XATA Xrs Corporation (MM)

Xata Corporation
965 Prairie Center Drive
Eden Prairie, MN 55344
(952) 707-5600

January ___, 2010

Dear Shareholder:

     You are cordially invited to attend the Annual Meeting of Shareholders of XATA Corporation to be held on Wednesday, February 17, 2010, at the Westin Edina Galleria, 3201 Galleria, Edina, Minnesota, at 3:00 p.m.

     This year you are presented with proposals to:

	1.		elect eight directors;
	2.		amend and restate the company’s articles of incorporation to increase the number of shares of common stock authorized for issuance;
	3.		amend and restate the company’s articles of incorporation to increase the number of shares of preferred stock authorized for issuance;
	4.		amend and restate all of the company’s existing certificates of designation;
	5.		create and designate rights and preferences for Series G Preferred Stock of the company;
	6.		amend and restate the company’s articles of incorporation to provide that the Minnesota Control Share Acquisition Act will not apply to the company and its shareholders;
	7.		consent to issuances of securities in accordance with the rules and regulations of the NASDAQ Stock Market; and
	8.		transact such other business as may properly come before the meeting or any adjournments thereof.

     Following the formal business of the meeting, we will report on the affairs of the Company and respond to questions of general interest to shareholders.

     We look forward to greeting personally those of you who are able to be present at the meeting. However, whether or not you plan to attend, it is important that your shares be represented, regardless of the number of shares that you hold. Accordingly, you are requested to sign and date the enclosed proxy and mail it in the envelope provided at your earliest convenience.

Very truly yours,

John J. Coughlan
Chairman and Chief Executive Officer

XATA CORPORATION
965 Prairie Center Drive
Eden Prairie, MN 55344
(952) 707-5600

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, FEBRUARY 17, 2010

To the Shareholders of XATA Corporation:

     The Annual Meeting of Shareholders of XATA Corporation (the “Company”) will be held on Wednesday, February 17, 2010, at the Westin Edina Galleria, 3201 Galleria, Edina, Minnesota, at 3:00 p.m., for the following purposes:

	1.		To elect eight directors to serve for a one-year term expiring when their successors are elected and qualified at the annual meeting in 2011.
			Only 7 of the 8 directors will be elected by the holders of our common and preferred stock. The one remaining director will be elected by the holders of our Series B Preferred Stock, voting as a class.
	2.		To amend and restate the Company’s articles of incorporation to increase the number of shares of common stock authorized for issuance;
	3.		To amend and restate the Company’s articles of incorporation to increase the number of shares of preferred stock authorized for issuance;
	4.		To amend and restate all of the Company’s existing certificates of designation;
	5.		To create and designate rights and preferences for Series G Preferred Stock of the Company;
	6.		To amend and restate the Company’s articles of incorporation to provide that the Minnesota Control Share Acquisition Act will not apply to the Company and its shareholders;
	7.		To consent to issuances of securities in accordance with the rules and regulations of the NASDAQ Stock Market (“NASDAQ”); and
	8.		To transact such other business as may properly come before the meeting or any adjournments thereof.

     We have fixed the close of business on January 7, 2010 as the record date for the determination of shareholders entitled to receive notice of and to vote at the Annual Meeting. Our transfer books will not be closed.

     Whether or not you expect to be present personally at the Annual Meeting, please complete, date, sign, and return the accompanying Proxy in the enclosed, self-addressed envelope at your earliest convenience. This will insure your participation in the decisions to be made by the shareholders. We sincerely hope that all shareholders who can attend the Annual Meeting will do so.

		By Order of the Board of Directors
January ___, 2010		Wesley C. Fredenburg
		Secretary

TABLE OF CONTENTS

GENERAL INFORMATION			1
RECORD DATE AND VOTING			2
RECOMMENDATIONS OF THE BOARD OF DIRECTORS			3
PRINCIPAL SHAREHOLDERS AND OWNERSHIP OF MANAGEMENT			4
PROPOSAL 1 — ELECTION OF DIRECTORS			8
SUMMARY OF PROPOSALS IN CONNECTION WITH ACQUISITION OF TURNPIKE ENTITIES AND RELATED FINANCING			14
ACQUISITION OF TURNPIKE ENTITIES AND RELATED FINANCING			22
PROPOSAL 2 — TO AMEND AND RESTATE THE COMPANY’S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE			67
PROPOSAL 3 — TO AMEND AND RESTATE THE COMPANY’S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF PREFERRED STOCK AUTHORIZED FOR ISSUANCE			70
PROPOSAL 4 — TO AMEND AND RESTATE ALL EXISTING CERTIFICATES OF DESIGNATION			73
PROPOSAL 5 — TO DESIGNATE RIGHTS AND PREFERENCES FOR SERIES G PREFERRED STOCK			77
PROPOSAL 6 — TO AMEND AND RESTATE THE COMPANY’S ARTICLES OF INCORPORATION TO PROVIDE THAT THE MINNESOTA CONTROL SHARE ACQUISITION ACT WILL NOT APPLY TO THE COMPANY AND ITS SHAREHOLDERS			83
PROPOSAL 7 — CONSENT TO ISSUANCES OF SECURITIES IN ACCORDANCE WITH THE RULES AND REGULATIONS OF NASDAQ			86
EXECUTIVE COMPENSATION			91
AUDIT COMMITTEE REPORT			100
EQUITY COMPENSATION PLAN INFORMATION			102
PROPOSALS FOR FISCAL 2010 ANNUAL MEETING			102
INFORMATION INCORPORATED BY REFERENCE			103
APPENDIX A — ARTICLES OF AMENDMENT
APPENDIX B — EXPLANATION OF DISSENTERS’ RIGHTS
APPENDIX C — MINNESOTA CONTROL SHARE ACQUISITION STATUTE
APPENDIX D — OPINION OF CHERRY TREE & ASSOCIATES, LLC
APPENDIX E — REPORT AND CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FORM OF PROXY

XATA CORPORATION
965 Prairie Center Drive
Eden Prairie, MN 55344
(952) 707-5600

PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, FEBRUARY 17, 2010

GENERAL INFORMATION

          This proxy statement is furnished to shareholders by the Board of Directors of XATA Corporation (the “Company”) for solicitation of proxies for use at the Annual Meeting of Shareholders to be held on Wednesday, February 17, 2010, at the Westin Edina Galleria, 3201 Galleria, Edina, Minnesota, at 3:00 p.m., and at all adjournments thereof. The purposes of the meeting and the matter to be acted upon are set forth in the preceding Notice of Annual Meeting of Shareholders. We are not currently aware of any other matters that will come before the meeting.

          A copy of our annual report, which includes our report on Form 10-K for the fiscal year ended September 30, 2009, is enclosed for your information. It is not a part of the proxy solicitation material. The report describes the financial condition of the Company as of September 30, 2009. This proxy statement and the annual report are being mailed to shareholders beginning on or about January ___, 2010.

          We have asked brokerage houses and other custodians, nominees and fiduciaries to send proxies and proxy material to the beneficial owners of our common stock and we will reimburse them for their expenses in so doing. To ensure adequate representation at the meeting, our officers, agents and employees may communicate with shareholders, banks, brokerage houses and others by telephone, facsimile, or in person to request that proxies be furnished. We will bear all expenses incurred in connection with this solicitation.

     The following proxy materials and related information are available for you to review online at                      :

	•		the Company’s Notice of Annual Meeting of Shareholders and Proxy Statement;
	•		the Company’s Form 10-K for the fiscal year ended September 30, 2009;
	•		the form of Proxy;
	•		the Letter to Shareholders; and
	•		directions to the Annual Meeting of Shareholders.

RECORD DATE AND VOTING

     We have fixed January 7, 2010 as the record date for the determination of shareholders entitled to receive notice of and to vote at the Annual Meeting. As of the close of business on the record date, we had issued and outstanding 8,787,994 shares of our common stock, par value $.01 per share, 2,043,793 shares of our Series B Preferred Stock, 1,269,036 shares of our Series C Preferred Stock, 1,566,580 shares of our Series D Preferred Stock and 1,355,857 shares of our Series F Preferred Stock. The Series B, Series C, Series D and Series F Preferred Stock are referred to collectively as the “Preferred Stock.” Each share of common stock and Preferred Stock is entitled to one vote on each proposal to be presented at the meeting and one vote in each applicable class vote on such proposal. In addition, the Series B Preferred Stock votes separately as a class with respect to the election of one of the eight nominees for election as directors, and certain of the other Proposals require separate class votes of our common stock and each series of the Preferred Stock. There is no right of cumulative voting.

     The presence at the Annual Meeting in person or by proxy of the holders of a majority of the outstanding shares entitled to vote constitutes a quorum for the transaction of business. Directors are elected by a plurality of the votes cast at a meeting at which a quorum is present. Therefore, the individuals who receive the largest number of votes cast are elected as directors up to the maximum number of directors to be chosen at the meeting. Consequently, any shares not voted have no impact on the election of directors.

     The affirmative vote of the holders of a majority of the outstanding shares of our common stock and Preferred Stock present in person or represented by proxy at the Annual Meeting, voting together as a single class on an as-converted to common stock basis, is required for the approval of each of Proposals 2 through 7. In addition, each of Proposals 3, 4 and 5 must be approved through separate affirmative class votes by the holders of a majority of the outstanding shares of each of the Series B, Series C, Series D and Series F Preferred Stock, with each series voting separately as a class. Furthermore, Proposals 3 and 5 must be approved through separate affirmative class votes by the holders of a majority of the outstanding shares of common stock, voting separately as a class. Our Board of Directors has determined that the effectiveness of Proposal 5 is expressly conditioned upon the approval by our shareholders of each of Proposals 2, 3, 4 and 7.

     The presence at the Annual Meeting in person or by proxy of a majority the outstanding shares of our common stock is required before a class vote of our common stock will become effective. Similarly, the presence at the Annual Meeting in person or by proxy of a majority of the outstanding shares of a series of our Preferred Stock is required before a class vote of any such series of our Preferred Stock will become effective.

HOW TO VOTE		By signing and returning the enclosed proxy card, you will be giving your proxy to our Chairman and Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) and authorizing either of them to vote your shares.
HOW YOUR PROXY WILL BE VOTED		Unless revoked, all properly executed proxies will be voted as specified. Proxies that are signed but that lack any specification will, subject to the following, be voted FOR each director nominee and FOR each Proposal. If any other matters properly come before the Annual Meeting, or if any of the persons named to serve as directors should decline or be unable to serve, then the persons named in the proxy will vote in accordance with their discretion.
		All common stock and Preferred Stock of the Company held by you will be voted in each class and series for which such stock is entitled to vote as directed in your proxy.

HOW TO REVOKE YOUR PROXY		You have the power to revoke your proxy at any time before the convening of the Annual Meeting. Revocations of proxy will be honored if received by us, at the Company, addressed to the attention of Mark E. Ties, Chief Financial Officer, on or before February 16, 2010. In addition, on the day of the meeting, prior to the convening thereof, revocations may be delivered to the tellers who will be seated at the door of the meeting room. Note that any proxy received by the Company prior to the Annual Meeting will revoke any prior proxy given by the shareholder.
ABSTENTIONS		If you abstain from voting as to any matter, your shares shall be deemed present at the meeting for purposes of determining a quorum and for purposes of calculating the vote with respect to such matter, but shall not be deemed to have been voted in favor of such matter.
BROKER NON-VOTES		If a broker turns in a “non-vote” proxy, indicating a lack of voting instruction by the beneficial holder of the shares and a lack of discretionary authority on the part of the broker to vote on a particular matter, then the shares covered by such non-vote proxy will be considered present at the meeting for purposes of determining a quorum but will not be considered to be represented at the meeting for purposes of calculating the vote required for approval of such matter.
DISSENTERS’ RIGHTS		If Proposal 4 is approved and becomes effective, holders of Series B, Series C, Series D, and Series F Preferred Stock who do not vote their shares in favor of Proposal 4 will be entitled to statutory dissenters’ rights if they strictly comply with Sections 302A.471 and 302A.473 of the Minnesota Business Corporations Act (“MBCA”). If Proposal 5 is approved and becomes effective, holders of Series B, Series C, Series D, and Series F Preferred Stock who do not vote their shares in favor of Proposal 5 will be entitled to statutory dissenters’ rights if they strictly comply with Sections 302A.471 and 302A.473 of the MBCA.
		For a description of the rights of such holders and of the procedures to be followed in order to assert such rights and obtain payment of the fair value of their shares of stock, see Sections 302A.471 and 302A.473 of the MBCA, copies of which are attached as Appendix B , as well as the information set forth below.
		IN ORDER TO PERFECT DISSENTERS’ RIGHTS WITH RESPECT TO EITHER PROPOSAL 4 OR PROPOSAL 5, A HOLDER OF SERIES B, SERIES C, SERIES D OR SERIES F PREFERRED STOCK MUST SEND A NOTICE TO THE COMPANY BEFORE THE DATE OF THE ANNUAL MEETING AND MUST NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT IN THE APPLICABLE PROPOSAL BY PROXY OR OTHERWISE.
		No other shareholders are entitled to any dissenters’ rights with respect to any other matters to be acted upon at the Annual Meeting.

RECOMMENDATIONS OF THE BOARD OF DIRECTORS

     OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” ELECTION OF EACH NOMINEE FOR DIRECTOR NAMED IN THIS PROXY STATEMENT AND “FOR” EACH OF THE OTHER PROPOSALS.

PRINCIPAL SHAREHOLDERS AND OWNERSHIP OF MANAGEMENT

     The following table sets forth as of January 7, 2010 the record and beneficial ownership of common stock held by (i) each person who is known by us to be the beneficial owner of more than 5% of our common stock; (ii) each of the current directors and nominees; (iii) each Named Executive Officer (as defined in “EXECUTIVE COMPENSATION”); and (iv) all of our executive officers and directors as a group.

     Securities reported as “beneficially owned” include (a) securities over which the named person may exercise voting power or investment power, alone or with others, and (b) the number of shares that the named person has the right to acquire within sixty (60) days after January 7, 2010.

		Number of Shares Owned (1)(2)(3)				Percentage(4)
John J. Coughlan (5)(6)(7)			927,487	(8)			10.1	%
Donald R. Dixon (6)(9)(10)			8,125,280	(11)			48.0	%
Carl M. Fredericks (5)			86,326				1.0	%
Thomas G. Hudson (5)(6)			42,725					*
Roger W. Kleppe (5)(6)			78,991					*
Chad M. Lindbloom (5)(6)			15,000					*
Christopher P. Marshall (5)(6)			11,931,766	(12)(13)(14)			57.6	%
Michael J. Paxton (5)(6)			12,499					*
Bharat S. Vedak (5)(6)			—				—
Mark E. Ties (7)			319,435	(8)			3.5	%
David A Gagne (7)			314,794	(8)			3.5	%
All executive officers, current directors as a group (12 persons)			22,071,238	(8)			73.5	%
Technology Crossover Ventures			11,916,666	(14)			57.6	%
528 Ramona Street Palo Alto CA 94301
Trident Capital Management-V, L.L.C. (10)			8,125,280	(11)			48.0	%
505 Hamilton Avenue, Suite 200 Palo Alto CA 94301
John Deere Special Technologies Group, Inc. (10)			2,144,060				24.4	%
300 Grimes Bridge Road Roswell GA 30075
Ashford Capital Management			1,375,658				15.7	%
P.O. Box 4172 Wilmington DE 19807
Weber Capital Management, LLC			874,087	(15)			9.3	%
340 Pine St., Suite 300 San Francisco, CA 94104
William and Linda Flies, JT			587,550				6.7	%
28822 Lake Avenue Way Frontenac MN 55026

		Series B								Series C								Series D								Series F								Series G
		Preferred								Preferred								Preferred								Preferred								Preferred
		Stock				Warrants				Stock				Warrants				Stock				Warrants				Stock				Warrants				Stock				Warrants
Trident Capital Fund-V, L.P.			1,830,903				—				1,136,849				335,939				1,403,400				421,020				907,942				272,382				746,350				223,959
Trident Capital Fund-V Affiliates Fund, L.P.			10,641				—				6,607				1,953				8,156				2,447				5,277				1,583				4,338				1,301
Trident Capital Fund-V Affiliates Fund (Q), L.P.			10,153				—				6,305				1,863				7,783				2,335				5,036				1,511				4,140				1,242
Trident Capital Fund-V Principals Fund, L.P.			52,994				—				32,905				9,723				40,620				12,186				26,279				7,884				21,607				6,482
Trident Capital Parallel Fund-V, C.V.			139,102				—				86,370				25,522				106,621				31,986				68,980				20,694				56,716				17,014

		TCM-V is authorized to act as of the general partner or investment general partner of each of the record holders. TCM-V and Mr. Dixon disclaim beneficial ownership of these shares, except to the extent of their respective economic interests in the Trident entities.
(12)		Does not include (i) certain shares of Preferred Stock of the Company immediately convertible into shares of common stock or warrants immediately exercisable for shares of common stock (collectively, the “Trident Securities”) or (ii) certain shares of restricted common stock or options exercisable for shares of common stock (together, the “Trident Awards”), in each case beneficially owned by Trident. The Trident Awards were granted to Mr. Marshall in his capacity as a director nominated to the Board of Directors of the Company by TCM-V, and the Trident Awards are held directly by Mr. Marshall solely for the benefit of TCM-V pursuant to the terms of TCM-V’s operating agreement. Mr. Marshall disclaims beneficial ownership of the Trident Awards and of any shares of common stock that may be received upon the exercise thereof. In addition, Mr. Marshall is a former member of TCM-V and, as such, has a continuing indirect interest in the Trident Securities held by Trident. Mr. Marshall disclaims beneficial ownership of the Trident Securities and of any shares of common stock that may be received upon the conversion or exercise of any Trident Securities, except to the extent of his pecuniary interest therein.
(13)		Includes 15,100 shares of common stock owned individually by Mr. Marshall.
(14)		Includes (i) Series G Preferred Stock that will be immediately convertible into 9,166,666 shares of common stock and (ii) Warrants that will be immediately exercisable for 2,750,000 shares of common stock, in each case following mandatory conversion of an aggregate principal amount of $27,499,998 of the Notes held by TCV in accordance with, and subject to, their terms. See “Acquisition of Turnpike Entities and Related Financing — Material terms of the Financing” for more information regarding the Notes and the issuance of Series G Preferred Stock and Warrants upon conversion of the Notes.
		The record holders of the shares of Series G Preferred Stock and Warrants that will be issued upon conversion of the Notes held by TCV are set forth in the following table.

		Series G
		Preferred Stock				Warrants
TCV VII, L.P.			5,996,276				1,798,883
TCV VII (A), L.P.			3,114,008				934,202
TCV Member Fund, L.P.			56,382				16,915

Mr. Marshall is a Class A Director of Technology Crossover Management VII, Ltd. (“TCM VII”), a limited partner of Technology Crossover Management VII, L.P. (“Management VII”), and a limited partner of TCV Member Fund, L.P. (“Member Fund”). TCM VII is the general partner of Management VII, which is the direct general partner of TCV VII, L.P. (“TCV VII”) and TCV VII (A), L.P. (“TCV VII (A)”), and is a general partner of Member Fund. Each of TCM VII, Management VII and Mr. Marshall disclaim beneficial ownership of such securities held by TCV VII, TCV VII (A) and Member Fund, except to the extent of their respective pecuniary interest therein.

(15)

Includes 315,315 shares issuable upon conversion of Series F Preferred Stock and 94,595 shares issuable upon exercise of related warrants. Also includes (i) Series G Preferred Stock that will be immediately convertible into 66,666 shares of common stock and (ii) Warrants that will be immediately exercisable for 27,027 shares of common stock, in each case following mandatory conversion of an aggregate principal amount of $200,000 of the Notes held by GW 2001 Fund,

		L.P. in accordance with, and subject to, their terms. See “Acquisition of Turnpike Entities and Related Financing — Material terms of the Financing” for more information regarding the Notes and issuance of Series G Preferred Stock and Warrants upon conversion of the Notes.
		The record holders of the shares underlying Preferred Stock and warrants to purchase common stock held, or that will be issued upon mandatory conversion of the Notes, are set forth in the following table.

		Series F								Series G
		Preferred Stock				Warrants				Preferred Stock				Warrants
Weber Capital Partners II, L.P.			225,225				67,568				—				—
GW 2001 Fund, L.P.			90,090				27,027				66,666				19,999

Weber Capital Management LLC (“WCM”) is authorized to act as the general partner or investment general partner of each of both record holders. WCM disclaims beneficial ownership of these shares, except to the extent of its respective economic interest in Weber Capital Partners II, L.P. and GW 2001 Fund, L.P.

PROPOSAL 1

ELECTION OF DIRECTORS

     Our Bylaws provide that the number of directors shall be fixed by resolution of the shareholders or the Board of Directors. The current number of directors is fixed at eight. The eight nominees for election as directors at the Annual Meeting are as follows:

Nominees to be Voted on by Holders of Common and Preferred Stock
John J. Coughlan
Thomas G. Hudson
Roger W. Kleppe
Chad M. Lindbloom
Christopher P. Marshall
Michael J. Paxton
Bharat S. Vedak

Nominee to be Voted on by Holders of Series B Preferred Stock Only
Donald R. Dixon

     With the exception of Mr. Dixon, all of the nominees are currently members of the Board of Directors.

     Six of the eight nominees for election as directors at the Annual Meeting were selected by the Governance and Nominating Committee of the Board of Directors. These nominees are John J. Coughlan, Thomas G. Hudson, Roger W. Kleppe, Chad M. Lindbloom, Christopher P. Marshall, and Michael J. Paxton.

     Bharat S. Vedak is a nominee of John Deere Special Technologies Group, Inc. (“JDSTG”) and Donald R. Dixon is a nominee of Trident. Currently, JDSTG has the right to nominate three directors and Trident has the right to nominate two directors (one of whom must be independent of Trident and approved by our Governance and Nominating Committee of the Board of Directors if the total number of directors is seven or less). These rights were negotiated in connection with their respective investments in the Company. Each of JDSTG and Trident has designated just one nominee (Bharat S. Vedak and Donald R. Dixon, respectively) for election at the Annual Meeting.

     Christopher P. Marshall is affiliated with certain funds affiliated with Technology Crossover Ventures (“TCV” or the “TCV Purchasers”) that participated in the Financing described below, and, at each of our annual meetings of shareholders held since December 2003 and prior to the Annual Meeting, has been a nominee of Trident for election to the Board of Directors by the holders of our Series B Preferred Stock. Upon the conversion of the Notes described below in accordance with, and subject to, their terms, TCV will have the right to nominate and elect one director to our Board of Directors (the “Series G Director”) as the majority holder of the issued and outstanding shares of our Series G Preferred Stock. TCV has informed the Company that it intends to nominate Christopher P. Marshall to serve as the Series G Director upon conversion of the Notes, and the Company has agreed to cause Christopher P. Marshall to be designated as the Series G Director at that time.

     The following current members of the Board of Directors (comprising a majority of the current Board) are “independent,” as defined by NASDAQ listing standards related to board membership:

Carl M. Fredericks*
Thomas G. Hudson
Roger W. Kleppe
Chad M. Lindbloom

Christopher P. Marshall
Michael J. Paxton
Bharat S. Vedak

     In addition, if elected, Mr. Dixon would be considered independent as defined by NASDAQ listing standards.

     The directors elected at this Annual Meeting, and at annual meetings thereafter, unless otherwise determined by the Board of Directors or the shareholders, will serve a one-year term expiring upon the election of their successors at the next annual meeting.

     In the event any nominee should be unavailable to stand for election at the time of the Annual Meeting, the proxies may be voted for a substitute nominee selected by the Board of Directors.

JOHN J. COUGHLAN		Director since October 2006

     (Chairman of the Board of Directors, Chief Executive Officer and President of the Company)

     Mr. Coughlan has been Chairman and Chief Executive Officer since joining the Company in October 2006. Prior to joining the Company, he was involved in a business consulting practice. He previously served as president and CEO of Lawson Software, Minnesota’s largest software company, through June 2005. Mr. Coughlan joined Lawson Software in 1987 and became CEO in February 2001 prior to the company’s initial public offering in December of 2001. In addition to his responsibilities at the Company, Mr. Coughlan is an active regional business advocate and serves on the board of directors for several local organizations, including Securian Financial Group, Inc. Mr. Coughlan is 51 years old.

DONALD R. DIXON		Director Nominee

     Mr. Dixon has been a Managing Director at Trident Capital since 1993. From 1988 to 1993, Mr. Dixon was co-president of Partech International, a private equity fund manager associated with Banque Paribas. From 1983 to 1988, he was a managing director of Alex, Brown & Sons. Earlier in his career, Mr. Dixon was a vice president at Morgan Stanley & Co. and a senior account officer at Citibank, N.A. Mr. Dixon received a bachelor’s degree from Princeton University and a master’s degree in business administration from Stanford Graduate School of Business. Mr. Dixon’s past directorships include Affiliated Computer Services (ACS), CSG Systems International, Inc (CSGS), Epicor Software Corporation (EPIC), Evolving Systems, Inc. (EVOL), InfoUSA, Inc. (IUSA) and Pegasus Solutions, Inc. (PEGS). Mr. Dixon is 62 years old.

ROGER W. KLEPPE		Director since September 1995

     Mr. Kleppe is the former senior vice president of human resources, real estate and facility services for Blue Cross and Blue Shield of Minnesota. He had been with Blue Cross since March 1994 until his retirement. Mr. Kleppe previously served on the Blue Cross board of trustees and on the corporate member board, each for two years. Prior to March 1994, Mr. Kleppe was vice president of human resources and administrative resources for National Business Systems, Inc. He has extensive human resources experience and has been involved with many business community organizations, such as the Minnesota Chamber of Commerce. He had served on the board of directors for Prime Therapeutics, Inc., a for-profit pharmacy benefit management company. Mr. Kleppe also had served as president of the Human Resources Executive Council, a professional association of human resource executives from the largest companies in the Twin Cities, and had served as a member of the board of

advisors for the Executive Development Center, Carlson School of Management, at the University of Minnesota. Mr. Kleppe is 60 years old.

CHRISTOPHER P. MARSHALL		Director since December 2003

     Mr. Marshall joined TCV in 2008 as a General Partner and has been in the venture capital industry since 1995. His primary investment focus is the payments, internet and business services industries. Prior to joining TCV, Mr. Marshall spent 12 years at Trident Capital, focused on the software, business services and internet markets. Earlier in his career, Mr. Marshall worked for Banque Paribas and the Chase Manhattan Bank. Mr. Marshall earned his B.A. from Hamilton College and his M.B.A. from the J. L. Kellogg Graduate School of Management at Northwestern University. Mr. Marshall is 41 years old.

THOMAS G. HUDSON		Director since October 2007

     Mr. Hudson is the Chairman and Chief Executive Officer, Muve, Inc. a company that provides tools, technology and coaching services to help individuals lose weight. Before joining Muve, Inc., Mr. Hudson was the Chief Executive Officer of Global Capacity, a start-up company that provides integrated communications logistics solutions worldwide. Prior to joining Global Capacity in June of 2005, Mr. Hudson served as Chairman and Chief Executive Officer of CNT, a provider of wide area storage networks, since June 1996, as a director since August 1996 and as Chairman of the Board of Directors since May 1999. From 1993 to June 1996, Mr. Hudson served as Senior Vice President of McGraw Hill Companies, a leading information services provider, serving also as General Manager of its F.W. Dodge Division, and as Senior Vice President, Corporate Development. From 1968 to 1993, Mr. Hudson served as Vice President and General Manager in a number of management positions at IBM Corporation. Mr. Hudson is a graduate of the University of Notre Dame with a bachelor’s in electrical engineering and New York University with an MBA in finance. Mr. Hudson attended the Harvard Advanced Management Program in 1990. Mr. Hudson previously served on the board of directors of CGSY, CNT, McData Corp, Lawson Software, Ciprico, and Plato Software. He currently serves on the board of directors of Incentra Solutions, a publicly traded company and two private companies, Wyndstorm and MQSoftware. Mr. Hudson is 63 years old.

CHAD M. LINDBLOOM		Director since February 2008

     Mr. Lindbloom is currently Senior Vice President and Chief Financial Officer of C.H. Robinson Worldwide, Inc. C.H. Robinson Worldwide, Inc. provides worldwide freight transportation services and logistics solutions to companies of all sizes, in a wide variety of industries. Mr. Lindbloom has served in various roles with C.H. Robinson Worldwide, Inc. since joining the company in 1990. Mr. Lindbloom currently serves on the Board of Directors of Children’s Hospitals and Clinics of Minnesota. Mr. Lindbloom holds a Bachelor of Science degree and a Masters of Business Administration from the Carlson School of Management at the University of Minnesota. Mr. Lindbloom is 45 years old.

MICHAEL J. PAXTON		Director since May 2008

     Mr. Paxton is President and CEO of Chamilia, Inc., a leading designer and manufacturer of high quality, personalized jewelry. Mr. Paxton is also Chairman of the Board of Directors of Transport Corporation of America and previously served as that company’s CEO and President from 2001 to 2007. Transport America is a national truckload carrier and logistics service company based in Eagan, Minnesota. From 1998 to 2001, Mr. Paxton was the President and CEO of the Sunbeam Health and Safety Company, a subsidiary of Sunbeam. Beginning in 1996, he served as Chairman, President, and CEO of O-Cedar Holdings, Inc., the leading brand of consumer household cleaning tools in the United States. The majority of Mr. Paxton’s career was spent in senior management positions with Pillsbury and Grand Metropolitan PLC (Diageo), the parent company. In 1992, he was appointed as President and CEO of the Haagen-Dazs Company. Prior to Pillsbury, Mr. Paxton held progressive sales and marketing positions with Safeco Insurance Company, The Drackett Products Company, and Miles Laboratories.

He currently serves on the Board of Directors of Transport Corporation of America, Inc.; Azteca Foods, Inc.; Foster Farms, Inc.; and Gemini, Inc. Mr. Paxton is 63 years old.

BHARAT S. VEDAK		Director since February 2009

     Mr. Vedak is Senior Vice President of John Deere Intelligent Solutions Group. In his role, he is responsible for applying smart electronic solutions to John Deere equipment. Mr. Vedak first joined John Deere in 1974 at its Product Engineering Center. In 1983, he became Manager, Quality Engineering at the John Deere Engine Works, and eventually was appointed Vice President of Engineering for John Deere’s Rotary Engine Division. In 1990, he joined Cummins, Inc. as an executive engineer, and advanced to the position of Vice President, Industrial Customer Engineering. He returned to John Deere in 2005, when he was named to his current position. Mr. Vedak has a bachelor’s degree in agricultural engineering from the Indian Institute of Technology in Kharagpur, India, a master’s degree in agricultural engineering from North Carolina State University, and a MBA from the University of Northern Iowa. Mr. Vedak is a Fellow of SAE International of which he has been an active member more than 30 years. He has served on the advisory board of the Agricultural and Biological department at North Carolina State University and on the Board of Directors of SAE International. Mr. Vedak is 61 years old.

Director Compensation

     For fiscal 2009, the non-employee directors received the following total compensation:

		Fees Earned or				Restricted
		Paid in Cash				Stock Awards				Option Awards
Name		($)				($)(1)				($)(1)(2)				Total ($)
Carl M. Fredericks			10,000				5,000				3,600				18,600
Thomas G. Hudson			10,000				5,000				3,600				18,600
Roger W. Kleppe			10,000				5,000				3,600				18,600
Chad M. Lindbloom			10,000				5,000				3,600				18,600
Christopher P. Marshall (3)			—				5,000				3,600				8,600
Michael J. Paxton			10,000				5,000				3,600				18,600
Bharat S. Vedak			—				—				—				—

     Non-employee directors (except Mr. Vedak, the JDSTG director, and Mr. Marshall, the nominee of Trident for election to the Board of Directors by the holders of our Series B Preferred Stock at each of our annual meetings of shareholders held since December 2003 and prior to the Annual Meeting), receive $10,000 annually

to serve on the Board of Directors. This amount may be prorated based on actual time served on the Board of Directors during the fiscal year.

     Each non-employee director (except Mr. Vedak, the JDSTG director) receives upon re-election at each Annual Meeting a 5,000 share stock option grant and a 2,500 share stock award, both pursuant to the Company’s 2007 Long-Term Incentive and Stock Option Plan. The stock options are exercisable for ten years commencing at the date of grant at a price equal to the fair market value of the common stock on the date of grant. The stock award and stock options are fully vested at the time of award. At its discretion, the Company has the ability to offer a cash gross-up to offset the estimated tax liability incurred at the time of the stock award.

     Each director is reimbursed by the Company for his actual out-of-pocket expenses for telephone, travel, and miscellaneous items incurred on behalf of the Company.

      Board Meetings and Committees

     During the year ended September 30, 2009, the Board of Directors met nine times. Committees of the Board of Directors generally meet immediately prior to and/or after meetings of the Board of Directors. No director attended fewer than 75% of the aggregate of the meetings of the Board of Directors and of the meetings of the Board committees on which he served.

     The Board of Directors has established an Audit Committee, Compensation Committee, and Governance and Nominating Committee. During the fiscal year ended September 30, 2009, each committee was composed of all independent directors (under the NASDAQ standards applicable to such committees) as follows:

Audit Committee		Compensation Committee		Governance and Nominating Committee
Chad M Lindbloom (Chairman)		Roger W. Kleppe (Chairman)		Thomas G. Hudson (Chairman)
Carl M. Fredericks		Christopher P. Marshall		Roger W. Kleppe
Michael J. Paxton		Bharat S. Vedak		Michael J. Paxton

     The Board of Directors has unanimously determined that all Audit Committee members are financially literate under the NASDAQ listing standards and all members are qualified audit committee financial experts as defined in the regulations of the Securities and Exchange Commission (the “SEC”).

     The purpose of the Audit Committee includes (1) annually selecting a firm of independent public accountants as auditors of the books, records and accounts of the Company; (2) reviewing the scope of audits made by the independent public accountants; and (3) receiving and reviewing the audit reports submitted by the independent public accountants and taking such action in respect of such reports as the Audit Committee may deem appropriate to assure that the interests of the Company are adequately protected. See “Audit Committee Report.” During the year ended September 30, 2009, the Audit Committee met five times. The Company has established an Audit Committee Charter that sets forth the Audit Committee’s principal accountabilities. This Charter is available on our website, www.xata.com .

     The purpose of the Compensation Committee is to annually review and approve management’s overall compensation plan for the Company’s employees, excluding officers. The Committee also approves all incentive plans and sets officer annual salaries and incentives, including cash and non-cash remuneration. The Compensation Committee also determines all equity compensation that may be included in the compensation set forth for each individual. During the year ended September 30, 2009, the Compensation Committee met eight times. The Company has established a Compensation Committee Charter that sets forth the Compensation Committee’s principal accountabilities. This Charter is available on our website, www.xata.com .

     The purpose of the Governance and Nominating Committee is to (1) oversee corporate governance matters; (2) approve director-nominees to be considered for election by shareholders and for election by the Board of Directors to fill any vacancy or newly created directorship; and (3) make recommendations to the Board concerning the appropriate size and composition of the Board of Directors and each Board committee, and the establishment of new Board committees. During the year ended September 30, 2009, the Governance and Nominating Committee met one time. The Company has established a Governance and Nominating Committee Charter that sets forth the Governance and Nominating Committee’s principal accountabilities. This Charter is available on our website, www.xata.com .

     We have adopted a code of ethics that applies to our chief executive officer, chief financial officer, and directors of finance, and persons performing similar functions. The Code is posted on our website at www.xata.com , and we will post on such website any amendment to, or waiver from, a provision of our Code within four business days following the date of such amendment or waiver.

Nomination of Director Candidates

     Nominees for election to the Board of Directors of the Company are selected by the Governance and Nominating Committee, subject to the rights of JDSTG and Trident (see Notes 9, 10 and 11 of the table in “Principal Shareholders and Ownership of Management” and “Election of Directors”). To date, all director nominees (other than nominees of JDSTG or Trident) have been identified by current directors or management. We have never engaged a third party (for a fee or otherwise) to identify candidates and, other than nominees of JDSTG and Trident, we have never received a proposed candidate from a source outside of the Company. However, the Governance and Nominating Committee would consider any candidate proposed in good faith by a shareholder. To do so, a shareholder should send the candidate’s name, credentials, contact information, and his or her consent to be considered as a candidate to our Chairman and Chief Executive Officer, John J. Coughlan. The proposing shareholder should also include his or her contact information and a statement of his or her share ownership (how many shares owned and for how long). The Governance and Nominating Committee evaluates candidates based on financial literacy, knowledge of the Company’s industry or other background relevant to the Company’s needs, status as a stakeholder in the Company, “independence” for purposes of compliance with the rules of the SEC and NASDAQ, and willingness, ability, and availability for service.

Shareholder Communication with the Board

     We do not have a formal procedure for shareholder communication with our Board of Directors. In general, our officers are easily accessible by telephone or mail. Any matter intended for the Board, or for any individual member or members of the Board, should be directed to our chief executive officer or chief financial officer with a request to forward the same to the intended recipient. In the alternative, shareholders can direct correspondence to the Board to the attention of our Board Chairman, John J. Coughlan, or to the attention of the Chairman of our Audit Committee, Chad M. Lindbloom, in care of the Company at the Company address. All such communications will be forwarded unopened.

     We encourage all incumbent directors, as well as all nominees for election as director, to attend the annual meeting of shareholders. There were two independent incumbent directors and nominees in attendance at the annual meeting in February 2009.

SUMMARY OF PROPOSALS IN CONNECTION WITH
ACQUISITION OF TURNPIKE ENTITIES AND RELATED FINANCING

     This summary describes the material terms of Proposals 2 through 7 that you will be voting on at the Annual Meeting. Each such Proposal is being made in connection with:

	•		our acquisition, which we refer to as the Turnpike Acquisition, on December 4, 2009 of Turnpike Global Technologies Inc. and Turnpike Global Technologies LLC; or
	•		the financing arrangements we entered into on December 4, 2009 in connection with the Turnpike Acquisition and certain other matters, which we refer to as the Financing and, together with the Turnpike Acquisition, we refer to as the Transactions.

     Proposals 2 through 6 seek shareholder approval of an amendment and restatement of our Articles of Incorporation in the form attached hereto as Appendix A , which we refer to as the Articles Amendment, and Proposal 7 seeks certain shareholder approvals under the rules of NASDAQ in connection with the Transactions. We agreed to submit all of these Proposals for the approval of our shareholders in connection with the Transactions. You will not be voting to approve either the Turnpike Acquisition or the Financing, since both have already been completed. However, a number of matters of significant importance related to the Transactions are dependent on the outcome of the shareholder votes with respect to Proposals 2 through 5 and Proposal 7, and an understanding of these Transactions is necessary in order to make an informed voting decision with respect to such Proposals. Therefore, the material terms of these Transactions are described below in this proxy statement.

     To better understand Proposals 2 through 7, the Turnpike Acquisition and the Financing, you should carefully read this entire document and the other documents to which we refer.

What is the Turnpike Acquisition?

     On December 4, 2009, we acquired all of the equity interests of Turnpike Canada and all of the membership interests of Turnpike US. The initial purchase price for the Turnpike Acquisition is $12.5 million, of which (i) $10 million was paid in cash at closing, and (ii) $2.5 million is to be paid through the future issuance of shares of our common stock upon shareholder approval at the Annual Meeting. The number of shares of our common stock to be issued to satisfy the $2.5 million future payment obligation will be calculated based on a $3.00 per share value. These shares will be issued shortly after the Annual Meeting, assuming that Proposals 2 and 7 are approved at the Annual Meeting. If either Proposal 2 or 7 is not approved at the Annual Meeting and a similar proposal has not been approved by our shareholders by June 4, 2010, we will instead be required to pay the $2.5 million portion of the Turnpike Acquisition consideration that would be payable in shares of our common stock in cash.

     As additional contingent consideration in the Turnpike Acquisition, we will also be required to make up to three additional payments to the sellers if certain revenue and product sales metrics are satisfied by Turnpike during our 2010, 2011, and 2012 fiscal years. For each of those fiscal years in which the contingent payment metrics are satisfied, we will be obligated to pay an additional $2.5 million to the sellers shortly after the end of that fiscal year. The contingent payments will be paid through the issuance of additional shares of our common stock, which will be valued at $3.00 per share for purposes of determining the number of shares to be issued. However, if shareholder approval Proposals 2 and 7, or a similar shareholder approval, is not obtained prior to the date, if any, on which each such issuance is required to be made, the applicable contingent payment, if any, will instead be made in cash.

     Please see “Acquisition of Turnpike Entities and Related Financing -Material terms of the Turnpike Acquisition” starting on page 27.

Why is the Turnpike Acquisition discussed in this proxy statement?

     We are including a discussion of the material terms of the Turnpike Acquisition and the business and operations of the Turnpike business because the potential issuance of our securities (both to the sellers of Turnpike and in connection with the related Financing) require the approval of our shareholders.

     Because the Turnpike Acquisition was completed on December 4, 2009, you are not voting on the Turnpike Acquisition itself and your vote will not in any way undo the consummation of the Turnpike Acquisition. However, your vote will determine whether any future consideration to be paid to the sellers of Turnpike will be paid in shares of our common stock (which will be the case if we obtain shareholder approval of Proposals 2 and 7) or will instead be paid in cash (which will be the case if we do not obtain either of the approvals).

     Please see “Consideration” under “Acquisition of Turnpike Entities and Related Financing - Material terms of the Turnpike Acquisition” starting on page 28.

What is the Financing and why is it discussed in this proxy statement?

     On December 4, 2009, we issued and sold an aggregate of $30.2 million in principal amount of Senior Mandatorily Convertible Promissory Notes, which we refer to as the Notes, in a private placement pursuant to a Note Purchase Agreement that we entered into with (i) TCV, (ii) Trident, and (iii) a fund affiliated with Weber Capital Management LLC, or the Weber Purchaser, and, which we refer to together with TCV and Trident as the Purchasers.

     In connection with the Note Purchase Agreement, we agreed to seek the approval of our shareholders, or the Shareholder Approval, with respect to a number of matters, including (i) approval of the Articles Amendment, which is the subject of Proposals 2 through 6, and (ii) all approvals necessary under the rules and regulations of NASDAQ in connection with the transactions contemplated by the Note Purchase Agreement and the Notes, which approvals are the subject of Proposal 7. The Articles Amendment would:

	•		increase our authorized number of shares of common stock and preferred stock (Proposals 2 and 3),
	•		make certain other changes to the terms of each of our existing series of preferred stock (Proposal 4),
	•		create and designate a new series of preferred stock (the “Series G Preferred Stock”) that would be senior to our existing series of preferred stock (Proposal 5), and
	•		cause us to opt out of the Minnesota Control Share Acquisition Statute (Proposal 6).

     Promptly following receipt of the Shareholder Approval and the filing of the Articles Amendment, each Note will automatically convert into (i) a number of shares of Series G Preferred Stock equal to the principal amount of such Note divided by $3.00 (subject to customary anti-dilution adjustments), and (ii) warrants to purchase a number of shares of our common stock equal to 30% of such number of shares of Series G Preferred Stock (the “Warrants”). The exercise price of the Warrants is $3.00 per share (subject to customary anti-dilution adjustments), and the Warrants will be exercisable for seven years from the date of issuance. There is no interest payable on the Notes as long as they convert in accordance with their terms.

     If the Shareholder Approval has not been obtained by November 1, 2010, we will be required to repay the Notes in full on such date, together with interest at an annual rate of 14%.

     Please see “Terms of the Notes” under “Acquisition of Turnpike Entities and Related Financing - Material terms of the Financing” starting on page 23.

Are there any voting agreements in connection with the Shareholder Approval?

     In connection with the Note Purchase Agreement, certain of the TCV Purchasers entered into support agreements, which we refer to as the Support Agreements, with the following significant shareholders of our company: (i) JDSTG, (ii) GW 2001 Fund, L.P. and Weber Capital Partners II, L.P., and (iii) Trident, or, collectively, the Supporting Shareholders. Pursuant to the terms of the Support Agreements, each of the Supporting Shareholders has agreed to vote their equity securities of the Company in favor of the matters required to give the Shareholder Approval.

     As of the record date for the Annual Meeting, the shares of common stock and other equity securities covered by the Support Agreements represented, in the aggregate, approximately 57.2% of the outstanding shares of our common stock and other equity securities entitled to vote at the Annual Meeting (calculated on an as-converted to common stock basis) and represented a majority of the outstanding shares of each series of our existing Preferred Stock entitled to vote at the Annual Meeting and represented approximately 27.2% of the outstanding shares of our common stock.

     Please see “Support Agreements” under “Acquisition of Turnpike Entities and Related Financing - Material terms of the Financing” starting on page 25.

Do our shareholders have appraisal rights with respect to the Turnpike Acquisition and the Financing?

     If Proposal 4 is approved and becomes effective, holders of Series B, Series C, Series D, and Series F Preferred Stock who do not vote their shares in favor of Proposal 4 will be entitled to statutory dissenters’ rights if they strictly comply with Sections 302A.471 and 302A.473 of the MBCA. If Proposal 5 is approved and becomes effective, holders of Series B, Series C, Series D, and Series F Preferred Stock who do not vote their shares in favor of Proposal 5 will be entitled to statutory dissenters’ rights if they strictly comply with Sections 302A.471 and 302A.473 of the MBCA. For a description of the rights of such holders and of the procedures to be followed in order to assert such rights and obtain payment of the fair value of their shares of stock, see Sections 302A.471 and 302A.473 of the MBCA, copies of which are attached as Appendix B , as well as the information set forth below.

      IN ORDER TO PERFECT DISSENTERS’ RIGHTS WITH RESPECT TO EITHER PROPOSAL 4 OR PROPOSAL 5, A HOLDER OF SERIES B, SERIES C, SERIES D OR SERIES F PREFERRED STOCK MUST SEND A NOTICE TO THE COMPANY BEFORE THE DATE OF THE ANNUAL MEETING AND MUST NOT VOTE IN FAVOR OF THE PROPOSED AMENDMENT IN THE APPLICABLE PROPOSAL BY PROXY OR OTHERWISE.

     No other shareholders are entitled to any dissenters’ rights with respect to any other matters to be acted upon at the Annual Meeting.

Why was shareholder approval not required in order to complete the Turnpike Acquisition or the Financing?

     Under Minnesota law, shareholder approval was not required in connection with the completion of the Turnpike Acquisition or the Financing. In addition, the rules of NASDAQ did not require shareholder approval for completion of the Turnpike Acquisition or the Financing because we did not issue any shares of our common stock, or securities exercisable for or convertible into shares of our common stock, at the closing of the Transactions. Instead, under the terms of the agreements we entered into in connection with the Transactions, no

such securities will be issued in connection with the Transactions unless and until we obtain the applicable Shareholder Approval.

Why do shareholders have to approve the Articles Amendment?

     Under Minnesota law, shareholder approval is required in order to amend and restate our Articles of Incorporation in the manner contemplated by the Articles Amendment, which would result in the following changes to our Articles of Incorporation:

	•		increase our authorized number of shares of common stock and preferred stock (Proposals 2 and 3),
	•		various changes to the terms of each of our existing series of preferred stock (Proposal 4),
	•		create and designate the Series G Preferred Stock that would be senior to our existing series of preferred stock (Proposal 5), and
	•		cause us to opt out of the Minnesota Control Share Acquisition Statute (Proposal 6).

     The increase in the number of shares of common stock and preferred stock authorized by our Articles of Incorporation is necessary in order to have enough shares available for, among other things, (i) the future issuance of shares of common stock as additional consideration to the sellers of Turnpike, and (ii) the conversion of the Notes into shares of Series G Preferred Stock and Warrants in accordance with their terms (and the future issuance of shares of common stock upon conversion of the Series G Preferred Stock and exercise of the Warrants or any Penalty Warrants (as defined below)).

     The proposed changes to the terms of our existing series of preferred stock, and the creation and designation of the Series G Preferred Stock, are necessary in order to permit the conversion of the Notes as contemplated by the Note Purchase Agreement and the Notes.

     The provision in the Articles Amendment that would cause us to opt out of the Minnesota Control Share Acquisition Statute does not in any way affect our ability to fully consummate the Transactions in the manner contemplated by the agreements that we entered into in connection therewith. However, we agreed to seek shareholder approval of such amendment in connection with the Financing in order to increase our flexibility with respect to future financing transactions.

     Please see the full text of the Amended and Restated Articles of Incorporation in Appendix A .

What are shareholders required to approve under the rules of NASDAQ?

     Rule 5635 of the NASDAQ Listing Rules sets forth the circumstances under which shareholder approval is required prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company, (ii) equity-based compensation of officers, directors, employees or consultants, (iii) a change of control, and (iv) certain private placements.

     For reasons discussed in detail under Proposal 7 below, each of the issuance of our common stock in connection with the Turnpike Acquisition, the conversion of the Notes into Series G Preferred Stock and Warrants, the future issuance of Penalty Warrants, if any, and the issuance of shares of our common stock upon the conversion of the Series G Preferred Stock or the exercise of the Warrants or any Penalty Warrants, potentially implicates the required approval events set forth in Rule 5635. Therefore, we are seeking shareholder approval of all aspects of the Transactions to the extent necessary under any sub-paragraph of Rule 5635.

What effects will the potential issuance of common stock as additional consideration for the Turnpike Acquisition, and the conversion of the Notes into shares of Series G Preferred Stock and Warrants, have on existing shareholders?

     If the issuances of common stock as additional consideration for the Turnpike Acquisition and the conversion of the Notes are consummated, we will issue a substantial number of shares of our common stock and shares of Series G Preferred Stock convertible into common stock and the shares may be issued at a per share price below the market price of our common stock on the date of such issuance. The common stock issuable (i) to the sellers of Turnpike, (ii) upon conversion of the Series G Preferred Stock, (iii) upon exercise of the Warrants, and (iv) upon exercise of any Penalty Warrants, could have a depressive effect on the market price of our common stock by increasing the number of shares of common stock outstanding. Such downward pressure could encourage short sales by certain investors, which could place further downward pressure on the price of the common stock.

     As a result of shareholder approval of the potential issuances of securities described above, the number of shares of outstanding common stock, calculated on an as-converted basis, will increase significantly and the ownership interests and proportionate voting power of the existing shareholders will be significantly diluted.

     In addition, the TCV Purchasers will own capital stock of our company that has approximately 35% of the voting power of our outstanding stock that is entitled to vote generally in the election of directors. In addition, the TCV Purchasers will have the right to acquire significant additional shares of our common stock through exercise of the Warrants. Accordingly, the TCV Purchasers will have significant voting power with respect to shares of the Company and will be able to exert substantial influence over our business and affairs.

     Pursuant to the terms of the Series G Preferred Stock, so long as at least 2.5 million shares of Series G Preferred Stock remain outstanding, the holders of a majority of the outstanding Series G Preferred Stock will have the right, voting as a separate class, to nominate and elect one member of our Board of Directors. Upon conversion of the Notes, the TCV Purchasers will own a majority of the shares of Series G Preferred Stock. The terms of the Series G Preferred Stock also subject us to certain negative covenants, which are described elsewhere in this proxy statement, that may be waived only by the holders of a majority of the shares of Series G Preferred Stock. See “Voting Rights “ under “Summary of Proposed Certificate of Designation and the Series G Preferred Stock — Other Rights and Preferences” in Proposal 5 below.

     As a result, the TCV Purchasers are likely to have a significant effect on the outcome of matters brought before the shareholders, including the approval of mergers and other business combination transactions.

     The following tables sets forth our capitalization as of January 7, 2010:

	•		on an actual basis; and
	•		on a pro forma basis, giving effect to the receipt of the Shareholder approval and (i) the issuance of the Series G Preferred Stock and Warrants upon conversion of the Notes; (ii) the issuance of the $2.5 million initial consideration in common stock to the former Turnpike shareholders; and (iii) the issuance of the $7.5 million aggregate contingent consideration in common stock to the former Turnpike shareholders (assuming the conditions to all of the Contingent Payments are met).

		January 7, 2010
		Actual				Pro Forma
Common Stock
Authorized			25,000,000				100,000,000
Issued			8,787,994				9,621,327
Reserved
Series B Preferred Stock			2,043,793				2,043,793
Series C Preferred Stock			1,269,036				1,269,036
Series D Preferred Stock			1,566,580				1,566,580
Series F Preferred Stock			1,355,857				1,355,857
Series G Preferred Stock			—				10,066,667
Options to Purchase Common Stock(1)			2,805,362				2,805,362
Restricted Stock Units			380,800				380,800
Warrants to Purchase Common Stock			1,931,342				4,951,342
Contingent Obligations under Turnpike Purchase Agreement			—				2,499,999
Common Stock Available for Issuance			4,859,236				63,439,237

		January 7, 2010
		Actual				Pro Forma
Preferred Stock
Authorized			10,000,000				50,000,000
Issued
Series B Preferred Stock			2,043,793				2,043,793
Series C Preferred Stock			1,269,036				1,269,036
Series D Preferred Stock			1,566,580				1,566,580
Series F Preferred Stock			1,355,857				1,355,857
Series G Preferred Stock			—				10,066,667
Preferred Stock Available for Issuance			3,764,734				33,698,067

What will happen if any of Proposals 2 through 5 or Proposal 7 is not approved?

     Shareholder approval of each of Proposals 2 through 5 and Proposal 7 is necessary for the issuance of our common stock in connection with the Turnpike Acquisition, the conversion of the Notes into Series G Preferred Stock and Warrants, and the future issuance of Penalty Warrants, if any, and of shares of our common stock upon the conversion of the Series G Preferred Stock or the exercise of the Warrants or any Penalty Warrants. In addition, the Board of Directors has determined that the implementation of Proposal 5 is expressly conditioned upon the approval by our shareholders of each of Proposals 2, 3, 4 and 7. Thus, any one of Proposals 2, 3, 4 or 7 are not approved by our shareholders, it will be treated as if Proposal 5 was not approved by our shareholders.

     Generally, failure to approve any of Proposals 2 or 7 would have the following effects:

	•		we will be required to pay $2.5 million in cash, rather than shares of our common stock, to satisfy the remaining portion of the initial purchase price in the Turnpike Acquisition (unless the Shareholder Approval is obtained prior to June 4, 2009); and
	•		we will be required to pay up to $7.5 million in potential contingent consideration in connection with the Turnpike Acquisition in cash, rather than shares of our common stock (unless the Shareholder Approval is obtained prior to the date that any such contingent payment is due).

Failure to approve any of Proposals 2 through 5 or Proposal 7 would have the following effect:

•

we will be required to repay the entire $30.2 million in principal amount of Notes, together with interest at an annual rate of 14%, on November 1, 2010 (unless either (1) the Shareholder Approval is obtained prior to such date or (2) (i) Proposals 2, 4 and 7 are approved, (ii) we are able to obtain an amendment to the terms of the Notes to permit us to issue a fewer number of shares of Series G Preferred Stock at a proportionately increased conversion rate into common stock, and (iii) our Board of Directors determines to create and designate the Series G Preferred Stock pursuant to its authority under our Articles of Incorporation).

What will happen if Proposal 6 is not approved?

     Because it is not necessary to opt-out of the Minnesota Control Share Acquisition Statute in order to (i) issue our common stock in connection with the Turnpike Acquisitions, (ii) convert the Notes into Series G Preferred Stock and Warrants in accordance with their terms, (iii) issue Penalty Warrants, if any, in the future, or (iv) issue shares of our common stock upon the conversion of the Series G Preferred Stock or the exercise of the Warrants or any Penalty Warrants, the implementation of Proposals 2 through 5 and Proposal 7 is not conditioned upon the approval by the shareholders of Proposal 6. Thus, if Proposal 6 is not approved by the shareholders, we will continue to be subject to the Minnesota Control Share Acquisition Statute, but it will not have any effect on the issuances or conversion described above.

Required Vote

     The affirmative vote of the holders of a majority of the outstanding shares of our common stock and Preferred Stock present in person or represented by proxy at the Annual Meeting, voting together as a single class on an as-converted to common stock basis, is required for the approval of each of Proposals 2 through 7. In addition, each of Proposals 3, 4 and 5 must be approved through separate affirmative class votes by the holders of a majority of the outstanding shares of each of the Series B, Series C, Series D and Series F Preferred Stock, with each series voting separately as a class. Furthermore, Proposals 3 and 5 must be approved through separate affirmative class votes by the holders of a majority of the outstanding shares of common stock, voting separately as a class. Our Board of Directors has determined that the effectiveness of Proposal 5 is expressly conditioned upon the approval by our shareholders of each of Proposals 2, 3, 4 and 7.

     The presence at the Annual Meeting in person or by proxy of a majority the outstanding shares of our common stock is required before a class vote of our common stock will become effective. Similarly, the presence at the Annual Meeting in person or by proxy of a majority of the outstanding shares of a series of our Preferred Stock is required before a class vote of any such series of our Preferred Stock will become effective.

     For purposes of approving Proposals 2 through 7, a shareholder voting through proxy who abstains with respect to any such Proposal is considered to be present and entitled to vote on the matter, and is in effect casting a negative vote, but a shareholder (including a broker) who does not give authority to a proxy to vote, or withholds authority to vote, on a Proposal shall not be considered present and entitled to vote on that Proposal.

     Only shareholders of record at the close of business on January 7, 2010, will be entitled to vote at the Annual Meeting or adjournments thereof. At the close of business on January 7, 2010, there were an aggregate of 15,023,260 shares of our common stock and preferred stock issued and outstanding, each of which is entitled to one vote. As of the record date, assuming the absence of any limitations under the Minnesota Control Share Acquisition Statute, the shares of common stock and other equity securities covered by the Support Agreements represented, in the aggregate, (i) approximately 57.2% of the outstanding shares of our common stock and other equity securities entitled to vote at the Annual Meeting (calculated on an as-converted to common stock basis), (ii) a majority of the outstanding shares of each series of our existing Preferred Stock entitled to vote at the

Annual Meeting, and (iii) approximately 27.2% of the outstanding shares of our common stock entitled to vote at the Annual Meeting.

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH OF PROPOSALS 2
THROUGH 7.

ACQUISITION OF TURNPIKE ENTITIES AND RELATED FINANCING

Material terms of the Financing

     This section describes the material provisions of the following agreements and other documents entered into in connection with the Financing, which we refer to collectively as the Financing Documents:

	•		the Note Purchase Agreement, dated December 4, 2009, that we entered into with the Purchasers;
	•		the Notes issued to each of the Purchasers on December 4, 2009;
	•		the Support Agreements, dated December 4, 2009, that the TCV Purchasers entered into with the Supporting Shareholders;
	•		the Investor Rights Agreement, dated December 4, 2009, that we entered into with the TCV Purchasers, which we refer to as the TCV Investor Rights Agreement;
	•		the Indemnification Agreement, dated December 4, 2009, that we entered into with the TCV Purchasers, which we refer to as the TCV Indemnification Agreement;
	•		the Amended and Restated Voting Agreement, dated December 4, 2009, that we entered into with JDSTG and Trident, which we refer to as the Trident Voting Agreement;
	•		the Voting Agreement, dated December 4, 2009, that we entered into with JDSTG and the TCV Purchasers, which we refer to as the TCV Voting Agreement; and
	•		the Second Amendment to Stock Purchase Agreement, dated December 4, 2009, that we entered into with JDSTG, which we refer to as the JDSTG Amendment.

     Copies of the Financing Documents have been filed as exhibits to our Current Report on Form 8-K filed with the SEC on December 10, 2009. We urge all shareholders to read the Financing Documents carefully.

Issuance of the Notes

     Pursuant to the Note Purchase Agreement, on December 4, 2009, we issued and sold an aggregate of $30.2 million in principal amount of the Notes to the Purchaser as follows: $27.5 million to the TCV Purchasers, $2.5 million to Trident, and $0.2 million to the Weber Purchaser.

Closing Conditions

     Under the Note Purchase Agreement, the following material items were required to be completed or delivered at or prior to the closing of the sale of the Notes:

	•		each of the Support Agreements, the TCV Investor Rights Agreement, the TCV Indemnification Agreement, the Trident Voting Agreement and the TCV Voting Agreement was required to be executed and delivered by the parties thereto;
	•		we were required to deliver copies of pay-off letters from our existing senior creditors as of such date, Partners for Growth II, L.P. and Silicon Valley Bank, stating that upon receipt of payment of all outstanding amounts under our applicable loan agreements with such creditors, such loan agreements would be terminated in accordance with their terms; and
	•		we were required to deliver executed copies of the Purchase Agreements (as defined below) and to close the transactions contemplated thereby simultaneously with the closing of the sale of the Notes.

     These conditions were satisfied and the closing of the sale of the Notes pursuant to the Note Purchase Agreement occurred simultaneously with the execution of the Note Purchase Agreement on December 4, 2009.

Affirmative Covenants

     In the Note Purchase Agreement, we agreed to do a number of things, including the following:

	•		to use the proceeds from the sale of the Notes to pay the amounts due at closing under the Turnpike Equity Purchase Agreements and to repay all amounts due under our loan agreements with Partners for Growth II, L.P. and Silicon Valley Bank (with the remaining portion of the proceeds available for working capital and general corporate purposes);
	•		to prepare and file a proxy statement with the SEC within 60 days after December 4, 2009, and to cause such proxy statement to be mailed to our shareholders within 90 days after December 4, 2009, in connection with a meeting of our shareholders (the “Shareholder Meeting”) to be held for the purpose of obtaining (i) the approval of our shareholders of an amendment and restatement of our Articles of Incorporation in the form attached hereto as Appendix A , which includes the designation of the Series G Preferred Stock, into which the Notes are convertible, and (ii) all approvals necessary under the rules and regulations of NASDAQ in connection with the transactions contemplated by the Note Purchase Agreement and the Notes (collectively, the “Shareholder Approval”);
	•		to cause the Shareholder Meeting to be held within 120 days after December 4, 2009, and in any event no later than our next Annual Meeting of Shareholders;
	•		to include in the proxy statement (and in any additional soliciting materials) the recommendation of our Board of Directors that the shareholders give the Shareholder Approval, subject to the Board of Directors’ fiduciary duties to our shareholders;
	•		to use best efforts to solicit and obtain the Shareholder Approval;
	•		until the conclusion of the Shareholder Meeting, to deal exclusively with the Purchasers, and not solicit any other party, with respect to any financing transaction similar to the transactions contemplated by the Note Purchase Agreement;
	•		upon conversion of the Notes, to cause Christopher P. Marshall to be appointed to the Board of Directors as the director designated by the Purchasers as holders of the Series G Preferred Stock;
	•		to use commercially reasonably efforts to enter into the JDSTG Amendment; and
	•		not to grant any registration rights that conflict with the registration rights granted to the Purchasers under the Note Purchase Agreement.

Terms of the Notes

     The Notes are not convertible prior to receipt of the Shareholder Approval. If the Shareholder Approval has not been obtained by November 1, 2010, we will be required to repay the Notes in full on such date, together with interest at an annual rate of 14%. In the event a change in control (as defined in the Notes) occurs prior to the conversion or maturity of the Notes, we will be obligated to repay the Notes in full, together with interest at an annual rate of 14%, and also make an additional change in control payment equal to the greater of (i) 50% of the principal amount of the Notes, or (ii) the amount above the principal amount of the Notes which the Purchasers would have received in the change in control had the Notes fully converted (and the underlying Series G Preferred Stock fully converted and the underlying Warrants been fully exercised) immediately prior to the consummation of such change in control.

     Prior to the maturity of the Notes, promptly following receipt of the Shareholder Approval and the filing of the Articles Amendment with the Minnesota Secretary of State, each Note will automatically convert into (i) a number of shares of Series G Preferred Stock equal to the principal amount of such Note divided by $3.00 (subject to customary anti-dilution adjustments), and (ii) warrants to purchase a number of shares of our common stock equal to 30% of such number of shares of Series G Preferred Stock (the “Warrants”).

     Assuming the Notes convert in accordance with their terms without any anti-dilution adjustment, they would convert into an aggregate of (i) approximately 10.06 million shares of Series G Preferred Stock, and (ii) Warrants to purchase approximately 3.02 million shares of our common stock. The exercise price of the Warrants is $3.00 per share (subject to customary anti-dilution adjustments), and the Warrants will be exercisable for seven years from the date of issuance. There is no interest payable on the Notes as long as they convert in accordance with their terms.

     The rights, preferences and privileges of the Series G Preferred Stock, as set forth in the Articles Amendment, are as follows:

	•		Dividends — The Series G Preferred Stock is entitled to payment of dividends equivalent to any dividends paid on any other capital stock, except the preferred dividend payable on the Series B Preferred Stock.
	•		Liquidation — In the event of a liquidation event as defined in the Articles Amendment (including a change in control), unless waived by a majority of the outstanding shares of Series G Preferred Stock (or any class or series that has priority or preference over the Series G Preferred Stock), the holders of Series G Preferred Stock will be entitled to receive, prior to payment of any amount to the holders of our other series of preferred stock or common stock, an amount equal to the greater of (i) an amount per share equal to the original issue price of the Series G Preferred Stock (subject to anti-dilution adjustments in the event of stock splits and similar events), plus all accrued or declared but unpaid dividends, and (ii) the amount such holder would have received in connection with such liquidation if the holder held the number of shares of common stock issuable upon conversion of the Series G Preferred Stock then held by such holder immediately prior to such liquidation.
	•		Conversion — The shares of Series G Preferred Stock will initially be convertible into shares of our common stock at a conversion price of $3.00 per share, subject to anti-dilution adjustments in the event of stock splits and similar events. Accordingly, each share of Series G Preferred Stock will initially be convertible into one share of common stock.
	•		Mandatory Redemption — At the request of holders of at least 60% of the Series G Preferred Stock, we must redeem the shares of Series G Preferred Stock for the original issue price paid by the holders (subject to anti-dilution adjustments in the event of stock splits and similar events) plus unpaid dividends, at any time after the first to occur of (a) the fifth anniversary of the first issuance of Series G Preferred Stock, (b) an acceleration event, including certain judgments against our company, defaults under certain indebtedness or a bankruptcy or similar event, or (c) a change in control. We may decline to redeem any shares of Series G Preferred Stock in the situation described by the preceding sentence, but if we do so, the Series G Preferred Stock will begin to bear cumulative dividends at the rate of 4% of the original issue price per annum.
	•		Optional Redemption — All outstanding shares of Series G Preferred Stock are also redeemable by us at any time following the date five years from the first issuance of Series G Preferred Stock, at a price per share equal to the original issue price paid by the holders (subject to anti-dilution adjustments in the event of stock splits and similar events) plus unpaid dividends, but only if (i) the market value of the common stock is at least three times the then effective conversion price for the Series G Preferred Stock over specified periods and (ii) either (x) a registration statement is in effect with respect to the shares of common stock underlying the Series G Preferred Stock and certain other

			conditions are met or (y) all of the shares of common stock underlying the Series G Preferred Stock may be sold without volume or other restrictions during any and all three-month periods without compliance with registration requirements pursuant to Rule 144(b)(1) under the Securities Act.
	•		Voting Rights — The Series G Preferred Stock will generally vote with our common stock on an as-converted basis. In addition, so long as at least 2.5 million shares of Series G Preferred Stock remain outstanding, the holders of a majority of the outstanding Series G Preferred Stock will have the right, voting as a separate class, to nominate and elect one member of our Board of Directors. Finally, so long as at least 3 million shares of Series G Preferred Stock remain outstanding, we will not be permitted to take any of the following actions without obtaining the approval of the holders of a majority of the Series G Preferred Stock: (i) create (by new authorization, recapitalization, designation or otherwise) or issue any class or series of stock or any other securities convertible into equity securities, or issued as units or in connection with our equity securities, having any right, preference or privilege senior to or on parity with the Series G Preferred Stock with respect to dividends, redemption or liquidation preference, (ii) alter or change (whether pursuant to amendment, waiver or repeal of our Articles of Incorporation or bylaws or otherwise) the rights, preferences or privileges of the Series G Preferred Stock so as to adversely affect such shares, (iii) make any redemption, repurchase, payment or declaration of any dividend or distribution on any shares of our capital stock other than the Series G Preferred Stock and certain dividends payable on Series B Preferred Stock, or (iv) enter into any bankruptcy filing, liquidation or similar event.

Fees and Expenses

     Pursuant to the Note Purchase Agreement, we agreed to pay all reasonable fees and expenses incurred or reasonably expected to be incurred by the Purchasers in connection with the transactions contemplated thereby and by the Notes, up to a maximum of $300,000.

Registration Rights

     Under the Note Purchase Agreement, we granted the Purchasers demand registration rights that may require us to in the future file one or more registration statements to register with the SEC the resale by the Purchasers of the shares of our common stock issuable upon conversion of the Series G Preferred Stock and exercise of the Warrants. The Company also granted the Purchasers certain “piggy back” registration rights with respect to such shares. In the event that we fail to file or cause to be declared effective a registration statement within certain specified time periods following a registration request from the Purchasers, we may, in certain circumstances, be required to issue additional warrants to purchase shares of our common stock to the Purchasers with terms substantially similar to the terms of the Warrants, except with an exercise price of $0.01 per share (the “Penalty Warrants”).

Support Agreements

     On December 4, 2009, in connection with the transactions contemplated by the Note Purchase Agreement, certain of the TCV Purchasers entered into a Support Agreement with each of the Supporting Shareholders. Pursuant to the terms of the Support Agreements, each of the Supporting Shareholders has agreed to vote their equity securities of the Company (subject to any limitations under the Minnesota Control Share Acquisition Act) in favor of the matters required to give the Shareholder Approval, and against various matters that might impede the completion of the transactions contemplated by the Note Purchase Agreement and the Notes (including the conversion of the Notes).

     As of the record date, assuming the absence of any limitations under the Minnesota Control Share Acquisition Act, the shares of common stock and other equity securities covered by the Support Agreements represented, in the aggregate, approximately 57.2% of the outstanding shares of our common stock and other

equity securities entitled to vote at the Annual Meeting (calculated on an as-converted to common stock basis) and represented a majority of the outstanding shares of each series of our existing Preferred Stock entitled to vote at the Annual Meeting. While the applicability of the Minnesota Control Share Acquisition Act to the Support Agreement under Minnesota law is unclear, if the Minnesota Control Share Acquisition Act were to limit the number of equity securities of the Company required to be voted pursuant to the Support Agreements, the Supporting Shareholders would still be required to vote a portion of their voting equity securities in favor of the Proposals and the Supporting Shareholder would still have the right to vote all of its voting equity securities for the Proposals.

     Among other matters, the Support Agreements also prohibit the Supporting Shareholders, prior to the conversion of the Notes, from (i) selling or otherwise transferring or granting a proxy or power of attorney with respect to their equity securities of the Company, and (ii) encouraging or in any way participating in any type of alternative transaction with respect to the Company that is similar to the transactions contemplated by the Note Purchase Agreement.

TCV Investor Rights Agreement

     On December 4, 2009, in connection with the transactions contemplated by the Note Purchase Agreement, we entered into the TCV Investor Rights Agreement, providing the TCV Purchasers with the following rights, among others:

	•		Right of First Refusal — Subject to certain exceptions, a right of first refusal to purchase their pro rata share of any equity securities that we may propose to sell and issue.
	•		Voting Rights — After the conversion of the Notes, the requirement that we obtain the approval of a majority of the total number of shares of Series G Preferred Stock and common stock (calculated on an as-converted to common stock basis) held by the TCV Purchasers in order to (i) enter into a transaction with an affiliated or interested party except upon terms not less favorable to us than we could obtain in a comparable arm’s-length transaction with an unaffiliated or disinterested third party and (ii) sell equity securities below fair market value.
	•		Consultation Rights — Consultation rights on matters relating to the termination of our President and/or Chief Executive Officer, and the selection of a replacement.
	•		Information Rights — After the conversion of the Notes, the right to receive information with respect to our annual, quarterly and monthly financial results, and our annual budget and business plans for each fiscal year.
	•		Inspection Rights — After the conversion of the Notes, the right to inspect our properties and discuss our affairs, finances and accounts with our officers.

TCV Indemnification Agreement

     On December 4, 2009, in connection with the transactions contemplated by the Note Purchase Agreement, we entered into the TCV Indemnification Agreement with the TCV Purchasers, pursuant to which we agreed to indemnify the TCV Purchasers and certain related parties to the fullest extent permitted by law for a variety of claims that might arise out of any such party’s status (or alleged status) as a controlling person, fiduciary or other agent or affiliate of our company.

Trident Voting Agreement

     On December 4, 2009, in connection with the transactions contemplated by the Note Purchase Agreement, we entered into the Trident Voting Agreement with JDSTG and Trident, pursuant to which, among other things, (i) JDSTG agreed to vote for Trident’s nominee(s) for director, at such time as Trident no longer holds sufficient shares of Series B Preferred Stock to be permitted to elect two directors as a separate class pursuant to our Articles of Incorporation, but only for so long as Trident owns at least 800,000 shares of our common stock (directly or by ownership of preferred stock on an as-converted basis), and (ii) JDSTG granted Trident a right of first refusal to acquire a portion of its shares of our common stock in the event it determines to sell or transfer such shares.

TCV Voting Agreement

     On December 4, 2009, in connection with the transactions contemplated by the Note Purchase Agreement, we entered into the TCV Voting Agreement with JDSTG and the TCV Purchasers, pursuant to which, among other things, (i) JDSTG agreed (effective upon conversion of the Notes) to vote for the TCV Purchasers’ nominee for director, at such time as the TCV Purchasers no longer hold sufficient shares of Series G Preferred Stock to be permitted to elect one director as a separate class pursuant to our Articles of Incorporation, but only for so long as the TCV Purchasers own at least 800,000 shares of our common stock (directly or by ownership of preferred stock on an as-converted basis), and (ii) JDSTG granted the TCV Purchasers a right of first refusal to acquire a portion of its shares of our common stock in the event it determines to sell or transfer such shares.

JDSTG Amendment

     On December 4, 2009, in connection with the transactions contemplated by the Note Purchase Agreement, we entered into the JDSTG Amendment, pursuant to which we agreed with JDSTG to amend the terms of our Stock Purchase Agreement, dated as of August 30, 2000, so as to eliminate a number of negative and affirmative covenants of the Company thereunder, and replace them with a covenant by the Company not to take any of the following actions without JDSTG’s prior written consent: (i) enter into a bankruptcy filing or permit a similar event; (ii) enter into a transaction with an affiliated or interested party, except upon terms not less favorable to us than we could obtain in a comparable arm’s-length transaction with an unaffiliated or disinterested third party; or (iii) sell equity securities below fair market value. The overall effect of the JDSTG Amendment is to reduce the circumstances in which we would be required to seek the consent of JDSTG in order to take various actions in connection with the operation of our business.

Material terms of the Turnpike Acquisition

     On December 4, 2009, we entered into an Equity Purchase Agreement (the “Turnpike Purchase Agreement”) with Turnpike Global Technologies Inc., an Ontario Corporation (“Turnpike Canada”), Turnpike Global Technologies LLC, a Delaware limited liability company (“Turnpike US” and, together with Turnpike Canada, “Turnpike”), the stockholders of Turnpike Global Technologies Inc. (except for Kelly Frey), the members of Turnpike Global Technologies LLC, and Brendan Staub, as Sellers’ Representative. On December 2, 2009, we entered into an Equity Purchase Agreement (the “Frey Purchase Agreement”) with Kelly Frey, who at the time was a stockholder of Turnpike Canada. The stockholders of Turnpike Canada and the members of Turnpike US are collectively referred to as the “Sellers.”

     Pursuant to the Turnpike Purchase Agreement and the Frey Purchase Agreement (collectively, the “Purchase Agreements”), on December 4, 2009, we acquired all of the equity interests of Turnpike Canada and all of the membership interests of Turnpike US (the “Turnpike Acquisition”).

Consideration

     The initial purchase price for the acquisition was $12.5 million, of which (i) $10 million was paid in cash at closing of the acquisition, and (ii) $2.5 million will (subject to obtaining the Shareholder Approval) be paid through the future issuance of shares of our common stock. A portion of the cash purchase price was used to purchase the shares of Turnpike Canada held by Kelly Frey and to repay certain indebtedness and other obligations of Turnpike. In addition, the cash portion of the initial purchase price is subject to adjustment based on the working capital of Turnpike at closing. The number of shares of common stock to be issued to satisfy the $2.5 million future payment obligation will be calculated based on a $3.00 per share value. These shares will be issued shortly after we obtain the applicable Shareholder Approval. If such Shareholder Approval has not obtained by June 4, 2010, we will instead be required to pay the $2.5 million in cash.

     The Turnpike Purchase Agreement also requires us to make up to three additional payments to certain sellers if certain revenue and product sales metrics are satisfied by Turnpike during our 2010, 2011, and 2012 fiscal years. For each of those fiscal years in which the contingent payment metrics are satisfied by Turnpike, we will be obligated to pay an additional $2.5 million to such sellers shortly after the end of that fiscal year. To earn such contingent payment for any fiscal year, Turnpike must (i) achieve annual growth in Product Revenue (as defined below) of approximately 40-50% in each of fiscal 2010, 2011 and 2012, and (ii) achieve at least the following levels of Net New Subscriptions (as defined below) for such fiscal years: 10,875 for the 2010 fiscal year; 13,100 for the 2011 fiscal year; and 16,602 for the 2012 fiscal year. “Product Revenue” means revenue generated during a particular period by Turnpike from the sale or licensing of any technology, products or software developed by them. “Net New Subscriptions” means the total number of vehicles for which products or software of Turnpike is newly sold and implemented during any period, less attrition of existing subscriptions during such period.

     If earned, each $2.5 million contingent payment will be paid through the issuance of additional shares of common stock, which will be valued at $3.00 per share for purposes of determining the number of shares to be issued. However, if the Shareholder Approval has not been obtained prior to the date, if any, on which each such issuance is required to be made, the applicable contingent payment will instead be made in cash.

     The Turnpike Purchase Agreement provides that no shares of our common stock will be issued to any seller of Turnpike that is a U.S. person but is not an “accredited investor” as defined in Rule 501 promulgated under the Securities Act of 1933, as amended. As a result, approximately 2.8% of any consideration under the Turnpike Purchase Agreement that would otherwise be paid in shares of our common stock (assuming the applicable Shareholder Approvals are received) will instead be paid in cash.

Closing Conditions

   Under the Purchase Agreements, there were a number of standard conditions to the obligations of each party to close the transactions contemplated thereby. The primary material condition to closing was that each of Kelly Frey on the one hand, and the Company, Turnpike and certain officers of Turnpike on the other hand, were required to execute and deliver a broad release of all claims it or they might have against the other. In addition, Kelly Frey was required to deliver a consent to the dismissal of his outstanding lawsuit against Turnpike and certain officers of Turnpike.

     The conditions related to Kelly Frey were satisfied, and all other conditions were either satisfied or waived, and the closing of the Turnpike Acquisition occurred on December 4, 2009 simultaneously with (i) the execution of the Turnpike Purchase Agreement and (ii) the execution and closing of the Note Purchase Agreement.

Affirmative Covenants and Other Agreements

     In the Turnpike Purchase Agreement, both we and the sellers agreed to do a number of things, including the following:

	•		We agreed for at least six years after closing (i) to indemnify, and cause Turnpike to indemnify, the officers directors, employees and agents of Turnpike to the fullest extent permitted by law against damages arising out of claims brought by third parties based on the actions of such persons in such capacities prior to closing, and (ii) to maintain all obligations to indemnify and advance expenses existing in favor of such persons as of closing under the laws of the jurisdictions of organization of the Turnpike entities, their organizational documents, or any written agreement between any such person and either Turnpike entity.
	•		We agreed to prepare and file a proxy statement with the SEC in connection with the Shareholder Meeting to be held for the purpose of obtaining the Shareholder Approval such that we may issue shares of our common stock to the sellers (i) in satisfaction of the $2.5 million future payment obligation that is part of the initial purchase price, and (ii) in satisfaction of any contingent payment obligation that is earned as a result of satisfaction of the contingent payment metrics described above.
	•		We agreed to cause the Shareholder Meeting to be held within 120 days after December 4, 2009, and in any event no later than our next Annual Meeting of Shareholders.
	•		We agreed to include in this proxy statement (and in any additional soliciting materials) the recommendation of our Board of Directors that the shareholders give the Shareholder Approval, subject to the Board of Directors’ fiduciary duties to our shareholders.
	•		We agreed to use our best efforts to solicit and obtain the Shareholder Approval.
	•		Each seller of Turnpike (except Kelly Frey) agreed, for a period of three years after the closing, not to (i) compete with the business of Turnpike, (ii) solicit any present or potential customer, supplier, or other business contact of Turnpike to adversely change its relationship with Turnpike, or (iii) disparage us or Turnpike.
	•		Each seller agreed to a six-month lock-up of any shares of our common stock it receives in satisfaction of the $2.5 million future payment obligation that is part of the initial purchase price. In addition, certain sellers (the “Significant Sellers”), who would together receive approximately 74% of the shares of our common stock issued to the sellers in satisfaction of any contingent payment obligation that is earned as a result of satisfaction of the contingent payment metrics described above, agreed to additional six-month lock-ups of any such shares issued to them. The Significant Sellers will also be subject to volume limitations such that, during the 24-month period after the expiration of any such lock-up period, the maximum number of shares of our common stock that they will be permitted to sell during any three-month period is equal to 1% of our outstanding common stock.

Representations and Warranties

     In the Turnpike Purchase Agreement, the sellers made standard representations and warranties regarding the business and operations of Turnpike and various other matters. We also made standard representations and warranties for a transaction of this type.

Indemnification

     In the Turnpike Purchase Agreement, each seller agreed to indemnify and hold harmless both us and Turnpike, and our respective officers, directors, managers, members and employees, from and against any damages resulting from, arising out of, based on, or relating to any untruth, inaccuracy or breach of representation, warranty, covenant or agreement of the sellers or Turnpike in the Turnpike Purchase Agreement. The indemnification obligations of the sellers are joint and several, except that with respect to covenants made by each seller individually, and representations made by each seller with respect to itself (rather than with respect to Turnpike or the other sellers), each seller will only be liable for damages arising from its own breaches, untruths or inaccuracies.

     In addition, we agreed to indemnify and hold harmless the sellers, their affiliates, and their respective officers, directors and employees, from and against any damages resulting from, arising out of, based on, or relating to any untruth, inaccuracy or breach of representation, warranty, covenant or agreement given or made by us in the Turnpike Purchase Agreement. The representations and warranties made by both sellers and the Company will survive until September 30, 2010, except for certain representations and warranties related to (a) capitalization, (b) tax matters, and (c) authority to enter into and perform their obligations under the Turnpike Purchase Agreement, which representations and warranties will survive until the expiration of the applicable statute of limitation.

     The indemnification obligations described above (except with respect to claims involving fraud, intentional misrepresentation, or inaccuracies in certain key representations and warranties) are limited as follows:

	•		There is a deductible, such that a party is not entitled to recover until its damages exceed $50,000 (in which case it can recover all damages, not just those in excess of $50,000).
	•		The maximum indemnification obligation for both us on the one hand, and the sellers (in the aggregate) on the other hand, is $2.5 million, and our sole recourse for recovering is by setting off against the potential $2.5 million contingent payment to be made to the sellers if they achieve the contingent payment metrics described above for fiscal 2010.

Parties to the Turnpike Acquisition

XATA Corporation

     We are one of the leading providers of fleet management solutions to the truck transportation industry. For detailed information regarding our business please refer to the following sections of our Form 10-K for the fiscal year ended September 30, 2009, each of which is incorporated herein by reference:

	•		Item 1 (Business);
	•		Item 2 (Properties);
	•		Item 3 (Legal Proceedings);
	•		Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations ); and
	•		Item 8 (Financial Statements and Supplementary Data).

Turnpike Entities

Turnpike Business Overview

     Turnpike develops and markets handheld based solutions for the transportation industry. Turnpike was founded in 1999 and maintains its principal executive officers at 2401 Bristol Circle, Suite C-100, Oakville, Ontario L6H 5S9, (877) 376-2188, with additional offices in Buffalo, New York, and San Francisco, California. Turnpike’s RouteTracker products provide to the transportation industry solutions to provide cost savings. RouteTracker was one of the first solutions to fully automate the fuel and mileage tax process required by the International Fuel Tax Agreement (IFTA).

     RouteTracker interacts with various handheld devices using Bluetooth as a wireless in-cab communication medium. The information collected by RouteTracker is made available to the end-user via web-based reporting.

Market Price of and Dividends on Turnpikes Ownership Interests and Related Stockholder Matters

      Market Information. There is currently no established domestic or foreign public trading market for shares of Turnpike Canada or membership interests in Turnpike US (such shares and membership interests, collectively, “Turnpike Ownership Interests”) and we do not expect that such a market will exist. There are currently no outstanding options or warrants to purchase, or securities convertible into any Turnpike Ownership Interests.

      Holders. Immediately before the consummation of the Turnpike Acquisition, common shares of Turnpike Canada were held by approximately 22 holders of record, preferred shares of Turnpike Canada were held by approximately 6 holders of record and 3 persons held membership interests in Turnpike US. As a result of the Turnpike Acquisition, the Company currently holds all Turnpike Ownership Interests.

     No person who is known by us to be the beneficial owner of more than 5% of the Company’s common stock, Company director or director nominee, or Company officer held any Turnpike Ownership Interests at the time of the Turnpike Acquisition and we do not expect to issue any Turnpike Ownership Interests to such persons in the future.

Dividends

     Turnpike has never declared a dividend on any of its common equity.

Securities Authorized for Issuance Under Equity Compensation Plans

     Turnpike does not currently maintain any equity compensation plans.

Management’s Discussion and Analysis of Financial Condition and Results of Operations with Respect to Turnpike

Forward-looking Statements

     Except for the historical information contained herein, the matters discussed in this Management’s Discussion and Analysis are forward-looking statements involving risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. Numerous factors, risks and uncertainties affect Turnpike’s operating results and could cause Turnpike’s actual results to differ materially

from forecasts and estimates or from any other forward-looking statements made by, or on behalf of, Turnpike, and there can be no assurance that future results will meet expectations, estimates or projections.

Critical Accounting Policies

     Accounting policies, methods and estimates are an integral part of Turnpike’s financial statements and are based upon its management’s current judgments. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements. The following is a discussion of what we believe to be the most critical of these policies and methods.

      Revenue Recognition. Turnpike’s revenue is derived by the sale of proprietary hardware systems, software and monthly services. Turnpike recognizes revenue in accordance with FASB Accounting Standards Codification (“ASC”) 605-25 — Revenue Recognition — Multiple Element Arrangements.

     Revenue is recognized under ASC 605-25 when (i) persuasive evidence of an arrangement exists (for example a signed agreement or purchase order), (ii) delivery has occurred, as evidenced by shipping documents or customer acceptance, (iii) the fee is fixed or determinable and payable within twelve months, and (iv) collectability is probable and supported by credit checks or past payment history. Given that the customer does not have the explicit contractual right to take possession of Turnpike’s software at any time during the hosting period, subscriptions are considered a software element accounted for under ASC 605-25.

     With regard to arrangements involving multiple elements accounted for under ASC 605-25, the hardware element must have stand alone value and the monthly service element must have objective and reliable evidence of the fair value. Revenue is allocated based on the fair value of each element as evidenced by vendor specific objective evidence. Such evidence consists primarily of pricing of multiple elements as if sold as separate products or services. When the fair value of any undelivered element included in a multiple-element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered, or until we can objectively determine the fair value of all remaining undelivered elements.

      Allowance for doubtful accounts. Turnpike grants credit to customers in the normal course of business. Credit is extended based on an evaluation of a customer’s financial condition and payment history. Accounts receivable are typically due from customers within 30-60 days and are stated at amounts net of an allowance for doubtful accounts. Turnpike determines the allowance for doubtful accounts by considering a number of factors, including the length of time trade receivables are past due, previous uncollectible history, the customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. Turnpike reserves for these accounts receivable by increasing the allowance for bad debt when they are determined to be uncollectible. Payments subsequently received, or otherwise determined to be collectible, are treated as recoveries that reduce bad debt expense.

      Third Party Reseller Agreements. Turnpike has contracted with two major resellers, one in the US and one in Canada, and various other smaller resellers, collectively the “Resellers”, to allow for them to sell the RouteTracker application in combination with their own communication services. The customer contracts directly with the Resellers for the communication services and RouteTracker application. The customer is billed by and remits all payments to the Resellers. The Resellers then remit a set portion of revenues collected related to the RouteTracker application to Turnpike and retains the remainder as a fee. In accordance with ASC 605-45 — Revenue Recognition - Principal Agent Considerations , Turnpike records the revenue received from the resellers net of the amounts retained by the resellers.

      Capitalized software development costs . Turnpike follows ASC 350-40 — Intangibles — Goodwill and Others — Internal-Use Software , which requires capitalization of certain costs incurred during the development of

internal use software. Product development costs which have not met the capitalization criteria of ASC 350-40 are charged to research and development expense as incurred.

      Income taxes . Income taxes are determined on a country by country basis using the liability method, which requires the recognition of deferred tax liabilities and assets based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect of changes in the tax rates is recognized in the period in which the rate change occurs. At September 30, 2009 and 2008, the net deferred tax asset has was offset by a full valuation allowance, as realization is not considered to be likely based on an assessment of the likelihood of sufficient future taxable income.

Results of Operations of Turnpike For the Years Ended September 30, 2009 and 2008

     The following table sets forth detail related to revenue, cost of goods sold, gross margins, and operating expenses:

		For the Year Ended September 30,
		2009				2008
Revenue		$	5,564,504			$	4,189,688
Cost of goods sold			2,439,973				2,000,826
Gross margin		$	3,124,531			$	2,188,862
Gross margin %			56.2	%			52.2	%
Selling, general and administrative		$	2,828,083			$	2,105,053
Research and development			405,516				365,919
Total operating expenses		$	3,233,599			$	2,470,972
As a percentage of revenue:
Selling, general and administrative			50.8	%			50.2	%
Research and development			7.3	%			8.7	%
Total operating expenses			58.1	%			59.0	%

Revenue

     Overall revenue increased 32.8 percent to $5.6 million for the year ended September 30, 2009 compared to $4.2 million for the year ended September 30, 2008. Revenue increased as the result of significant growth in the U.S. market through a third party reseller.

Cost of Goods Sold and Gross Margin

     Cost of goods sold increased 11.1 percent to $2.4 million for the year ended September 30, 2009 compared to $2.0 million for the year ended September 30, 2008. Gross margin improved 4.0 percentage points for the year ended September 30, 2009 compared to the year ended September 30, 2008. This improvement is the result of an increased number of subscriptions providing better leveraging of the hosted infrastructure.

Operating Expenses

     Total operating expenses were $3.2 million or 58.1 percent of revenue for the year ended September 30, 2009 compared to $2.5 million or 59.0 percent of revenue for the year ended September 30, 2008. Included in operating expenses for fiscal 2009 are non-comparable items of patent litigation settlement of $0.5 million, $0.1 million of investment banking fees and other professional services fees of $0.2 million. Excluding these non-comparable items, operating expenses remained relatively flat compared to fiscal 2008.

Interest Expense

     Interest expense was $0.3 million and $0.2 million for the years ended September 30, 2009 and 2008, respectively. The increase in interest expense was primarily due to increased capital lease obligations in fiscal 2009 in order to support the growth in subscriptions.

Income Taxes

     No income tax benefit or expense was recorded for the years ended September 30, 2009 and 2008 as the result of continued operating losses.

Net Loss

     Turnpike incurred net losses of $0.4 million and $0.5 million for the years ended September 30, 2009 and 2008, respectively.

Liquidity and Capital Resources of Turnpike

     As of September 30, 2009, Turnpike held $0.3 million in cash and cash equivalents and had negative working capital, which is total current assets less total current liabilities, of $1.4 million. This compared to $0.3 million in cash and cash equivalents, and negative working capital of $0.3 million, as of September 30, 2008. The reduction in working capital reflects a $0.5 million increase in current capital lease obligations and $0.5 million of accrued patent litigation settlement.

     Operating activities provided cash of $1.1 million during the year ended September 30, 2009 primarily the result of improved operations, while operating activities used cash of $0.4 million during the year ended September 30, 2008.

     Cash used in investing activities was $0.1 million for the year ended September 30, 2009 as the result of purchases of equipment and leasehold improvements.

     Cash used in financing activities of $1.1 million for the year ended September 30, 2009 included net payments on borrowings of $0.9 million and $0.2 million in redemption of preferred stock.

     In connection with the Turnpike Acquisition, the Turnpike debt facilities were paid in full.

Audited Combined Financial Statements of Turnpike

     The Audited Combined Financial Statements of Turnpike Canada and Turnpike US for the fiscal years ended September 30, 2009 and September 30, 2008 are presented below:

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and
Shareholders of Turnpike Global Technologies, Inc. and

Members of Turnpike Global Technologies LLC

     We have audited the accompanying combined balance sheets of Turnpike Global Technologies, Inc. and Turnpike Global Technologies LLC (together the “Company”) as of September 30, 2009 and 2008, and the related combined statements of operations, changes in shareholders’ and members’ (deficit) equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States of America as established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Turnpike Global Technologies, Inc. and Turnpike Global Technologies LLC as of September 30, 2009 and 2008, and the combined results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Minneapolis, Minnesota
December 23, 2009

Turnpike Global Technologies Inc. and Turnpike Global Technologies LLC
Combined Balance Sheets

		September 30,				September 30,
		2009				2008
ASSETS
Current Assets
Cash		$	319,815			$	311,636
Accounts receivable, net of allowance			960,039				663,093
Inventories			66,127				140,053
Other current assets			2,954				4,407
Total current assets			1,348,935				1,119,189
Property and equipment, net			1,484,806				1,400,915
Capitalized software development costs, net			93,370				178,701
Other assets			4,176				64,517
Total Assets		$	2,931,287			$	2,763,322
LIABILITES AND SHAREHOLDERS’ AND MEMBERS’ (DEFICIT) EQUITY
Current Liabilities
Current portion of long term debt		$	330,211			$	100,054
Current portion of capital leases			1,217,153				756,356
Accounts payable			345,578				310,579
Accrued expenses			859,013				180,614
Loans from shareholders			1,530				60,318
Total current liabilities			2,753,485				1,407,921
Long term debt, net of current portion			84,249				382,406
Capital leases, net of current portion			524,292				806,774
			608,541				1,189,180
Total Liabilities			3,362,026				2,597,101
Shareholders’ and members’ (deficit) equity
Redeemable preferred stock			—				154,107
Redeemable Series A preferred stock			1,161,236				799,648
Common stock			1,368				1,365
Additional paid in capital			801,086				773,380
Members’ capital			1,000				1,000
Accumulated deficit			(2,311,835	)			(1,541,656	)
Accumulated other comprehensive loss			(83,594	)			(21,623	)
Total Shareholders’ and Members’ (Deficit) Equity			(430,739	)			166,221
Total Liabilities and Shareholders’ and Members’ (Deficit) Equity		$	2,931,287			$	2,763,322

The accompanying notes are an integral part of these combined financial statements

Turnpike Global Technologies Inc. and Turnpike Global Technologies LLC
Combined Statements of Operations

		For the Years Ended September 30,
		2009				2008
Revenue		$	5,564,504			$	4,189,688
Costs and expenses
Cost of goods sold			2,439,973				2,000,826
Selling, general and administrative			3,233,599				2,470,972
Total costs and expenses			5,673,572				4,471,798
Operating loss			(109,068	)			(282,110	)
Interest expense			(308,301	)			(207,752	)
Other income (expense)			8,778				(2,965	)
Loss before income taxes			(408,591	)			(492,827	)
Income taxes			—				—
Net loss		$	(408,591	)		$	(492,827	)

The accompanying notes are an integral part of these combined financial statements

Turnpike Global Technologies Inc. and Turnpike Global Technologies LLC
Combined Statements of Cash Flows

		For the Years Ended September 30,
		2009				2008
Operating Activities
Net loss		$	(408,591	)		$	(492,827	)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation			944,788				321,412
Amortization			64,698				112,462
Non-cash commissions expense			27,709				98,523
Changes in assets and liabilities:
Accounts receivable, net of allowance			(306,305	)			(381,534	)
Inventories			62,576				152,354
Other assets			61,178				(53,823	)
Accounts payable			40,178				(194,169	)
Accrued expenses			644,108				57,202
Net cash provided by (used in) operating activities			1,130,339				(380,400	)
Investing activities
Purchase of equipment and leasehold improvements			(50,424	)			(54,575	)
Net cash used in investing activities			(50,424	)			(54,575	)
Financing activities
Borrowings on long-term obligations			175,362				218,758
Payments on long-term obligations			(142,186	)			(74,340	)
Payments on capital lease obligations			(918,798	)			(240,731	)
Issuance of common stock			—				675,122
Issuance of preferred stock			—				282,174
Redemption of preferred stock			(154,107	)			(190,491	)
Net cash provided by (used in) financing activities			(1,039,729	)			670,492
Effects of exchange rate on cash			(32,007	)			(26,207	)
Increase in cash			8,179				209,310
Cash
Beginning			311,636				102,326
Ending		$	319,815			$	311,636
Supplemental disclosures of cash flow information
Cash payments for interest		$	304,417			$	197,326
Supplemental disclosures of noncash investing and financing activities
Assets acquired under capital lease obligation		$	978,255			$	1,611,222
Issuance of note payable to redeem preferred stock			—				50,000
Accretion of redeemable preferred stock			361,588				117,474

The accompanying notes are an integral part of these combined financial statements

Turnpike Global Technologies Inc. and Turnpike Global Technologies LLC
Combined Statements of Changes in Shareholders’ and Members’ (Deficit) Equity

		Redeemable								Redeemable Series A																												Accumulated Other
		Preferred Stock								Preferred Stock								Common Stock								Additional				Members'				Accumulated				Comprehensive
		Shares				Amount				Shares				Amount				Shares				Amount				Paid in Capital				Capital				Deficit				Loss				Total
Balance at September 30, 2007			3,725			$	394,598				—			$	400,000				1,090,925			$	1,100			$	—			$	1,000			$	(931,355	)		$	—				(134,657	)
Redemption of preferred stock			(2,150	)			(240,491	)			—				—				—				—				—				—				—				—				(240,491	)
Issuance of preferred stock			—				—				27,000				282,174				—				—				—				—				—				—				282,174
Preferred stock accretion			—				—				—				117,474				—				—				—				—				(117,474	)			—				—
Issuance of common stock			—				—				—				—				266,855				265				773,380				—				—				—				773,645
Comprehensive loss
Foreign currency translation adjustment																																							(21,623	)			(21,623	)
Net loss																																			(492,827	)			—				(492,827	)
Total comprehensive loss																																											(514,450	)
Balance at September 30, 2008			1,575				154,107				27,000				799,648				1,357,780				1,365				773,380				1,000				(1,541,656	)			(21,623	)			166,221
Redemption of preferred stock			(1,575	)			(154,107	)			—				—				—				—				—				—				—				—				(154,107	)
Preferred stock accretion			—				—				—				361,588				—				—				—				—				(361,588	)			—				—
Issuance of common stock			—				—				—				—				4,526				3				27,706				—				—				—				27,709
Comprehensive loss
Foreign currency translation adjustment																																							(61,971	)			(61,971	)
Net loss																																			(408,591	)			—				(408,591	)
Total comprehensive loss																																											(470,562	)
Balance at September 30, 2009			—			$	—				27,000			$	1,161,236				1,362,306			$	1,368			$	801,086			$	1,000			$	(2,311,835	)		$	(83,594	)		$	(430,739	)

The accompanying notes are an integral part of these combined financial statements

NOTE: The following footnotes to the combined balance sheets and related combined statements of operations, cash flows and changes in shareholders’ and members’ (deficit) equity of Turnpike Global Technologies Inc. and Turnpike Global Technologies LLC have distinct defined terms and should be read separate from the proxy statement.

Note 1. Description of the Business

Turnpike Global Technologies (the “Company”) develops, markets and services fleet management solutions for the private and for-hire fleet segments of the transportation industry. The Company operates in Canada through Turnpike Global Technologies, Inc. and in the United States through Turnpike Global Technologies, LLC. The members of Turnpike Global Technologies LLC own approximately 72% of the shares in Turnpike Global Technologies Inc. The Company’s revenue is derived by the sale or rental of proprietary hardware systems, software and monthly services that capture, analyze and communicate operating information that assists fleet management in improving compliance and improving productivity and efficiency.

Note 2. Subsequent Events

On December 4, 2009, a third party acquired all of the outstanding stock and member interests of the Company in exchange for cash payments of $10 million and a guaranteed payment of 833,333 shares of common stock of the third party (“Acquisition Transaction”). The third party is also obligated to issue up to an additional total of 2,500,000 shares of its common stock subject to certain performance goals of the Company being met over the next three years. The issuance of stock to satisfy the initial guaranteed payment and possible future performance goals related payments is subject to the third party obtaining shareholder approval for the shares. If such shareholder approval is not obtained, the guaranteed payment amount of $2.5 million would be due in cash and any future performance goals related obligations would also be paid in cash and could total up to $7.5 million.

In conjunction with the closing of the Acquisition Transaction, any balances outstanding on the term loans, lines of credit, and loans from shareholders (see Note 5) were paid in full and settlements of the patent infringement claim and minority shareholder claim (see Note 4) were finalized.

The Company has evaluated all subsequent events through December 23, 2009 to ensure that these financial statements and footnotes include appropriate disclosure of events recognized as of September 30, 2009 and events which occurred subsequent to September 30, 2009 but were not recognized in the financial statements.

Note 3. Summary of Significant Accounting Policies

Principles of Combination

The combined financial statements include the accounts of Turnpike Global Technologies Inc. and its affiliated entity Turnpike Global Technologies LLC. All significant intercompany accounts and transactions have been eliminated in combination.

Basis of Presentation

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The combined financial statements for Turnpike Global Technologies are presented in its reporting currency of the U.S. dollar (USD). Turnpike Global Technologies Inc. has a functional currency of the Canadian dollar (CAD$) and Turnpike Global Technologies LLC. has a functional currency of the USD.

Foreign Currency Translation

The financial statements with a functional currency other than the USD have been translated into USD using the current rate method. Assets and liabilities have been translated using the exchange rates at year-end. Income and expense amounts have been translated using the average exchange rates during the year. Translation gains or losses resulting from the changes in exchange rates have been reported as a component of accumulated other comprehensive loss included in the combined statements of shareholders’ and members’ (deficit) equity.

Use of Estimates

The preparation of the Company’s financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company’s revenue is derived by the sale or rental of proprietary hardware systems, software and monthly services. The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 605-25 — Revenue Recognition — Multiple Element Arrangements.

Revenue is recognized under ASC 605-25 when (i) persuasive evidence of an arrangement exists (for example a signed agreement or purchase order), (ii) delivery has occurred, as evidenced by shipping documents or customer acceptance, (iii) the fee is fixed or determinable and payable within twelve months, and (iv) collectability is probable and supported by credit checks or past payment history. Given that the customer does not have the explicit contractual right to take possession of our software at any time during the hosting period, subscriptions are considered a software element accounted for under ASC 605-25.

With regard to arrangements involving multiple elements accounted for under ASC 605-25, the hardware element must have stand alone value and the monthly service element must have objective and reliable evidence of the fair value. Revenue is allocated based on the fair value of each element as evidenced by vendor specific objective evidence. Such evidence consists primarily of pricing of multiple elements as if sold as separate products or services. When the fair value of any undelivered element included in a multiple-element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and/or services have been performed, or until we can objectively determine the fair value of all remaining undelivered elements.

Customer agreements that provide for the rental of the hardware systems do not meet the requirements described in ASC 605-25 and result in the recognition of all revenue ratably over the term of the agreement.

The Company’s revenues are derived by directly contracting with the customer or indirectly through certain resellers for the sales of the RouteTracker application. The customers who contract directly with the reseller for the package of services including the RouteTracker application are billed by and remit all payments to the reseller. The reseller then remits a pre-established portion of the revenues collected related to the RouteTracker application to the Company. In accordance with ASC 605-45 — Revenue Recognition - Principal Agent Considerations , the Company records the revenue received from the resellers net of the amounts retained by the resellers.

Allowance for Doubtful Accounts

The Company grants credit to customers in the normal course of business. Credit is extended based on an evaluation of a customer’s financial condition and payment history. Accounts receivable are typically due from customers within 30-60 days and are stated at amounts net of an allowance for doubtful accounts. The Company determines the allowance for doubtful accounts by considering a number of factors, including the length of time

trade receivables are past due, previous uncollectible history, the customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. The Company reserves for these accounts receivable by increasing the allowance for bad debt when they are determined to be uncollectible. Payments subsequently received, or otherwise determined to be collectible, are treated as recoveries that reduce bad debt expense. The balance of the allowance accounts at September 30, 2009 and 2008 was $42,306 and $30,270, respectively.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable. The Company does not require collateral or other security to support accounts receivable. To reduce credit risk, management performs ongoing evaluations of its customers’ financial condition.

Fair Value of Financial Instruments

Fair Value Hierarchy

ASC 820 — Fair Value Measurement and Disclosures, establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 — Unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The carrying amounts of the Company’s financial instruments, which include cash, accounts receivable, accounts payable and debt obligations, approximate fair value.

Third-Party Reseller Agreements

The Company has contracted with two major resellers, one in the US and one in Canada, and various other smaller resellers, collectively the “Resellers”, to allow for them to sell the RouteTracker application in combination with their own communication services. The customer contracts directly with the Resellers for the communication services and RouteTracker application. The customer is billed by and remits all payments to the Resellers. The Resellers then remit a set portion of revenues collected related to the RouteTracker application to the Company and retains the remainder as a fee.

Major Suppliers

While the current vendor is meeting the Company’s quality and performance expectations, the Company believes that a disruption in the supply of the RouteTracker Electronic On Board Recorder (EOBR) would affect the Company’s ability to deliver finished goods and replacement parts.

Inventories

Inventories consist of finished goods which are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. In fiscal 2008, the Company began purchasing its RouteTracker product from a single manufacturer under the terms of the master lease agreement with Buffalo City Center Leasing, LLC. (BCCL).

Property and Equipment

All property and equipment are stated at cost and depreciated using primarily the straight-line method over the estimated useful lives of approximately 2 to 7 years.

The Company leases RouteTracker systems under the terms of the Master Lease Agreement with BCCL. The terms of each lease agreement qualifies as a capital lease with a twenty seven month term. These leased systems are in turn leased to customers as part of the Company’s product offering. The Company depreciates the related leased assets over twenty seven months using the straight-line method. The Company’s total leased equipment had net balances of $1,313,326 and $1,305,098 as of September 30, 2009 and 2008, respectively.

Property and equipment consists of:

		September 30,				September 30,
		2009				2008
Equipment		$	138,180			$	93,361
Vehicles			34,966				34,966
Computer software			80,751				17,110
Leased equipment			2,531,705				1,611,222
Leasehold improvements			5,723				5,987
			2,791,325				1,762,646
Less: accumulated depreciation			(1,306,519	)			(361,731	)
Property and equipment, net		$	1,484,806			$	1,400,915

Depreciation expense for the years ended September 30, 2009 and 2008 was $944,788 and $321,412, respectively.

Capitalized Software Development Costs

The Company follows ASC 350-40 — Intangibles — Goodwill and Others — Internal-Use Software , which requires capitalization of certain costs incurred during the development of internal use software. As of September 30, 2009 and 2008 there were $93,370 and $178,701 of remaining unamortized costs, respectively.

Product development costs which have not met the capitalization criteria of ASC 350-40 are charged to research and development expense as incurred.

Long-Lived Assets

The Company reviews and evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the present value of expected future cash flows associated with the use of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Income Taxes

Income taxes are determined on a country by country basis using the liability method, which requires the recognition of deferred tax liabilities and assets based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect of changes in the tax rates is recognized in the period in which the rate change occurs.

At September 30, 2009 and 2008, the net deferred tax asset has was offset by a full valuation allowance, as realization is not considered to be likely based on an assessment of the likelihood of sufficient future taxable income.

Research and Development

Research and development costs are expensed as incurred, and were approximately $406,000 and $366,000 for the years ended September 30, 2009 and 2008, respectively, and are included in selling, general and administrative expenses in the accompanying combined statements of operations.

Advertising Expense

Advertising costs are expensed as incurred. Advertising costs for the years ended September 30, 2009 and 2008 were approximately $60,000 and $66,000, respectively, and are included in selling, general, and administrative expenses in the accompanying combined statements of operations.

Shipping and Handling Costs

Shipping and handling billed to customers are included in revenue and corresponding costs incurred are recorded as a cost of sales. Shipping and handling costs were approximately $72,000 and $61,000 for the years ended September 30, 2009 and 2008, respectively.

Note 4. Commitments and Contingencies

Leases

The Company leases office facilities and automobiles under noncancelable operating leases. As of September 30, 2009, future minimum rental payments under these operating leases are as follows:

Year ending September 30,
2010		$	140,823
2011			86,042
2012			32,400
2013			5,400
2014			—
Thereafter			—
Total		$	264,665

Total rent expense for the years ended September 30, 2009 and 2008 was approximately $141,000 and $145,000, respectively.

Litigation and Claims

The Company was named as one of several defendants in a patent infringement lawsuit filed during fiscal 2009. The Company accrued $500,000 during fiscal 2009 as an estimate of legal and settlement expenses related to this matter. In conjunction with the Acquisition Transaction (see Note 2), the lawsuit was settled for a payment of $500,000.

The Company was also named as a defendant in a lawsuit filed in November 2009 by a minority shareholder making various claims. In December 2009, the minority shareholder reached a settlement agreement whereby he sold his shares and released the Company from any potential litigation. There was no impact on the fiscal 2009 financial statements as the result of the settlement. The Company is not aware of any other litigation or claims that it believes will have a material impact on the Company’s business or financial condition.

Note 5. Financing Arrangements

Capitalized Leases

The Company entered into a Master Lease Agreement with Buffalo City Center Leasing, LLC (“BCCL”) effective October 1, 2007 for financing of certain equipment used in the Company’s product offerings. The Master Lease Agreement has a term of 3 years with a renewal option for an additional 3 year term and is subject to a minimum quantity of systems that must be purchased. Leases under the Master Lease Agreement have a term of twenty seven months and effective interest rates of between 16.1% and 16.5% with monthly payments including principal and interest. The balance of the Company’s capital lease obligation was $1,696,701 at September 30, 2009 and $1,563,131 at September 30, 2008.

The Company also entered into secured leasing arrangements with Dell Financial Services (“Dell”) consisting of two $32,812 (CAD$) obligations. The effective interest rate is 13.99% on each lease obligation and payments of $1,575 (CAD$) on each lease are payable monthly and the leases mature in December 2010 and June 2011. The balance of these lease obligations in USD at September 30, 2009 was $44,744.

Obligations under capital leases consist of the following:

Year ending September 30,
2010		$	1,217,153
2011			481,028
2012			43,264
2013			—
2014			—
Total minimum lease payments			1,741,445
Total interest payments			153,953
Total future payments due under capital leases		$	1,895,398

Term Loans

In connection with the financing of inventory production in fiscal 2007, the Company entered into a one year secured credit facility with LARR Engineering Prototypes (“LARR”) consisting of a $250,000 (CAD$) term loan bearing interest at a fixed rate of 17.5%. Interest only payments of $3,646 (CAD$) are payable monthly. The original maturity date was November 2008, however, the agreement allows for a renewal of additional yearly terms. The Company extended the term of the loan to November 2009. The principal amount is classified as current in the fiscal 2009 financial statements due to the terms of the agreement. The balance of the loan in USD at September 30, 2009 and 2008 was $230,275 and $240,900, respectively. Any outstanding balance was paid in full at the closing of the Acquisition Transaction (see Note 2).

In connection with financing operations, the Company entered into a secured credit facility with Business Development Bank of Canada (“BDC”) consisting of a $250,000 (CAD$) term loan bearing interest at a variable base rate plus 2.00% per annum. The effective interest rate at September 30, 2009 and 2008 was 6.25% and 8.75%, respectively. The loan is repayable in monthly payments of $4,165 (CAD$), including principal and interest, and matures in March 2012. The balance of the loan in USD at September 30, 2009 and 2008 was $115,091 and $168,563, respectively. Any outstanding balance was paid in full at the closing of the Acquisition Transaction (see Note 2).

In connection with the purchase of an automobile, the Company entered into a six year and three month secured credit facility with Bank of America (“BOFA”) consisting of a $34,916 term loan bearing interest at a fixed rate of 8.25%. Principal plus interest payments of $599 are payable monthly and the term loan matures in February 2013. The balance of this loan at September 30, 2009 and 2008 was $20,849 and $26,312, respectively. The loan is secured by the automobile. Any outstanding balance was paid in full at the closing of the Acquisition Transaction (see Note 2).

Lines of Credit

The Company maintains a revolving line of credit with HSBC Bank (“HSBC”) with a credit line up to $50,000 bearing interest at a variable monthly rate and due on demand. The effective interest rate at September 30, 2009 and 2008 was 5.25% and 7.25%, respectively. The balance of this line of credit at September 30, 2009 and 2008 was $48,245 and $46,685, respectively, and is classified as current liability in the financial statements. Any outstanding balance was paid in full at the closing of the Acquisition Transaction (see Note 2).

The Company maintains a revolving line of credit with HSBC Bank (“HSBC”) with a credit line up to $125,000 (CAD$) bearing interest at a variable monthly rate and due on demand. There was no outstanding balance as of September 30, 2009 and 2008.

Loans from Shareholders

The Company had entered into unsecured credit facilities with various shareholders. These loans consist primarily of a $50,000 (CAD$) term loan to an individual shareholder, related to the redemption of this shareholder’s preferred shares, bearing interest at a fixed rate of 12.00% per annum. Principal plus interest payments of $3,000 (CAD$) are payable monthly and the note matured in October 2009. The balance of the loan in USD at September 30, 2009 and 2008 was $887 and $33,359, respectively. The remaining loans were to various shareholders with insignificant outstanding balances. The total balance of loans from shareholders at September 30, 2009 and 2008 was $1,530 and $60,318, respectively. Any outstanding balance was paid in full at the closing of the Acquisition Transaction (see Note 2).

Long-term obligations and notes payable consist of the following:

		September 30,				September 30,
		2009				2008
Capitalized leases		$	1,741,445			$	1,563,130
Term loans			366,215				435,775
Lines of credit			48,245				46,685
Loans from shareholders			1,530				60,318
Total long-term obligations			2,157,435				2,105,908
Less current portion of long-term obligations			(1,548,894	)			(916,728	)
Total long-term obligations, net of current portion		$	608,541			$	1,189,180

The aggregate schedule of maturities of long-term obligations subsequent to September 30, 2009 is as follows:

Year ending September 30,
2010		$	1,548,894
2011			533,205
2012			72,948
2013			2,388
2014			—
Total		$	2,157,435

Note 6. Shareholders’ and Members’ (Deficit) Equity

Redeemable Preferred Stock

The Company had issued shares of redeemable preferred stock in 2002 and 2003. The Company had redeemed all of the shares except 3,725 shares that were outstanding at September 30, 2007. The Company redeemed 1,575 shares for $154,107 in fiscal 2009 and redeemed 2,150 shares for $240,491 in fiscal 2008. There are no shares of this preferred stock outstanding at September 30, 2009.

Redeemable Series A Preferred Stock

The Company issued 27,000 shares of Redeemable Series A Preferred Stock to key employees and investors during fiscal 2008. The shares were issued at $50 (CAD$) or $50 (USD) per share, of which $400,000 (USD) was contributed in fiscal 2007, and are redeemable at the option of the Shareholder on a date which is at least five

years after the date on which such shares were issued at $100 per share in the same currency as purchased. In connection with the Series A Preferred Stock issuance, the Company issued 190,119 common shares with an estimated value of $7.41 (CAD$) per share. The Company allocated $674,926 of the Series A Preferred Stock proceeds to additional paid in capital to reflect the estimated value of the common stock included in the transaction and the other $682,174 was allocated to the Series A Preferred Stock. The balance of the redeemable preferred stock is being accreted to its redemption value on a straight-line basis over a 5 year period.

Common Stock

Turnpike Global Technologies Inc. has 1,362,306, 1,357,780 and 1,090,925 common shares issued and outstanding at September 30, 2009, 2008 and 2007, respectively, with a par value of $.001 (CAD$) per share. During fiscal 2009, the Company issued 4,526 shares of common stock valued at approximately $28,000 as compensation to a key employee. During fiscal 2008, the Company issued 190,119 shares of common stock in connection with the Series A Preferred Stock issuance, 13,578 shares of common stock valued at approximately $99,000 as compensation to three key employees, and 5,455 shares of common stock to an individual and 57,703 shares of common stock to BCCL valued at $.001 per share.

Note 7. Related Parties

As of September 30, 2009 and 2008, accounts payable included $150,869 and $95,751, respectively, due to distribution and consulting companies whose owners also have ownership interests in the Company.

As of September 30, 2009 and 2008, accounts receivable included $9,955 and $19,060, respectively, due from companies whose owners also have ownership interests in the Company.

The Company’s capital lease obligations of $1,696,701 and $1,563,131 at September 30, 2009 and 2008, respectively, are due to BCCL whose owners also have ownership interests in the Company.

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

We have issued our report dated December 23, 2009, with respect to the combined financial statements of Turnpike Global Technologies Inc. and Turnpike Global Technologies LLC included in this Proxy Statement. We hereby consent to the incorporation by reference of said report in the Registration Statements of XATA Corporation on Forms S-8 (File Nos. 333-158785, 333-140741, 333-132247, 333-113025, 333-85584, 333-59214, 333-28337, 333-03670, 33-94006, 33-89222, and 33-74148) and Forms S-3 (File Nos. 333-158776, 333-145279, 333-132246,
333-113016, 333-111798, 333-111797, and 333-82905).

/s/ Grant Thornton LLP

Minneapolis, Minnesota
January 12, 2010

XATA Corporation
and
Turnpike Global Technologies

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

On December 4, 2009, the Company acquired all of the outstanding equity of Turnpike Global Technologies, Inc. and all membership interest in Turnpike Global Technologies LLC (combined “Turnpike”) for a total purchase price consisting of $10.0 million in cash and 833,333 shares of common stock of the Company. The issuance of common shares is contingent on the approval by the shareholders at the Annual Meeting. Additionally, the Company has committed to pay out up to an additional 2,500,000 shares of common stock, subject to shareholder approval at the Annual Meeting and achievement by Turnpike of certain performance goals over the next three fiscal years. If shareholder approval of the issuances described above is not obtained, the Company will instead be required to satisfy any such obligation in cash assuming a per share value of $3.00 for the common stock of the Company.

Turnpike’s RouteTracker products allow us to continue our growth strategy by expanding our addressable market to include small and medium-size fleets in North America and key vertical markets, such as Less Than Truckload (LTL), and the automation of fuel tax reporting.

In connection with financing the acquisition of Turnpike, the Company issued convertible debt totaling $30.2 million. The convertible debt will be converted into 10,066,667 shares of Series G Preferred Stock and 3,020,000 warrants to purchase common shares subject to shareholder approval at the Annual Meeting. The convertible debt carries an interest rate of 14% per annum and the principal and interest are due on November 1, 2010, if not converted prior to such date. The Company used proceeds of the convertible debt towards the purchase of Turnpike, to pay off the term loan with PFG of $8.0 million and to pay a litigation settlement. The remaining proceeds will be utilized in working capital needs and future growth.

Considering the degree of certainty of the required shareholder approvals and conversion of the convertible debt instruments into shares of Series G Preferred Stock and warrants, the Company applied equity treatment to this convertible debt and the shares to be issued to the sellers of Turnpike as of the date of the transaction for purposes of this pro forma financial information.

The Company has hired a third-party independent valuation firm to assist in determining the fair value of the assets acquired and liabilities assumed, including identifying the value of intangible assets that existed at the date of the acquisition of Turnpike. Under the purchase method of accounting, the total estimated consideration as shown in the table below is allocated to Turnpike’s tangible and intangible assets and liabilities based on their estimated fair values as of September 30, 2009 for purposes of illustrating the unaudited pro forma consolidated balance sheet. The estimated consideration is allocated as follows (in thousands):

Cash						$	10,000
Stock							2,500
Earn-Out (1)							6,300
Total purchase price						$	18,800
Cash		$	320
Accounts receivable, less allowances for doubtful accounts			960
Inventories			66
Prepaid expenses			3
Equipment and leasehold improvements, net			1,485
Accounts payable			(345	)
Accrued expenses			(905	)
Capital lease obligations			(1,741	)
Net liabilities							(157	)
Acquired customer contracts and other intangible assets, net							6,500
Goodwill							12,457
Total						$	18,800