
use, licensing, sublicensing, sale or other manner of commercial exploitation by the Company or the
Subsidiary infringes or will infringe on any Intellectual Property Rights of any person or entity
have been asserted or, to the knowledge of the executive officers of the Company, are threatened by
any person or entity, nor are there, to the knowledge of the executive officers of the Company, any
valid grounds for any bona fide claim of any such kind except as can be cured by the Company by
procurement of Intellectual Property Rights which the Company can acquire on reasonable terms that
could not individually or in the aggregate reasonably be expected to have a Material Adverse
Effect. There has been no material default (nor does any set of circumstances exist that will cause
such a default) with respect to any license granting Intellectual Property Rights to the Company or
any Subsidiary. No employee or third party is or has been infringing or using without authorization
any Intellectual Property Rights of the Company or any Subsidiary. The Company and each Subsidiary
use and have used, best efforts to maintain the confidentiality of its trade secrets.

     4.19 Nasdaq Compliance. The Company is in compliance with and will, upon each Closing and the
issuance of the Shares and the Warrants, be in compliance with the continued listing and
maintenance requirements of The Nasdaq Capital Market (“Nasdaq”). The issuance of the Conversion
Shares and the Warrant Shares will be in compliance with the continued listing and maintenance
requirements of Nasdaq. The Company has no reason to believe that it will not in the foreseeable
future following each Closing continue to be in compliance with all such listing and maintenance
requirements. The issuance and sale of the securities hereunder does not contravene the rules and
regulations of Nasdaq.

     4.20 Taxes.

          (a) The Company and each Subsidiary have timely made or filed all federal, state and foreign
income and all other tax returns, reports and declarations required by any jurisdiction to which it
is subject and have timely paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and declarations, except
those being contested in good faith, and have set aside on their books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due
by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for
any such claim. The Company has not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal, state or local tax. None of the
Company’s or any Subsidiary’s tax returns is presently being audited by any taxing authority.

          (b) All “nonqualified deferred compensation plans” (within the meaning of Section 409A of the
Code) to which the Company is a party and which is subject to Section 409A complies with the
requirements of paragraphs (2), (3) and (4) of Section 409A(a) by its

8

 

terms and has been operated
in accordance with such requirements during all periods in which Section 409A is applicable. No
event has occurred that would be treated by Section 409A(b) as a transfer of property for purposes
of Section 83 of the Code. The exercise price of all Company employee stock options is at least
equal to the fair market value of the Company Common Stock on the date such options were granted,
and the Company has not incurred, and will not incur, any liability under Section 409A of the Code
upon the vesting of any such options based on the terms and conditions applicable to the options as
of the date of this Agreement..

     4.21 No Integration or General Solicitation. Neither the Company nor any affiliate (as
defined in Rule 501(b) of Regulation D under the Securities Act) (an “Affiliate”) of the Company
has, directly, or through any agent, (a) sold, offered for sale, solicited any offers to buy or
otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or
will be integrated with the sales of the Securities in a manner that would require the registration
under the Securities Act of the Securities; or (b) offered, solicited offers to buy or sold the
Securities in any form of general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act; and the Company will not engage in any of the
actions described in subsections (a) and (b) of this paragraph.

     4.22 No Registration. Subject to the accuracy of each of the Purchaser’s representations
herein, it is not necessary in connection with the offer, sale and delivery of the Securities to
the several Purchasers in the manner contemplated by this Agreement to register the Securities
under the Securities Act or to qualify the Company’s issuance of the Securities under applicable
state securities laws.

     4.23 No Material Changes. Except as disclosed in the SEC Documents, since September 30, 2008,
(i) there has been no event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with
the SEC, (iii) the Company has not altered its method of accounting or the identity of its
auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company stock option and stock purchase
plans. Except as disclosed in the SEC Documents, since September 30, 2008, no material off-balance
sheet liabilities not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the SEC which could individually or in the
aggregate reasonably be expected to have a Material Adverse Effect have been incurred. No material
default exists with respect to or under any obligations of the Company or any Subsidiary to repay
money borrowed (including, without limitation, all notes payable and drafts accepted representing
extensions of credit, all obligations under letters of credit, all obligations evidenced by bonds,
debentures, notes or other similar instruments and all obligations upon which interest charges are
customarily paid) and all contractual obligations (whether absolute or contingent) of such entity
to repurchase goods sold and distributed or any instrument or agreement relating thereto and no
event or circumstance exists with respect thereto that (with notice or the lapse of time or both)
could give rise to such a default.

9

 

     4.24 Accounting Controls. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. Since the date of the most recent
evaluation of such internal accounting controls, there has been no change in internal control over
financial reporting that occurred during the most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting, including any corrective actions with regard to significant deficiencies and
material weaknesses.

     4.25 Form S-3. The Company satisfies the requirements for use of Form S-3 for registration of
the resale of the Securities as contemplated herein. There exist no facts or circumstances that
would prohibit or delay the preparation or initial filing of the Registration Statement. The
Company has filed registration statements on Form S-3 covering the registration for resale of the
common stock issuable upon conversion of the Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock and any common stock issuable upon exercise of warrants issued in
connection therewith (the “Prior Registration Statements”). The Prior Registration Statements are
effective under the Securities Act and no stop order preventing or suspending the effectiveness of
the Prior Registration Statements or suspending or preventing the use of any related prospectus has
been issued by the SEC and no proceedings for the purpose have been instituted or, to the knowledge
of the Company, are threatened by the SEC.

     4.26 No Anti-Dilution Event. The issuance of the Securities does not constitute an
anti-dilution event for any existing security holders of the Company, pursuant to which such
security holders would be entitled to additional securities or a reduction in the applicable
conversion price or exercise price of any securities due to any issuance proposed to be conducted
hereunder.

     4.27 Registration Rights. The Company has not granted or agreed to grant any person or entity
any rights (including “piggy—back” registration rights) to require the Company to file a
registration statement under the Securities Act with respect to any securities, or to include such
securities with the Securities in any registration statement, except for such as have been
satisfied or waived.

     4.28 Investment Company Act. The Company is not, and upon the issuance and sale of the Shares
and the Warrants as herein contemplated and the application of the net proceeds therefrom will not
be an “investment company” as such term is defined in the Investment Company Act of 1940, as
amended (the “1940 Act”). Furthermore, in the event that the SEC shall inform the Company that the
SEC believes that the Company is an “investment company” as such term is defined in the 1940 Act,
the Company shall manage its investments and promptly take such other actions as is reasonably
necessary such that the SEC shall no longer consider the Company to be an “investment company” as
such term is defined in the 1940 Act.

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     4.29 Sarbanes-Oxley Act. The Company has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14 under the 1934 Act), which (i) are designed to
ensure that material information relating to the Company, including its consolidated subsidiaries,
is made known to the Company’s principal executive officer and its principal financial officer by
others within those entities, particularly during the periods in which the periodic reports
required under the 1934 Act are being prepared; (ii) provide for the periodic evaluation of the
effectiveness of such disclosure controls and procedures as of the end of the period covered by the
Company’s most recent annual or quarterly report filed with the SEC; and (iii) are effective in all
material respects to perform the functions for which they were established. Based on the
evaluation of its disclosure controls and procedures, the Company is not aware of (i) any
significant deficiency in the design or operation of internal controls which could adversely affect
the Company’s ability to record, process, summarize and report financial data or any material
weaknesses in internal controls; or (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company’s internal controls. The
Chief Executive Officer and the Chief Financial Officer of the Company have signed, and the Company
has furnished to the SEC, all certifications required by Section 906 and Section 302 of the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); such certifications contain no
qualifications or exceptions to the matters certified therein, except as to knowledge, and have not
been modified or withdrawn; and neither the Company nor any of its officers has received notice
from any governmental entity questioning or challenging the accuracy, completeness, content, form
or manner of filing or submission of such certifications.

     4.30 Audit Committee. The Company’s board of directors has validly appointed an audit
committee whose composition satisfies the requirements of Rule 4350(d)(2) of the Rules of the National Association of Securities
Dealers, Inc. (the “NASD Rules”) and the Company’s board of directors and/or the audit committee
has adopted a charter that satisfies the requirements of Rule 4350(d)(1) of the NASD Rules. The
audit committee has reviewed the adequacy of its charter within the past twelve months. Neither
the Company’s board of directors nor the audit committee has been informed, nor is any director of
the Company aware, of (1) any significant deficiencies in the design or operation of the Company’s
internal controls which could adversely affect the Company’s ability to record, process, summarize
and report financial data or any material weakness in the Company’s internal controls; or (2) any
fraud, whether or not material, that involves management or other employees of the Company who have
a significant role in the Company’s internal controls.

     4.31 Foreign Corrupt Practices Act. Neither the Company nor any of its Subsidiaries has
violated the Foreign Corrupt Practices Act. Without limiting the foregoing, neither the Company
nor any of its Subsidiaries has, to obtain or retain business, directly or indirectly offered, paid
or promised to pay, or authorized the payment of, any money or other thing of value to: (a) any
person or entitiy who is an official, officer, agent, employee or representative of any
governmental body or of any existing or prospective customer (whether government owned or
non-government owned); (b) any political party or official thereof; (c) any candidate for political
or political party office; or (d) any other person or entity while knowing or having reason to
believe that all or any portion of such money or thing of value would be

11

 

offered, given or
promised, directly or indirectly, to any such official, officer, agent, employee, representative,
political party, political party official, candidate or person or entity affiliated with such
customer, political party or official or political office.

     4.32 Loans to Officers and Directors. Since July 30, 2002, the Company has not, directly or
indirectly, including through any subsidiary, extended or maintained credit, or arranged for the
extension of credit, or renewed an extension of credit, in the form of a personal loan to or for
any of its directors or executive officers in violation of Section 402 of the Sarbanes-Oxley Act of
2002.

     4.33 Employee Benefits. Except as disclosed in the SEC Documents, a Change of Control (as
defined below) will not (either alone or upon the occurrence of any additional or subsequent
events) constitute an event that will or may result (either alone or in connection with any other
circumstance or event) in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee of the Company or any of its Subsidiaries or any Affiliate of
the Company.

     4.34 Nasdaq Listing. The Common Stock has been approved for listing subject to notice of
issuance on Nasdaq. The Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or the quotation of the
Common Stock on Nasdaq, nor has the Company received any notification that the SEC or Nasdaq is
contemplating terminating such registration, listing or quotation. Prior to the Initial Closing
Date, the Company shall file with Nasdaq a notice of listing of additional shares or other document
required by Nasdaq, if any, for the listing of the Conversion Shares and the Warrant Shares with
Nasdaq and shall provide evidence of such filing to the Purchasers. The Company shall use its best efforts to obtain
the listing, subject to official notice of issuance, of the Conversion Shares and Warrant Shares on
Nasdaq prior to the Initial Closing Date. So long as the Purchasers beneficially own any Preferred
Stock or Common Stock, the Company shall maintain the listing of the Common Stock on Nasdaq or a
registered national securities exchange.

     4.35 Qualified Small Business. The Company represents and warrants to Purchasers that the
Company is a “qualified small business” within the meaning of Section 1202(d) of the Internal
Revenue Code of 1986, as amended (the “Code”), as of the date hereof and the Shares should qualify
as “qualified small business stock” as defined in Section 1202(c) of the Code as of the date
hereof. The Company further represents and warrants that, as of the date hereof, it meets the
“active business requirement” of Section 1202(e) of the Code, and it has made no “significant
redemptions” within the meaning of Section 1202(c)(3)(B) of the Code.

     4.36 Broker’s Fee. There are no brokers or finders (and similar agents) entitled to
compensation in connection with the sale of the Shares or the Warrants.

     4.37 Complete Disclosure. All information provided to the Purchasers in connection with the
transactions contemplated hereby, or contained in this Agreement and the SEC Documents with respect
to the business, operations, assets, results of operations and financial condition of the Company,
and the transactions contemplated by this Agreement, are true and

12

 

complete in all material respects
and do not omit to state any material fact or facts necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

SECTION 5. Representations, Warranties and Covenants of the Purchasers. 

     Each Purchaser, severally and not jointly, represents and warrants to and covenants with the
Company that:

          (a) Purchaser, taking into account the personnel and resources it can practically bring to
bear on the purchase of the Securities contemplated hereby, either alone or together with the
advice of such Purchaser’s purchaser representative, is knowledgeable, sophisticated and
experienced in making, and is qualified to make, decisions with respect to investments in shares
presenting an investment decision like that involved in the purchase of the Securities, including
investments in securities issued by the Company, and has requested, received, reviewed and
considered, either alone or with such Purchaser’s purchaser representative, all information
Purchaser deems relevant in making an informed decision to purchase the Securities.

          (b) Purchaser is acquiring the Securities being acquired by Purchaser pursuant to this
Agreement in the ordinary course of its business and for its own account for investment only and
with no present intention of distributing any of such Securities or any arrangement or understanding with any other persons regarding the distribution of such Securities, except in
compliance with Section 5(c).

          (c) Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise
dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of
the Securities purchased hereunder except in compliance with the Securities Act of 1933, as amended
(the “Securities Act”), applicable blue sky laws, and the rules and regulations promulgated
thereunder.

          (d) Purchaser is an “accredited investor” within the meaning of Rule 501 of Regulation D
promulgated under the Securities Act.

          (e) Purchaser has full right, power, authority and capacity to enter into this Agreement and
to consummate the transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement. This Agreement constitutes a valid and
binding obligation of Purchaser, enforceable in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of debtors, (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies, and (iii) the
limitations imposed by applicable law or public policy on provisions relating to indemnity or
contribution.

SECTION 6. Survival of Representations, Warranties and Agreements. Notwithstanding any
investigation made by any party to this Agreement, all covenants, agreements, representations and
warranties made by the Company and each Purchaser herein and in the certificates for the Shares and
the Warrants delivered pursuant hereto shall survive the execution of this Agreement, the delivery
to the Purchasers of the Shares and the Warrants being purchased and the payment therefor for a
period of two years following the Closing Date.

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SECTION 7. Conditions to Company’s Obligations at the Closing. The Company’s obligation
to complete the sale and issuance of the Shares and the Warrants and deliver the Shares and the
Warrants to each Purchaser, individually, as set forth in the Schedule of Purchasers, at the
Closing shall be subject to the following conditions to the extent not waived by the Company:

     7.1 Receipt of Payment. The Company shall have received payment, by wire transfer of
immediately available funds, in the full amount of the purchase price for the number of Shares and
Warrants being purchased by such Purchaser at such Closing as set forth in the Schedule of
Purchasers.

     7.2 Representations and Warranties Correct. The representations and warranties made by such
Purchaser in Section 5 hereof shall be true and correct in all material respects when made, and
shall be true and correct in all material respects on the date of the Closing.

     7.3 Exchange Agreement. The Exchange Agreement substantially in the form attached hereto as
Exhibit 7.3 shall have been executed and delivered by the parties thereto.

     7.4 Covenants Performed. All covenants, agreements and conditions contained herein to be
performed by such Purchaser on or prior to the Closing shall have been performed or complied with
in all material respects.

SECTION 8. Conditions to Purchasers’ Obligations at the Closing. Each Purchaser’s
obligation to accept delivery of the Shares and the Warrants and to pay for the Shares and the
Warrants at the Closing shall be subject to the following conditions to the extent not waived by
such Purchaser:

     8.1 Representations and Warranties Correct. The representations and warranties made by the
Company in Section 4 hereof shall be true and correct in all material respects when made, and shall
be true and correct in all material respects on the Closing Date.

     8.2 Covenants Performed. All covenants, agreements and conditions contained herein to be
performed by the Company on or prior to the Closing shall have been performed or complied with in
all material respects.

     8.3 Reservation of Conversion Shares and Warrant Shares. The Conversion Shares and Warrant
Shares shall have been duly authorized and reserved for issuance upon such conversion or exercise.

     8.4 Amended and Restated Investor Rights Agreement. The Investor Rights Agreement
substantially in the form attached hereto as Exhibit 4.5 shall have been executed and delivered by
the parties thereto.

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     8.5 Exchange Agreement. The Exchange Agreement substantially in the form attached hereto as
Exhibit 7.3 shall have been executed and delivered by the parties thereto.

     8.6 Legal Opinion. Each Purchaser must have received a customary opinion, dated the Closing
Date, from Faegre & Benson, LLP, counsel for the Company, substantially in the form attached hereto
as Exhibit 8.6.

     8.7 Extension of Existing Warrants. With respect to each warrant to purchase common stock
originally issued by the Company on September 15, 2005, and June 19, 2007, to the Purchasers
affiliated with Trident Capital, Inc., the Company shall have extended by two years the period
during which such warrants may be exercised, and delivered to such Purchasers satisfactory evidence
thereof.

     8.8 Intentionally Omitted

     8.9 Secretary’s Certificate. Each Purchaser must have received a certificate, dated the
Closing Date, of the Secretary of the Company in customary form having attached thereto (i) the
bylaws of the Company, (ii) the articles of incorporation of the Company, (iii) the resolutions of
the Board of Directors of the Company and any committee of the Board of Directors approving the
transactions contemplated by this Agreement and (iv) good standing certificates with respect to the
Company from the applicable authority in Minnesota and any other jurisdiction in which the Company
is qualified to do business, dated as of (or reasonably close to) the Closing Date.

     8.10 Transfer Agent Instructions. Prior to the Initial Closing, the Company will (i) execute
and deliver to the Company’s Transfer Agent the Transfer Agent Instruction in substantially the
form of Exhibit 8.10 to this Agreement and pursuant thereto irrevocably instruct the Transfer Agent
to issue certificates for the Common Stock from time to time upon conversion of the Shares or upon
exercise of the Warrants in such amounts as specified from time to time to the Transfer Agent in
the conversion notices surrendered in connection with such conversions, (ii) appoint the Transfer
Agent the conversion agent for the Shares and authorize the Transfer Agent to issue Common Stock
upon exercise of the Warrants.

     8.11 Certificate of Designation. Each Purchaser shall have received satisfactory
confirmation of the filing with the Secretary of State of the State of Minnesota of the Certificate
of Designation.

     8.12 No Material Adverse Effect. No event that would constitute a Material Adverse Effect to
the Company shall have occurred subsequent to the date of the filing of the Company’s most recently
filed Annual Report on Form 10-K or Quarterly Report on Form 10-Q.

     8.13 Proceedings and Documents. All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to each Purchaser.

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SECTION 9. Registration of the Conversion Shares and the Warrant Shares; Compliance with the
Securities Act. 

     9.1 Registration Procedures. The Company is obligated to do the following:

          (a) As soon as is reasonably practicable after the Closing Date, but in no event later than
ninety (90) calendar days after the last Closing Date hereunder (the “Filing Deadline”), the
Company shall prepare and file with the SEC one or more registration statements (collectively, the
“Registration Statement”) on Form S-3 (unless the Company is not then eligible to register for
resale on Form S-3, in which case on another appropriate form) to register with the SEC the resale
by the Purchasers, from time to time, of the Conversion Shares and the Warrant Shares and a
reasonable estimate of any Common Stock to be issued as (or issuable upon the
conversion or exercise of any Preferred Stock, warrant, right or other security that is issued
as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the
Conversion Shares or the Warrant Shares (collectively, the “Registrable Securities”) through Nasdaq
or the facilities of any national securities exchange on which the Company’s Common Stock is then
traded, or in privately negotiated transactions. The Company shall use its best efforts to cause
the Registration Statement to be declared effective as soon thereafter as possible, but in any
event prior to one hundred fifty (150) days after the last Closing Date hereunder (the
“Effectiveness Deadline”). After the closing of the exchange contemplated by the Exchange
Agreement, “Conversion Shares” as used in this Section 9.1(a) shall no longer be deemed to mean the
Common Stock to be issued upon conversion of the Shares, but shall instead be deemed to mean the
Common Stock to be issued upon conversion of the Series F Shares (as defined in the Exchange
Agreement).

          (b) If a Registration Statement covering all of the Registrable Securities has not been
declared effective by the SEC on or prior to the Effectiveness Deadline, then the Company shall
issue an additional Warrant to each Purchaser to purchase shares of Common Stock representing three
percent (3%) of the number of Shares purchased by such Purchaser at the Closing for each aggregated
thirty day period (or portion thereof) after the Effectiveness Deadline for which such Registration
Statement has not been declared effective; provided, however, that the Company will not issue any
additional Warrants to a Purchaser pursuant to this Section 9.1(b) unless and until such Purchaser
has paid the Company a purchase price equal to $0.125 per share of Common Stock underlying such
additional Warrants.

          (c) Not less than five (5) trading days prior to the filing of a Registration Statement or any
prospectus contained in a Registration Statement (a “Prospectus”) or any amendment or supplement
thereto, the Company shall, (i) furnish to the Purchasers for their review copies of all such
documents proposed to be filed (including documents incorporated or deemed incorporated by
reference), and (ii) notify each Purchaser in writing of the information the Company requires from
each such Purchaser to be included in such Registration Statement. The Company will cause its
officers and directors, counsel and independent certified public accountants to respond to such
inquiries as the Purchasers shall deem reasonably necessary as soon as practicable after having
received such inquiries.

          (d) The Company shall (i) prepare and file with the SEC (x) such amendments and supplements to
each Registration Statement and the Prospectus used in connection therewith,

16

 

and (y) such other
filings required by the SEC, and (ii) take such other actions, in each case as may be necessary to
keep the Registration Statement continuously effective and so that such Registration Statement will
not contain an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and so that such
Prospectus will not contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, until the earlier of (A) the sixth
(6th) anniversary of the date of execution of this Agreement, and (B) such time as legal
counsel to the Company delivers a legal opinion to the Purchasers, the Company and the Company’s
transfer agent stating that all Registrable Securities then held by the Purchasers can be sold
without compliance with the registration requirements of the Securities Act pursuant to Rule
144(b)(1) under the Securities Act (the “Effectiveness Period”). The Company shall not, during the Effectiveness Period, voluntarily take any action that would
result in the Purchasers not being able to offer and sell Registrable Securities during that
period, unless such action is taken by the Company in good faith in compliance with Section 9.2(f)
below.

          (e) (i) Furnish to the Purchasers with respect to the Registrable Securities registered under
the Registration Statement such number of copies of the Registration Statement (including
pre-effective and post-effective amendments), Prospectuses (including supplemental prospectuses)
and preliminary versions of the Prospectus filed with the SEC (“Preliminary Prospectuses”) in
conformity with the requirements of the Securities Act and such other documents as the Purchasers
may reasonably request, to facilitate the public sale or other disposition of all or any of the
Registrable Securities by the Purchasers; and (ii) upon request, inform each Purchaser who so
requests that the Company has complied with its obligations in Section 9.1(e)(i) (or that, if the
Company has filed a post-effective amendment to the Registration Statement which has not yet been
declared effective, the Company will notify the Purchaser to that effect, will use its reasonable
efforts to secure the effectiveness of such post-effective amendment as promptly as reasonably
possible and will promptly notify the Purchaser pursuant to Section 9.1(e)(i) hereof when the
amendment has become effective).

          (f) Notify the Purchasers as promptly as reasonably possible and (if requested by any such
Person) confirm such notice in writing no later than one trading day following the day (i) (A) when
the SEC notifies the Company whether there will be a review of a Registration Statement and
whenever the SEC comments in writing on such Registration Statement (the Company shall provide true
and complete copies thereof and all written responses thereto to each of the Purchasers); and (B)
with respect to a Registration Statement or any posteffective amendment, when the same has become
effective; (ii) of any request by the SEC for amendments or supplements to a Registration Statement
or Prospectus or for additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement covering any or all of the Registrable
Securities or the initiation of any proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation
or threatening of any proceeding for such purpose; and (v) of the occurrence of any event or
passage of time that makes the financial statements included in a Registration Statement ineligible
for inclusion therein or any statement made in such Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue in any material
respect or that requires any revisions

17

 

to such Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement, such Registration Statement will not
contain an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and so that such
Prospectus will not contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

          (g) File documents required of the Company for normal blue sky clearance in states reasonably
specified in writing by the Purchasers prior to the effectiveness of the Registration Statement;
provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so
qualified or has not so consented.

          (h) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i)
any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the
qualification (or exemption therefrom) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

          (i) Cooperate with the Purchasers to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to any transferee pursuant to any
Registration Statement free of any restrictive legends and in such denominations and registered in
such names as the Purchasers may reasonably request.

          (j) In the event of any underwritten public offering, enter into and perform its obligations
under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of
such offering. Each Purchaser participating in such underwriting shall also enter into and perform
its obligations under such an agreement.

          (k) In the event of any underwritten public offering, use its best efforts to furnish, on the
date that such Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and (ii) a letter, dated as of such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering addressed to the
underwriters.

          (l) Cause all such Registrable Securities registered pursuant hereto to be listed on Nasdaq,
if the Common Stock is then listed on Nasdaq, and each other securities exchange on which similar
securities issued by the Company are then listed.

          (m) The Company understands that each of the Purchasers disclaims being an underwriter, but
any Purchasers being deemed an underwriter by the SEC shall not relieve the Company of any
obligations it has hereunder.

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     9.2 Transfer of Shares After Registration; Suspension; Damages.

          (a) Each Purchaser, severally and not jointly, agrees (i) that it will not sell, offer to
sell, solicit offers to buy, dispose of, loan, pledge or grant any right with respect to the
Registrable Securities or otherwise take an action that would constitute a sale within the meaning
of the Securities Act, other than transactions exempt from the registration requirements of the
Securities Act, except as contemplated in the Registration Statement referred to in Section 9.1 and
as described below, (ii) that it shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Purchaser that such Purchaser shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be required to effect the
registration of such Registrable Securities and as requested by the Company, (iii) that it shall
execute such documents in connection with such registration, that are customary for resale
registration statements, as the Company may reasonably request, (iv) to cooperate with the Company
as reasonably requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Purchaser has notified the Company in writing of such
Purchaser’s election to exclude all of such Purchaser’s Registrable Securities from such
Registration Statement and (v) that it will promptly notify the Company of any changes in the
information set forth in the Registration Statement regarding the Purchaser or its plan of
distribution.

          (b) Subject to paragraph (c) below, in the event: (i) of any request by the SEC or any other
federal or state governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to a Registration Statement or related Prospectus or for
additional information; (ii) of the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption from qualification of
any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding
for such purpose; or (iv) of any event or circumstance which necessitates the making of any changes
in the Registration Statement or Prospectus, or any document incorporated or deemed to be
incorporated therein by reference, so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or any omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading, and that in the
case of the Prospectus, it will not contain any untrue statement of a material fact or any omission
to state a material fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading; then the Company
shall promptly deliver a certificate in writing to each Purchaser (a “Suspension Notice”) to the
effect of the foregoing and, upon receipt of such Suspension Notice, the Purchaser will refrain
from selling any Registrable Securities pursuant to the Registration Statement (a “Suspension”)
until the Purchaser’s receipt of copies of a supplemented or amended Prospectus prepared and filed
by the Company, or until it is advised in writing by the Company that the current Prospectus may be
used, and has received copies of any additional or supplemental filings that are incorporated or
deemed incorporated by reference in any such Prospectus.

          (c) In the event of any Suspension, the Company shall cause the use of the Prospectus so
suspended to be resumed as soon as practicable but in any event within thirty (30)

19

 

days after delivery of the Suspension Notice to Purchasers; provided, however, that Purchasers
shall not be prohibited from selling Registrable Securities under the Registration Statement as a
result of Suspensions on more than three occasions of not more than thirty (30) days each and not
more than ninety (90) days in the aggregate in any twelve month period. Notwithstanding the
foregoing, if the Company ceases to be eligible to register the Registrable Securities on Form S-3
and resolution of any Suspension requires the Company to file a post-effective amendment on Form
S-1, (i) the Company will use its best efforts to cause the use of the Prospectus so suspended to
be resumed as soon as reasonably practicable but in any event within ninety (90) days after
delivery of a Suspension Notice to Purchasers, and (ii) the Purchasers shall not be prohibited from
selling Registrable Securities under the amended Registration Statement on Form S-1 as a result of
Suspensions on or after the date that the Company ceases to be eligible to register the Registrable
Securities on Form S-3 on more than three occasions of not more than thirty (30) days each and not
more than ninety (90) days in the aggregate in any twelve month period. In addition to and without
limiting any other remedies (including, without limitation, at law or at equity) available to the
Purchaser, the Purchaser shall be entitled to specific performance in the event that the Company
fails to comply with the provisions of this Section 9.2(c).

          (d) Provided that a Suspension in accordance with paragraphs (b) and (c) of this Section 9.2
is not then in effect, a Purchaser may sell Registrable Securities under the Registration
Statement, provided that it arranges for delivery of a current Prospectus to the transferee of such
Registrable Securities. Upon receipt of a request therefor, the Company will provide an adequate
number of current Prospectuses to the Purchaser and to any other parties requiring such
Prospectuses.

          (e) If a Registration Statement ceases to be effective as to, or ceases to be available to the
Purchasers with respect to, all Registrable Securities pursuant to subsections (b) or (c) of
Section 9.2 for any reason prior to the expiration of the Effectiveness Period (any such event, a
“Registration Default”), then the Company shall issue additional Warrants to each Purchaser to
purchase shares of Common Stock representing two and one-half percent (2 1/2%) of the number of
Shares purchased by each such Purchaser at the Closing for each aggregated thirty day period (or
portion thereof) for which a Registration Default had continued; provided however, that the
aggregate number of Warrant Shares issuable upon exercise of Warrants issued to a Purchaser under
this subsection (e) shall not in the aggregate exceed ten percent (10%) of the number of Shares
purchased by such Purchaser at the Closing.

     9.3 Expenses of Registration. Except as specifically provided herein, all expenses incurred
by the Company in complying with Section 9 hereof, including, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, reasonable fees and expenses
of one counsel to the Purchasers (which shall be in addition to any fees pursuant to Section 13.8
but which shall not exceed $40,000), blue sky fees and expenses, fees and the expense of any
special audits incident to or required by any such registration (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the Company) (collectively,
the “Registration Expenses”) shall be borne by the Company. All underwriting discounts and selling
commissions applicable to a sale incurred in connection with any registrations hereunder shall be
borne by the holders of the securities so registered pro rata on the basis of the number of shares
so sold.

20

 

     9.4 Delay of Registration; Furnishing Information. The Purchasers shall furnish to the
Company such information regarding themselves, the Registrable Securities held by them and the
intended method of disposition of such securities as shall be required to effect the registration
of their Registrable Securities. Furthermore, each Purchaser, severally and not jointly, agrees to
promptly notify the Company of any changes in the information set forth in a registration statement
regarding such Purchaser or its plan of distribution set forth in such registration statement.

     9.5 Indemnification. In the event any Registrable Securities are included in a registration
statement under this Section 9.

          (a) The Company will indemnify and hold harmless each Purchaser, the partners, officers and
directors of each Purchaser, any underwriter (as defined in the Securities Act) for such Purchaser
and each person, if any, who controls such Purchaser or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or violations (collectively a
“Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in
a Registration Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the statements therein
not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law in connection with the offering
covered by such Registration Statement; and the Company will pay as incurred to each such
Purchaser, partner, officer, director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity agreement contained in
this Section 9.5 shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the Company, which
consent shall not be unreasonably withheld, unless such settlement (x) includes an unconditional
release of the Company from all liability on any claims that are the subject matter of such action,
and (y) does not include a statement as to or an admission of fault, culpability or a failure to
act by or on behalf of the Company; provided, further, that the Company shall not be liable in any
such case for any such loss, claim, damage, liability or action to the extent that it arises out of
or is based upon a Violation which (i) occurs in reliance upon and in conformity with written
information furnished expressly for inclusion in such Registration Statement, prospectus, amendment
or supplement by such Purchaser, partner, officer, director, underwriter or controlling person of
such Purchaser or (ii) based upon a claim that a Preliminary Prospectus contained an untrue
statement or alleged untrue statement of a material fact or omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the statements therein
not misleading, if such person was not sent or given a copy of the Prospectus (or the Prospectus as
amended or supplemented) at or prior to the written confirmation of the sale of such Registrable
Securities to such person and the untrue statement contained in or omission from such Preliminary
Prospectus was corrected in the final Prospectus (or the Prospectus as amended or supplemented)
unless such failure is the result of

21

 

noncompliance by the Company of Section 9.1(b) or (e) hereof; provided, further, that this
indemnification agreement will be in addition to any liability which the Company may otherwise have
to the Purchasers.

          (b) Each Purchaser will, if Registrable Securities held by such Purchaser are included in the
securities as to which such Registration Statement, prospectus, amendment or supplement is being
filed, severally and not jointly, indemnify and hold harmless the Company, each of its directors,
its officers and each person, if any, who controls the Company within the meaning of the Securities
Act or Exchange Act, any underwriter and any other Purchaser selling securities under such
registration statement or any of such other Purchaser’s partners, directors or officers or any
person who controls such Purchaser, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such director, officer, controlling person, underwriter or
other such Purchaser, or partner, director, officer or controlling person of such other Purchaser
may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such Violation occurs (i) in
reliance upon and in conformity with written information furnished by such Purchaser specifically
for use in connection with such Registration Statement, prospectus, amendment or supplement or (ii)
as a result of such Purchaser’s failure to deliver a Prospectus or Prospectus supplement as
contemplated by the Securities Act prior to the pertinent sale of shares by such Purchaser; and
each such Purchaser will pay as incurred any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other person registering
shares under such registration, or partner, officer, director or controlling person of such other
person registering shares under such Registration Statement in connection with investigating or
defending any such loss, claim, damage, liability or action if it is judicially determined that
there was such a Violation; provided, however, that the indemnity agreement contained in this
Section 9.5 shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the Purchaser, which
consent shall not be unreasonably withheld, unless such settlement (x) includes an unconditional
release of such Purchaser from all liability on any claims that are the subject matter of such
action, and (y) does not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of such Purchaser; provided, further, that in no event shall any
indemnity or contribution under this Section 9.5 exceed in the aggregate the dollar amount of the
net proceeds to be received by such Purchaser from the sale of such Purchaser’s Registrable
Securities pursuant to the Registration Statement.

          (c) Promptly after receipt by an indemnified party under this Section 9.5 of notice of the
commencement of any action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this Section 9.5,
deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the defense thereof with
counsel reasonably satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such

22

 

counsel in such proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the indemnified party under this Section 9.5, unless and to the extent
that such failure is materially prejudicial to the indemnifying party’s ability to defend such
action, but the omission so to deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise than under this Section 9.5.

          (d) If the indemnification provided for in this Section 9.5 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages
or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by the indemnifying party or
parties on the one hand and the indemnified party on the other from the sale of the Registrable
Securities pursuant to the Registration Statement, or (ii) if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the relative benefits but
also the relative fault of the indemnifying party or parties on the one hand and the indemnified
party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by a court of law by reference
to, among other things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, that in no event shall any
indemnification or contribution by a Purchaser under this Section 9.5 exceed in the aggregate the
dollar amount of the net proceeds to be received by such Purchaser from the sale of such
Purchaser’s Registrable Securities pursuant to the Registration Statement.

          (e) The obligations of the Company and the Purchasers under this Section 9.5 shall survive
completion of any offering of Registrable Securities in a Registration Statement and the
termination of this Agreement.

     
9.6 Agreement to Furnish Information.

          (a) In connection with an underwritten registration in which such Purchaser is participating,
each Purchaser agrees to execute and deliver such other agreements as may be reasonably requested
by the Company or the underwriter. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, each Purchaser shall
provide such information related to such Purchaser as may be required by the Company or such
representative in connection with the completion of any public offering of the Company’s securities
pursuant to a registration statement filed under the Securities Act.

     9.7 Assignment of Registration Rights. The rights to cause the Company to register
Registrable Securities pursuant to this Section 9 may be assigned (but only with the related
obligations) by a Purchaser, provided
(i) each transfer to each transferee or designee involves either (X) all Registrable
Securities held by such Purchaser, (Y) not less than twenty-five

23

 

thousand (25,000) shares of
Preferred Stock, or (Z) an affiliate or a current or former partner or member of such Purchaser or
any affiliate, (ii) the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee, (iii) such transferee or
assignee agrees in writing to assume the obligations of this Section 9 and (iv) such assignment
shall be effective only if immediately following such transfer the further disposition of such
shares by the transferee or assignee is restricted under the Securities Act (for purposes of this
statement, if the transferee, together with all affiliated persons is able to sell all of the
Restricted Securities held by such transferee pursuant to Rule 144(b)(1) then further disposition
will not be deemed to be restricted under the Securities Act).

     9.8 Rule 144 Reporting. With a view to making available to the Purchasers the benefits of
certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to
the public without registration, the Company agrees to use its best efforts to:

          (a) Make and keep public information available, as those terms are understood and defined in
SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act;

          (b) Keep the Registration Statement effective at all times;

          (c) File with the SEC, in a timely manner, all reports and other documents required of the
Company under the Exchange Act; and

          (d) So long as a Purchaser owns any Registrable Securities, furnish to such Purchaser
forthwith upon request: a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has
become subject to such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as a Purchaser may reasonably request
in availing itself of any rule or regulation of the SEC allowing it to sell any such securities
without registration.

     9.9 S-3 Eligibility. The Company will use its best efforts to meet the requirements for the
use of Form S-3 for registration of the resale by the Purchasers of the Registrable Securities. The
Company will use its best efforts to file all reports required to be filed by the Company with the
SEC in a timely manner and take all other necessary action so as to maintain such eligibility for
the use of Form S-3.

     9.10 Termination of Registration Rights. Subject to the rights of transferees under Section
9.7 hereof, the Company’s obligations pursuant to this Section 9 shall terminate with respect to
each Purchaser severally upon the earlier of (A) the date that such Purchaser has completed the
distribution related to such Purchaser’s Registrable Securities, (B) the sixth (6th)
anniversary of the date of execution of this Agreement, and (C) such time as legal counsel to the
Company delivers a legal opinion to the Purchasers stating that all Registrable Securities then
held by the Purchasers can be sold without
compliance with the registration requirements of the Securities Act pursuant to Rule 144(b)(1)
under the Securities Act (but only for so long as the shares may be so sold). Following a
termination of the Company’s obligations pursuant to the preceding sentence with respect to a
Purchaser, any Securities held by such Purchaser shall not be deemed to be Registrable Securities
thereafter, and the obligations of such Purchaser pursuant to this Section 9 shall also terminate.

24

 

     9.11 Amendment of Registration Rights. Provisions of this Section 9 may be amended and the
observance thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company and Purchasers who
then hold not less than a majority of the Registrable Securities. Any amendment or waiver effected
in accordance with this Section 9.11 shall be binding upon each Purchaser and the Company. No such
amendment shall be effective to the extent that it applies to less than all of the holders of the
Registrable Securities.

     9.12 Legends. Each certificate representing Shares shall (unless such Shares are then
eligible for transfer pursuant to Rule 144(b)(1) under the Securities Act or as otherwise permitted
under applicable law or the provisions of the Agreement) be stamped or otherwise imprinted with a
legend substantially similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in this Agreement):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN THE FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

Nothing in this Section 9.12 or elsewhere in this Agreement shall be deemed to restrict the ability
of the holder of any Securities to transfer any such Securities to an affiliate, partner or former
partner of such holder in compliance with the Securities Act, nor shall any legal opinion be
required in connection therewith.

SECTION 10. Company Covenants.

     10.1 Reservation of Shares and Common Stock. The Company will at all times reserve and keep
available a sufficient number of shares of Common Stock, solely for issuance and delivery upon the
conversion of the Series E Preferred Stock (or, after the exchange contemplated by the Exchange
Agreement, the Series F Shares as defined therein) and upon exercise of the Warrants.

     10.2 Subsequent Registration Rights. In the event of a Change in Control transaction (as such
term is defined in Section 4(D) of the Certificate of Designation) involving issuance of an
acquiror’s securities (the “Acquisition Securities”) and if such Change in Control transaction
provides for the registration of the Acquisition Securities, the Company shall specifically provide
in such Change of Control transaction agreements that the Acquisition Securities issued or issuable
to the Purchasers shall be included in any such registration of the Acquisition Securities.

25

 

SECTION 11. Broker’s Fee. The Company and each Purchaser (severally and not jointly)
hereby represent that there are no brokers or finders (and similar agents) entitled to compensation
in connection with the sale of the Shares or the Warrants, and shall indemnify each other for any
such fees for which they are responsible.

SECTION 12. Notices. All notices required in connection with this Agreement shall be in
writing and shall be deemed effectively given upon the earlier of actual receipt of: (a) personal
delivery to the party to be notified, (b) one business day after the date of confirmed transmission
by facsimile, (c) five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one (1) business day after the business day of deposit
with a nationally recognized overnight courier, specifying next day delivery, freight prepaid, with
written notification of receipt, and addressed as follows:

          (a) if to the Company, to:

XATA Corporation

965 Prairie Center Drive

Eden Prairie, MN 55344

Attention: Chief Financial Officer

Facsimile: 952-641-5848

Email: mark.ties@xata.com

          with a copy so mailed to:

Faegre & Benson LLP

2200 Wells Fargo Center

Minneapolis, MN 55402

Attention: Michael Coddington

Facsimile: (612) 766-1600

Email: mcoddington@faegre.com

or to such other person at such other place as the Company shall designate to the
Purchasers in writing; and

          (b) if to the Purchasers, at the address as set forth below each Purchaser’s name on the
Schedule of Purchasers, or at such other address or addresses as may have been furnished to the
Company in writing.

SECTION 13. Miscellaneous.

     13.1 Waivers and Amendments. Neither this Agreement nor any provision hereof may be changed,
waived, discharged, terminated, modified or amended except upon the written consent of the Company
and holders of at least a majority of the Shares (or, after the closing of the exchange
contemplated by the Exchange Agreement, the Series F Shares as defined therein) then held by the
Purchasers (including any shares of Common Stock issued upon conversion of the Shares and then held
by the Purchasers).

26

 

     13.2 Headings. The headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this Agreement.

     13.3 Severability. In case any provision contained in this Agreement should be invalid,
illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired thereby.

     13.4 Governing Law. This Agreement shall be governed by and construed in accordance with
the corporate laws of the State of Minnesota and, with respect to matters of law other than
corporate law, the laws of the State of Minnesota as applied to contracts entered into and
performed entirely in Minnesota by Minnesota residents, without regard to conflicts of law
principles.

     13.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which
shall constitute an original, but all of which, when taken together, shall constitute but one
instrument, and shall become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties.

     13.6 Successors and Assigns. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.

     13.7 Entire Agreement. This Agreement, the Exchange Agreement and the other documents
delivered pursuant hereto or thereto, including the exhibits, constitute the full and entire
understanding and agreement between the parties with regard to the subjects hereof and thereof.

     13.8 Payment of Fees and Expenses.

          (a) Each of the Company and the Purchasers shall bear its own expenses and legal fees incurred
on its behalf with respect to this Agreement and the transactions contemplated hereby; provided,
however, that upon the Closing in which the Trident Purchasers participate, the Company shall pay
the fees and expenses of Cooley Godward Kronish LLP, special counsel for the Trident Purchasers, in
an amount equal to $40,000.

          (b) If any action at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorney’s fees, costs and
necessary disbursements in addition to any other relief to which such party may be entitled.

[Signature page follows]

27

 

     In Witness Whereof, the parties hereto have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first above written.

	 	 	 	 	 
	COMPANY:

XATA CORPORATION

 	 	 
	By:  	 	 	 
	 	Wesley C. Fredenburg 	 	 
	 	General Counsel 	 	 
	 
	PURCHASERS:

 	 	 
	 	 	 
	John J. Coughlan 	 	 
	 	 	 	 
	 	 	 
	Mark E. Ties 	 	 
	 	 	 
	 	 	 
	David A. Gagne 	 	 
	 	 	 
	 	 	 
	Robert Maeser 	 	 
	 	 	 
	 	 	 
	Wesley C. Fredenburg 	 	 
	 	 	 
	Trident Capital Fund-V, L.P.

Trident Capital Fund-V Affiliates Fund, L.P.

Trident Capital Fund-V Affiliates Fund (Q), L.P.

Trident Capital Fund-V Principals Fund, L.P.

Trident Capital Parallel Fund-V, C.V.

 	 	 
	 	
Executed on behalf of the forgoing funds by the undersigned, as an authorized signatory of the respective general partner of each such fund:

 
	 	 	 	 
	 	Name printed: 	 
	 	 	 
	 
	GW 2001 Fund, L.P.

Weber Capital Partners II, L.P.

 	 	 
	 	
Executed on behalf of the forgoing funds by the undersigned, as an authorized signatory of the respective general partner of each such fund:

 
		 	 	 
		Name printed: 	 
	 	 	 
	 

[Common Stock Warrant and Series E Preferred Stock Purchase Agreement]

 

 

EXHIBIT 1

FORM OF CERTIFICATE OF DESIGNATION OF

PREFERENCES OF SERIES E PREFERRED STOCK

 

 

EXHIBIT 2.1

SCHEDULE OF PURCHASERS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Aggregate
	 	 	No. of	 	Aggregate	 	No. of	 	Warrant Purchase
	Name	 	Shares	 	Purchase Price	 	Warrant Shares	 	Price
	Trident Capital Fund-V, L.P.
	 	 	907,942	 	 	$	2,015,631.17	 	 	 	272,382	 	 	$	34,047.74	 
	505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Trident Capital Fund-V Affiliates Fund, L.P.
	 	 	5,277	 	 	$	11,714.94	 	 	 	1,583	 	 	$	197.88	 
	505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Trident Capital Fund-V Affiliates Fund (Q), L.P.
	 	 	5,036	 	 	$	11,179.92	 	 	 	1,511	 	 	$	188.88	 
	505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Trident Capital Fund-V Principals Fund, L.P.
	 	 	26,279	 	 	$	58,339.38	 	 	 	7,884	 	 	$	985.50	 
	505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Trident Capital Parallel Fund-V, C.V.
	 	 	68,980	 	 	$	153,135.59	 	 	 	20,694	 	 	$	2,586.75	 
	505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	GW 2001 Fund, L.P.
	 	 	90,090	 	 	$	199,999.80	 	 	 	27,027	 	 	$	3,378.38	 
	Weber Capital Management, LLC

340 Pine St., Suite 300

San Francisco, CA 94104-3235
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Weber Capital Partners II, L.P.
	 	 	225,225	 	 	$	499,999.50	 	 	 	67,568	 	 	$	8,446.00	 
	Weber Capital Management, LLC

340 Pine St., Suite 300

San Francisco, CA 94104-3235
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	John J. Coughlan
	 	 	4,505	 	 	$	10,001.10	 	 	 	1,352	 	 	$	169.00	 
	965 Prairie Center Drive

Eden Prairie, MN 55344
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Mark E. Ties
	 	 	4,505	 	 	$	10,001.10	 	 	 	1,352	 	 	$	169.00	 
	965 Prairie Center Drive

Eden Prairie, MN 55344
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	David A. Gagne
	 	 	2,252	 	 	$	4,999.44	 	 	 	676	 	 	$	84.50	 
	965 Prairie Center Drive

Eden Prairie, MN 55344
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Robert Maeser
	 	 	2,252	 	 	$	4,999.44	 	 	 	676	 	 	$	84.50	 
	965 Prairie Center Drive

Eden Prairie, MN 55344
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Wesley C. Fredenburg
	 	 	13,514	 	 	$	30,001.08	 	 	 	4,054	 	 	$	506.75	 
	965 Prairie Center Drive

Eden Prairie, MN 55344
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Total
	 	 	1,355,857	 	 	$	3,010,002.46	 	 	 	406,759	 	 	$	50,844.88	 

 

 

EXHIBIT 2.2

FORM OF COMMON STOCK WARRANT

 

 

EXHIBIT 4.5

AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

 

 

EXHIBIT 7.3

EXCHANGE AGREEMENT

 

 

EXHIBIT 8.6

FORM OF COMPANY COUNSEL OPINION

 

 

EXHIBIT 8.10

FORM OF TRANSFER AGENT INSTRUCTIONS

 

 

Table Of Contents

	 	 	 	 	 	 	 	 	 
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	SECTION 1.	 	AUTHORIZATION OF SALE OF THE SECURITIES
	 	 	1	 
	SECTION 2.	 	AGREEMENT TO SELL AND PURCHASE THE SECURITIES
	 	 	1	 
	 	2.1	 	 	Sale of Shares
	 	 	1	 
	 	2.2	 	 	Issuance of Warrants
	 	 	1	 
	SECTION 3.	 	CLOSING AND DELIVERY
	 	 	2	 
	 	3.1	 	 	Closing
	 	 	2	 
	 	3.2	 	 	Delivery of the Shares and the Warrants at the Closing
	 	 	2	 
	SECTION 4.	 	REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
	 	 	2	 
	 	4.1	 	 	Organization and Qualification
	 	 	2	 
	 	4.2	 	 	Capitalization
	 	 	3	 
	 	4.3	 	 	Authorization of Securities
	 	 	3	 
	 	4.4	 	 	Governmental Consents
	 	 	4	 
	 	4.5	 	 	Due Authorization, Execution and Delivery of Agreement,
Warrants and
Amended and Restated Investor Rights Agreement
	 	 	4	 
	 	4.6	 	 	No Conflicts
	 	 	4	 
	 	4.7	 	 	Title to Assets
	 	 	5	 
	 	4.8	 	 	Permits
	 	 	5	 
	 	4.9	 	 	Legal Actions
	 	 	5	 
	 	4.10	 	 	Labor
	 	 	5	 
	 	4.11	 	 	No Violations
	 	 	5	 
	 	4.12	 	 	Insurance
	 	 	6	 
	 	4.13	 	 	Company Contracts
	 	 	6	 
	 	4.14	 	 	SEC Documents
	 	 	6	 
	 	4.15	 	 	Related Party Transactions
	 	 	6	 
	 	4.16	 	 	Financial Statements
	 	 	7	 
	 	4.17	 	 	Receivables
	 	 	7	 
	 	4.18	 	 	Intellectual Property
	 	 	7	 
	 	4.19	 	 	Nasdaq Compliance
	 	 	8	 
	 	4.20	 	 	Taxes
	 	 	8	 
	 	4.21	 	 	No Integration or General Solicitation
	 	 	9	 

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	 	4.22	 	 	No Registration
	 	 	9	 
	 	4.23	 	 	No Material Changes
	 	 	9	 
	 	4.24	 	 	Accounting Controls
	 	 	10	 
	 	4.25	 	 	Form S-3
	 	 	10	 
	 	4.26	 	 	No Anti-Dilution Event
	 	 	10	 
	 	4.27	 	 	Registration Rights
	 	 	10	 
	 	4.28	 	 	Investment Company Act
	 	 	10	 
	 	4.29	 	 	Sarbanes-Oxley Act
	 	 	11	 
	 	4.30	 	 	Audit Committee
	 	 	11	 
	 	4.31	 	 	Foreign Corrupt Practices Act
	 	 	11	 
	 	4.32	 	 	Loans to Officers and Directors
	 	 	12	 
	 	4.33	 	 	Employee Benefits
	 	 	12	 
	 	4.34	 	 	Nasdaq Listing
	 	 	12	 
	 	4.35	 	 	Qualified Small Business
	 	 	12	 
	 	4.36	 	 	Broker’s Fee
	 	 	12	 
	 	4.37	 	 	Complete Disclosure
	 	 	12	 
	SECTION 5.	 	REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
	 	 	13	 
	SECTION 6.	 	SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
	 	 	13	 
	SECTION 7.	 	CONDITIONS TO COMPANY’S OBLIGATIONS AT THE CLOSING
	 	 	14	 
	 	7.1	 	 	Receipt of Payment
	 	 	14	 
	 	7.2	 	 	Representations and Warranties Correct
	 	 	14	 
	 	7.3	 	 	Exchange Agreement
	 	 	14	 
	 	7.4	 	 	Covenants Performed
	 	 	14	 
	SECTION 8.	 	CONDITIONS TO PURCHASERS’ OBLIGATIONS AT THE CLOSING
	 	 	14	 
	 	8.1	 	 	Representations and Warranties Correct
	 	 	14	 
	 	8.2	 	 	Covenants Performed
	 	 	14	 
	 	8.3	 	 	Reservation of Conversion Shares and Warrant Shares
	 	 	14	 

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	 	8.4	 	 	Amended and Restated Investor Rights Agreement
	 	 	14	 
	 	8.5	 	 	Exchange Agreement
	 	 	15	 
	 	8.6	 	 	Legal Opinion
	 	 	15	 
	 	8.7	 	 	Intentionally Omitted
	 	 	15	 
	 	8.8	 	 	Intentionally Omitted
	 	 	15	 
	 	8.9	 	 	Secretary’s Certificate
	 	 	15	 
	 	8.10	 	 	Certificate of Designation
	 	 	15	 
	 	8.11	 	 	No Material Adverse Effect
	 	 	15	 
	 	8.12	 	 	Proceedings and Documents
	 	 	15	 
	SECTION 9.	 	REGISTRATION OF THE CONVERSION SHARES AND THE WARRANT SHARES;
COMPLIANCE WITH
THE SECURITIES ACT
	 	 	16	 
	 	9.1	 	 	Registration Procedures
	 	 	16	 
	 	9.2	 	 	Transfer of Shares After Registration; Suspension; Damages
	 	 	19	 
	 	9.3	 	 	Expenses of Registration
	 	 	20	 
	 	9.4	 	 	Delay of Registration; Furnishing Information
	 	 	21	 
	 	9.5	 	 	Indemnification
	 	 	21	 
	 	9.6	 	 	Agreement to Furnish Information
	 	 	23	 
	 	9.7	 	 	Assignment of Registration Rights
	 	 	23	 
	 	9.8	 	 	Rule 144 Reporting
	 	 	24	 
	 	9.9	 	 	S-3 Eligibility
	 	 	24	 
	 	9.10	 	 	Termination of Registration Rights
	 	 	24	 
	 	9.11	 	 	Amendment of Registration Rights
	 	 	25	 
	 	9.12	 	 	Legends
	 	 	25	 
	SECTION 10.	 	COMPANY COVENANTS
	 	 	25	 
	 	10.1	 	 	Reservation of Shares and Common Stock
	 	 	25	 
	 	10.2	 	 	Subsequent Registration Rights
	 	 	25	 
	SECTION 11.	 	BROKER’S FEE
	 	 	26	 
	SECTION 12.	 	NOTICES
	 	 	26	 
	SECTION 13.	 	MISCELLANEOUS
	 	 	26	 
	 	13.1	 	 	Waivers and Amendments
	 	 	26	 

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	 	13.2	 	 	Headings
	 	 	27	 
	 	13.3	 	 	Severability
	 	 	27	 
	 	13.4	 	 	Governing Law
	 	 	27	 
	 	13.5	 	 	Counterparts
	 	 	27	 
	 	13.6	 	 	Successors and Assigns
	 	 	27	 
	 	13.7	 	 	Entire Agreement
	 	 	27	 
	 	13.8	 	 	Payment of Fees and Expenses
	 	 	27	 

ATTACHMENTS:

	 	 	 	 	 
	Exhibit 1

	 	—
	 	Certificate of Designation of Preferences of Series E Preferred Stock
	Exhibit 2.1

	 	—
	 	Schedule of Purchasers
	Exhibit 2.2

	 	—
	 	Form of Common Stock Warrant
	Exhibit 4.5

	 	—
	 	Amended and Restated Investor Rights Agreement
	Exhibit 7.3

	 	—
	 	Exchange Agreement
	Exhibit 8.6

	 	—
	 	Opinion of Company Counsel
	Exhibit 8.10

	 	—
	 	Form of Transfer Agent Instructions

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