Document:

exv10w2

EXCHANGE AGREEMENT

     This Exchange Agreement (the “Agreement”) is made as of the 12th day of
February, 2009, by and among Xata Corporation, a Minnesota corporation (the “Company”) and
each of those persons and entities, severally and not jointly, listed as a Purchaser on the
Schedule of Purchasers attached as Exhibit A hereto (each, a “Purchaser” and collectively, the
“Purchasers”).

WITNESSETH:

     WHEREAS, the Purchasers are parties with the Company to that certain Common Stock Warrant and
Series E Preferred Stock Purchase Agreement dated as of the date hereof (the “Series E Purchase
Agreement”) pursuant to which the Company issued and sold to the Purchasers all of the outstanding
shares of Series E Preferred Stock of the Company (the “Series E Preferred Stock”) and warrants to
purchase shares of the Company’s common stock (“Common Stock”).

     WHEREAS, upon the terms and subject to the conditions contained in this Agreement, the Company
wishes to issue to the Purchasers shares of newly issued Series F Preferred Stock of the Company
(the “Series F Preferred Stock”) and the Purchasers wish to transfer all the outstanding shares of
Series E Preferred Stock held thereby to the Company in exchange therefor in a transaction exempt
from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended (the
“Securities Act”).

     WHEREAS, prior to the Closing, the Company will have (i) amended the articles of incorporation
of the Company (the “Articles of Incorporation”), in substantially the form of Exhibit B hereto
(the “Articles Amendment”), and (ii) filed with the Secretary of State of the State of Minnesota a
certificate of designations of the Series F Preferred Stock, in substantially the form of Exhibit C
hereto (the “Series F Certificate”).

     WHEREAS, the shares of Series F Preferred Stock to be issued pursuant to this Agreement (the
“Series F Shares”) will be convertible into shares of Common Stock (the “Conversion Shares” and,
together with the Series F Shares, the “Securities”).

     NOW THEREFORE, in consideration of the covenants and agreements set forth herein, the parties
agree as follows:

     SECTION 1. EXCHANGE OF PREFERRED STOCK

     1.1. The Exchange. Upon the terms and subject to the conditions contained in this
Agreement, at the Closing, each Purchaser and the Company shall exchange each outstanding share of
Series E Preferred Stock held by such Purchaser for one share of Series F Preferred Stock. The
Conversion Price per share of Series F Preferred Stock initially shall be equal to the Conversion
Price of the Series E Preferred Stock (as such term is defined in the certificate of designations
of the Series E Preferred Stock) at the Closing Date. The exchange of all outstanding shares of
Series E Preferred Stock held by the Purchasers for shares of Series F Preferred Stock is referred
to herein as the “Exchange.”

 

 

     1.2. The Closing. The closing of the transactions contemplated hereby (the “Closing”)
shall take place at the offices of Faegre & Benson LLP, 2200 Wells Fargo Center, Minneapolis,
Minnesota, no later than the third business day following the satisfaction (or waiver) of all the
conditions set forth in Sections 5 or 6, or at such other time or place or on such other date as
the Company and the Purchasers holding a majority of the Series E Preferred Stock may mutually
determine (such date, the “Closing Date”).

     1.3. Deliveries at the Closing. At the Closing, the Company shall deliver to each
Purchaser a certificate or certificates representing the shares of Series F Preferred Stock to be
issued to such Purchaser, registered in the name of such Purchaser, against receipt at the Closing
by the Company from such Purchaser of a certificate or certificates for the shares of Series E
Preferred Stock to be exchanged by such Purchaser duly endorsed for delivery by such Purchaser or
accompanied by an assignment separate from the certificate in form satisfactory to the Company and
duly executed by such Purchaser.

     SECTION 2. PRE-CLOSING COVENANTS

     2.1 Proxy Statement. As promptly as practicable after the date of this Agreement, the
Company shall prepare and cause to be filed with the Securities Exchange Commission (the “SEC”) a
proxy statement (the “Proxy Statement”) in connection with a special or annual meeting of
shareholders of the Company for the purpose of considering and taking action with respect to
approving the Articles Amendment (the “Company Shareholders Meeting”). The Company shall use all
reasonable efforts to cause the Proxy Statement to comply with the rules and regulations
promulgated by the SEC and to respond promptly to any comments of the SEC. The Company will use
all reasonable efforts to cause the Proxy Statement to be mailed to the Company’s shareholders.

     2.2 Shareholders Meeting. The Company’s board of directors (the “Board”) has
determined to recommend that the Company’s shareholders approve the Articles Amendment and to
include a statement to that effect in the Proxy Statement and in any additional soliciting
materials relating to the Company Shareholders Meeting (the “Company Board Recommendation”). The
Company will, within 90 days after the date hereof, in accordance with its articles of
incorporation and bylaws, and with applicable law (including the Minnesota Business Corporation Act
and the rules and regulations of the SEC and the NASDAQ stock market), duly call, give notice of,
and convene and hold the Company Shareholders Meeting, regardless of whether the Company Board
Recommendation is later withdrawn or modified in a manner adverse to the Purchasers. Except to the
extent the Board determines on advice of counsel to be restricted from doing so by its fiduciary
duties to the shareholders of the Company under applicable law, (i) the Board will include the
Company Board Recommendation in the Proxy Statement and in any additional soliciting materials
relating to the Company Shareholders Meeting, (ii) the Company Board Recommendation shall not be
withdrawn or modified in a manner adverse to the Purchasers, and no resolution by the Board or any
committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to the
Purchasers shall be adopted, and (iii) the Company will use commercially reasonable efforts to
solicit and obtain approval of the Articles Amendment.

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     2.3 Reasonable Best Efforts. Subject to the terms and conditions of this Agreement,
each of the Company and each Purchaser agrees to use its reasonable best efforts in good faith to
take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or desirable, or advisable under applicable law, so as to permit consummation of the
transactions contemplated hereby as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby, and will cooperate fully with the other parties hereto to
that end.

     SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to the Purchasers as of the date hereof and as of the
Closing as follows:

     3.1. Power. Approval of the shareholders of the Company is required before the
Company may execute and file with the Secretary of State of Minnesota the Articles Amendment, and
such filing is required before the Company may execute and file with the Secretary of State of
Minnesota the Series F Certificate. Except as set forth in the preceding sentence, the Company has
all requisite power and authority (i) to execute and deliver this Agreement, and all other
certificates, instruments and other documents executed and delivered by the Company at the Closing
pursuant to Section 5 hereof (collectively, together with the Articles Amendment and the Series F
Certificate, the “Transaction Documents”) and (ii) to carry out and perform its obligations
hereunder and thereunder. Upon receipt of all requisite approval of the shareholders of the
Company, the Company will have all requisite power and authority to execute and file with the
Secretary of State of Minnesota the Articles Amendment and (after such filing) the Series F
Certificate.

     3.2 Authorization of Securities. Upon such time as (i) the Articles Amendment has
been approved by the necessary vote of the Company’s shareholders, (ii) the Series F Certificate is
filed with the Minnesota Secretary of State and (iii) the Series E Shares have been exchanged for
Series F Shares in accordance with this Agreement, the Series F Shares will have been validly
issued, fully paid and non-assessable. Upon such time as the Conversion Shares have been issued in
accordance with the Series F Certificate, such Conversion Shares will have been validly issued,
fully paid and non-assessable. The Conversion Shares have been reserved for issuance by the
Company.

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

     3.4 Due Authorization, Execution and Delivery. This Agreement has been duly
authorized, executed and delivered by the Company. Except as described by the first sentence of
Section 3.1 (including calling the shareholder meeting and solicitation of proxies therefor), all
corporate action on the part of the Company and its directors and officers necessary for the
authorization, execution and delivery of this Agreement, the performance of all the Company’s

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obligations hereunder and thereunder and for the authorization, issuance or reservation for
issuance, sale and delivery of the Securities has been taken. This Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and
the relief of debtors, (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies, and (iii) the limitations imposed by applicable law or public policy on
provisions relating to indemnity or contribution.

     3.5 No Conflicts. The execution, delivery and performance of this Agreement, and the
issuance and sale of the Securities, will not conflict with, or result in a breach or violation of
(i) after the taking of the actions described by the first sentence of Section 3.1, any of the
terms and provisions of the charter or bylaws of the Company or any Subsidiary, (ii) any statute,
rule, regulation or order of any governmental agency or body, any court, domestic or foreign, or
any self-regulatory organization having jurisdiction over the Company or any Subsidiary or any of
their respective properties, or (iii) any of the terms and provisions of, or constitute a default
(with or without notice or lapse of time) under, or give to any third party a right of termination,
amendment, acceleration or cancellation (with or without notice or lapse of time) of, any agreement
or instrument to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of the properties of the Company or any Subsidiary is subject.
Except as described by the first sentence of Section 3.1, the Company has full power and authority
to authorize, issue and sell the Securities and conduct the Exchange as contemplated by this
Agreement.

     3.6 No Registration. Subject to the accuracy of each of the Purchaser’s
representations herein, it is not necessary in connection with the offer, sale and delivery of the
Securities to the several Purchasers in the manner contemplated by this Agreement, the Articles
Amendment and the Series F Certificate to register the Securities under the Securities Act of 1933,
as amended or to qualify the Company’s issuance of the Securities under applicable state securities
laws.

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

     3.8 Nasdaq Compliance. Upon the Exchange and the issuance of the Series F Shares and
the Conversion Shares the Company will be in compliance with the continued listing and maintenance
requirements of The Nasdaq Capital Market.

     3.9 No Integration or General Solicitation. Neither the Company nor any affiliate (as
defined in Rule 501(b) of Regulation D under the Securities Act) (an “Affiliate”) of the Company
has, directly, or through any agent, (a) sold, offered for sale, solicited any offers to buy or
otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or
will be integrated with the sales of the Securities in a manner that would require the registration
under the Securities Act of the Securities; or (b) offered, solicited offers to buy or sold the
Securities in any form of general solicitation or general advertising (as those terms are used in

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Regulation D under the Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act; and the Company will not engage in any of the
actions described in subsections (a) and (b) of this paragraph.

     SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

     Each of the Purchasers severally, and not jointly, represents and warrants to the Company as
of the date hereof and as of the Closing as follows:

     4.1 Investor Qualifications.

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

     (b) Purchaser is acquiring the Securities being acquired by Purchaser pursuant to this
Agreement in the ordinary course of its business and for its own account for investment only and
with no present intention of distributing any of such Securities or any arrangement or
understanding with any other persons regarding the distribution of such Securities, except in
compliance with Section 4.1(c).

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

     (d) Purchaser is, and at the Closing Date will be, an “accredited investor” within the meaning
of Rule 501 of Regulation D promulgated under the Securities Act.

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

     4.3 Title to Series E Preferred Stock. Purchaser is the record owner of and has (or,
upon the closing of the Series E Purchase Agreement, will be the record owner of and will have),
and on the Closing Date will have, valid and legal title to all shares (and only those shares) of
Series E Preferred Stock purchased by it pursuant to the Series E Purchase Agreement, free and
clear of all pledges, liens, encumbrances and adverse claims.

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     SECTION 5. CONDITIONS TO CLOSING OF THE PURCHASERS

     Each Purchaser’s obligation to consummate the Exchange at the Closing is subject to the
fulfillment at or prior to the Closing of the following conditions:

     5.1. Representations and Warranties Correct. The representations and warranties made
by the Company in Section 3 that are qualified by materiality shall be true and correct, and the
representations and warranties made by the Company in Section 3 not so qualified shall be true and
correct in all material respects, when made and as of the time of the Closing with the same force
and effect as if made at such time, other than such representations and warranties as are expressly
stated to be made as of another date, which shall be true and correct in all material respects as
of such date.

     5.2. Covenants. All covenants, agreements and conditions contained in this Agreement
to be performed by the Company at or prior to the Closing shall have been performed or complied
with in all material respects.

     5.3. Legal Opinion. Such Purchaser shall have received from Faegre & Benson LLP,
counsel to the Company, an opinion addressed to each of the Purchasers, dated the Closing Date, in
substantially the form of Exhibit D attached hereto.

     5.4. Shareholder Approval. The Company’s shareholders shall have duly and validly
approved of the Articles Amendment.

     5.5. Articles Amendment. Such Purchaser shall have received satisfactory confirmation
of the filing with the Secretary of State of Minnesota of the Articles Amendment.

     5.6. Series F Certificate. Such Purchaser shall have received satisfactory
confirmation of the filing with the Secretary of State of Minnesota of the Series F Certificate.

     5.7. No Actions. No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction preventing the consummation of the
transactions contemplated by this Agreement shall be in effect. In addition, no suit, government
investigation, action or other proceeding shall be pending or threatened against the Company before
any court, administrative or regulatory agency or commission or other governmental authority or
agency which, in the reasonable opinion of counsel for such Purchaser, would be likely to restrain
or prohibit consummation of the transactions contemplated hereby or result in damages or other
relief being obtained from such Purchaser.

     SECTION 6. CONDITIONS TO CLOSING OF THE COMPANY

     The Company’s obligation to consummate the Exchange at the Closing is subject to the
fulfillment at or prior to the Closing of the following conditions:

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     6.1. Representations and Warranties Correct. The representations and warranties made
by the Purchasers in Section 4 of this Agreement shall be true and correct in all material respects
as of the time of Closing with the same force and effect as if made as of such time, other than
such representations and warranties as are expressly stated to be made as of another date which
shall be true and correct in all material respects as of such date.

     6.2. Covenants. All covenants, agreements and conditions contained in this Agreement
to be performed by the Purchasers at or prior to the Closing shall have been performed or complied
with in all material respects.

     6.3. Shareholder Approval. The Articles Amendment shall have received the requisite
approval of the Company’s shareholders, and the Articles Amendment and the Series F Certificate
shall have been filed with the Secretary of State of Minnesota.

     6.8 Simultaneous Closing. Each of the Purchasers shall simultaneously consummate the
Exchange.

     SECTION 7. TERMINATION

     7.1. Termination. This Agreement may be terminated and the Exchange contemplated
hereby may be abandoned at any time prior to the Closing Date:

     (a) by any party hereto, by giving written notice to the other parties hereto, if any
governmental entity with jurisdiction over such matters shall have issued an order restraining,
enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such Order
shall have become final and non-appealable; provided, however, that the provisions
of this Section 7.1(a) shall not be available to the Company or the Purchasers unless the Company
or such Purchasers, as the case may be, shall have used their reasonable best efforts to oppose any
such order or to have such order vacated or made inapplicable to the transactions contemplated by
this Agreement; or

     (b) by any of the parties hereto, by giving written notice to the other parties, if (i) the
Closing shall not have occurred on or prior to the 90th day after the date of this
Agreement, or (ii) the shareholders of the Company shall have voted against the Articles Amendment
at a duly held meeting of the shareholders of the Company; provided that the terminating
party is not in material breach of its obligations under this Agreement.

     7.2. Effect on Obligations. Termination of this Agreement pursuant to this Section 7
shall terminate all obligations of the parties hereunder, except for the obligations under Sections
8.1, 8.5, and 8.8; provided, however, that nothing herein shall relieve the
defaulting or breaching party from any liability to the other party hereto.

     SECTION 8. MISCELLANEOUS

     8.1. Survival. Notwithstanding any investigation made by any party to this Agreement,
all covenants, agreements, representations and warranties made by the Company and each Purchaser
herein shall survive the execution of this Agreement and the Closing for a period of two years
following the Closing Date.

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     8.2. Further Assurances. At any time or from time to time after the Closing, each
party hereto agrees to cooperate with each other, and at the request of any other party, to execute
and deliver any further instruments or documents and to take all such further action as any other
party may reasonably request in order to evidence or effectuate the consummation of the
transactions contemplated hereby and by the other Transaction Documents and to otherwise carry out
the intent of the parties hereunder and thereunder.

     8.3. Successors and Assigns. This Agreement shall bind and inure to the benefit of
the Company and each of the Purchasers and the respective successors, assigns, heirs and personal
representatives of the Company and each of the Purchasers. Prior to the Closing, the Purchasers
may not assign their right or obligation under this Agreement to acquire shares of Series F
Preferred Stock.

     8.4. Entire Agreement. This Agreement, the Series E Purchase Agreement and the
documents referred to herein or therein (and/or delivered pursuant hereto or thereto) contain the
entire agreement among the parties with respect to the subject matter hereof and supersede all
prior and contemporaneous arrangements, understandings or representations by or among the parties
hereto, written or oral, to the extent they relate in any way to the subject matter hereof.

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

	 	(a)	 	if to the Company, to:

XATA Corporation

965 Prairie Center Drive

Eden Prairie, MN 55344

Attention: Chief Financial Officer

Facsimile: 952-641-5848

Email: mark.ties@xata.com

with a copy so mailed to:

Faegre & Benson LLP

2200 Wells Fargo Center

Minneapolis, MN 55402

Attention: Michael Coddington

Facsimile: (612) 766-1600

Email: mcoddington@faegre.com

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

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

     8.6. Counterparts. This Agreement may be executed in any number of counterparts, and
each such counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.

     8.7. Titles and Subtitles. The titles and subtitles used in this Agreement are used
for convenience only and are not considered in construing or interpreting this Agreement.

     8.8. Governing Law; Waiver of Jury Trial. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota without giving effect to the
principles of conflict of laws. Each of the parties irrevocably and unconditionally waives, to the
fullest extent permitted by applicable law, any and all rights to trial by jury in connection with
any dispute arising out of or relating to this Agreement or the transactions contemplated hereby.

     8.9. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid, but if any provision of this Agreement is
held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not
render invalid or unenforceable any other provision of this Agreement.

     8.10 Waivers and Amendments. Neither this Agreement nor any provision hereof may be
changed, waived, discharged, terminated, modified or amended except upon the written consent of the
Company and holders of at least a majority of the shares of Series E Preferred Stock or Series F
Preferred Stock, as the case may be, then held by the Purchasers (including any shares of Common
Stock issued upon conversion of such shares and then held by the Purchasers).

[Signature page follows]

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     IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be executed by
their duly authorized representatives as of the day and year first above written.

	 	 	 	 	 
	COMPANY:

XATA CORPORATION

 	 
	By:  	 	 
	 	Wesley C. Fredenburg 	 
	 	General Counsel 	 
	 

PURCHASERS:

 

John J. Coughlan

 

Mark E. Ties

 

David A. Gagne

 

Robert Maeser

 

Wesley C. Fredenburg

Trident Capital Fund-V, L.P.

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

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

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

Trident Capital Parallel Fund-V, C.V.

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

 

Name printed:

GW 2001 Fund, L.P.

Weber Capital Partners II, L.P.

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

 

Name printed:

[Exchange Agreement]

 

 

EXHIBIT A

SCHEDULE OF PURCHASERS

Purchaser

Trident Capital Fund-V, L.P.

505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301

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

505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301

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

505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301

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

505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301

Trident Capital Parallel Fund-V, C.V.

505 Hamilton Avenue, Suite 200

Palo Alto, CA 94301

GW 2001 Fund, L.P.

Weber Capital Management, LLC

340 Pine St., Suite 300

San Francisco, CA 94104-3235

Weber Capital Partners II, L.P.

Weber Capital Management, LLC

340 Pine St., Suite 300

San Francisco, CA 94104-3235

John J. Coughlan

965 Prairie Center Drive

Eden Prairie, MN 55344

Mark E. Ties

965 Prairie Center Drive

Eden Prairie, MN 55344

David A. Gagne

965 Prairie Center Drive

Eden Prairie, MN 55344

Robert Maeser

965 Prairie Center Drive

Eden Prairie, MN 55344

Wesley C. Fredenburg

965 Prairie Center Drive

Eden Prairie, MN 55344

 

 

EXHIBIT B

ARTICLES AMENDMENT

 

 

EXHIBIT C

SERIES F CERTIFICATE OF DESIGNATIONS

 

 

EXHIBIT D

OPINION OF FAEGRE & BENSON LLPEX-10.11

EXHIBIT 10.11

January 22, 2009

Mr. A.J. Kazimi

712 Overton Park

Nashville, Tennessee 37215

Re: Employment of A.J. Kazimi as Chief Executive Officer by Cumberland Pharmaceuticals Inc.

Dear A.J.:

Effective January 1st, 2009, this letter agreement (the “Agreement”) will evidence the
terms and conditions under which you will be employed by Cumberland Pharmaceuticals Inc. (the
“Company”). In consideration of your appointment as Chief Executive Officer of the Company, and
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:

1. Compensation. The Company agrees to compensate you as follows:

(a) The Company agrees to pay you on a salary basis for services performed based on an annual rate
of three hundred sixty-six thousand dollars ($366,000.00), payable in arrears in equal monthly
installments on the last day of each calendar month during the term of this Agreement.

(b) You will be eligible to participate in any Company-wide employee benefits as approved by the
Board of Directors. The terms of your eligibility and participation will be governed by the
provisions of the employee benefit plans, as such plans may be amended from time to time in the
discretion of the Company’s Board of Directors.

(d) You may be eligible for any Company bonus program, based upon performance in meeting your
individual objectives and the Company’s overall performance, both as determined and approved by the
Board of Directors of the Company. Any such bonus will be discretionary and will be subject to the
terms of the applicable bonus program, the terms of which program may be modified from year to year
in the sole discretion of the Company’s Board of Directors.

(e) You will receive a grant of options, as set forth in Exhibit A, to purchase Cumberland
common shares pursuant to an option agreement. Such options will be subject to the option
agreement and the terms set forth in the option plan under which they are awarded.

(f) Except as set forth in Section 2, the Company shall not be liable to you for any expense
incurred by you unless you receive the Company’s prior written consent to reimburse you for such
expense.

 

 

2. Additional Payments. During the term hereof, you shall be entitled to receive prompt
reimbursement for all reasonable and documented expenses incurred in the performance of services in
accordance with the expense reimbursement policy of the Company. Such reimbursement policy shall
require adequate documentation by you of the expenses and payment by the Company of such amounts
shall be made within a reasonable period after the close of the year in which the expenses were
incurred.

3. Employment at Will. This Agreement is not intended to and shall not be understood in
any manner as affecting or modifying the at-will status of your employment with the Company. As an
at-will employee either you or the Company may terminate the employment relationship at any time
with or without cause or notice. The obligations of Sections 4, 5, 6, 7, 8, 10, 11 and 12 herein
shall survive the termination of the employment relationship or of this Agreement.

4. Confidentiality. All knowledge and information, not already available to the
public, which you acquire, have acquired, or will acquire in the course of your employment with the
Company with respect to the Company’s business, work methods, or pending regulatory matters, or
other Company matters that are treated by the Company as confidential, shall be regarded by you as
trade secrets, whether or not they are classifiable legally as trade secrets, and shall be treated
by you as strictly confidential. Such knowledge and information shall not either directly or
indirectly be used, disclosed, or made accessible to anyone by you for any purpose, except in the
ordinary course of the Company’s business under circumstances in which you are authorized to use or
disclose such information. No disclosures of such confidential information shall be made outside
of those you are authorized to make in the regular and ordinary course of your duties unless and
until you receive prior written permission of the Board of Directors of the Company to make such
disclosure.

5. Discoveries and Improvements. During the time that you are employed by the
Company, all confidential information, trade secrets, or proprietary information and all other
discoveries, inventions, software programs, processes, methods and improvements that are conceived,
developed, or otherwise made by you , alone or with others, that relate in any way to the Company’s
present or planned business or products (collectively the “Developments”), whether or not
patentable or subject to copyright protection and whether or not reduced to tangible form or
reduced to practice, shall be the sole property of the Company. You agree to disclose all
Developments promptly, fully and in writing to the Company. You agree to keep and maintain
adequate and current dated and witnessed written records of all such Developments, in the form of
notes, sketches, drawings, or reports, which records shall be promptly submitted to the Company
and shall be and remain the property of the Company at all times. You agree to assign, and hereby
do assign, to, the Company all your right, title and interest throughout the world in and to all
Developments. You agree that all Developments shall constitute “Works for Hire” (as such are
defined under the U.S. Copyright Laws) and hereby assign to the Company all copyrights, patents and
other proprietary rights you may have in any Developments without any obligation on the part of the
Company to pay royalties or any other consideration to you for such Developments.

6. Publication. All documents and other writings produced by you during the period of
your employment, which relate to work you are doing or have done for the Company or to the business
of

 

 

the Company or its affiliates, shall belong to the Company. You will not publish outside of the
Company any such writing without the prior written consent of the Board of Directors of the
Company. You will, without further compensation, execute at any time (whether or not you are still
employed by the Company) all documents requested of you relating to the protection of such rights,
including the assignment of such rights to the Company.

7. Litigation. You shall notify the Company within three business days if no longer
employed and immediately if still employed by the Company if you are contacted by any person
relating to any claim or litigation against the Company. You shall not communicate in any manner
with any person related to any claim or litigation against the Company without the prior consent of
the Board of Directors of the Company unless compelled to do so by law.

8. Competition. For so long as you are employed by the Company or any Affiliate (as
defined below) and for a period of one year after you cease to be employed by the Company or any
Affiliate, you shall not, directly or indirectly, engage in any work or other activity—whether as
owner, stockholder, partner, officer, consultant, or otherwise—involving a trademark, product, or
process that, in the opinion of the Company’s President, is similar to a trademark, product or
process on which you worked for the Company (or any Affiliate) or obtained knowledge about while
working for the Company at any time during the period of employment, if such work or other activity
is then, or reasonably expected to become, competitive with that of the Company (or any Affiliate).
The restriction in the preceding sentence shall not apply if you have disclosed to the Company in
writing all the known facts relating to such work or activity and have received a release in
writing from the Board of Directors of the Company allowing you to engage in such work or activity.
The Company’s President shall have sole discretion to determine whether your work or activity for
another employer involves trademarks, products, or processes that are similar to trademarks,
products, or processes that you worked on for the Company. Ownership by you of five percent (5%) or
less of the outstanding shares of stock of any company either (i) listed on a national securities
exchange, or (ii) having at least one hundred (100) stockholders shall not make you a “stockholder”
within the meaning of that term as used in this paragraph. For one year after you cease to work
for the Company, you will not engage in any work or activity that will cause you to inevitably
disclose to anyone not employed by the Company (or an Affiliate) any trade secret or confidential
information that belongs to the Company or one of its Affiliates. Nothing in this paragraph shall
limit the rights or remedies of the Company arising, directly or indirectly, from such competitive
employment, including, without limitation, claims based upon breach of fiduciary duty,
misappropriation, or theft of confidential information. The term “Affiliate” shall mean the
Company and any entity controlling, controlled by, or under common control with the Company.

9. Conflicting Contracts. You represent and warrant that you are not now under any
obligation resulting from any contract or arrangement, to any person, firm, or corporation, which
is inconsistent or in conflict with this Agreement. Likewise you represent and warrant that you
are not now under any obligation resulting from any contract or arrangement to any person, firm, or
corporation which would prevent, limit, or impair in any way the performance by you of your
obligations to the Company.

 

 

10. Solicitation. For a period of one year after you cease to be employed by the Company
(or a Company affiliate):

(a) You agree not to solicit, directly or indirectly, business related to the development or sales
of pharmaceutical products from any entity, organization, or person which is contracted with the
Company, which has been doing business with the Company or from which the Company was soliciting at
the time of your termination, or a firm which you knew or had reason to know that the Company was
going to solicit business at the time you ceased to be employed by the Company. The restriction
set forth in the preceding sentence shall not apply if you have disclosed to the Company in writing
all the known facts relating to such solicitation and have received a release in writing from the
Board of Directors of the Company to engage in such solicitation.

(b) You agree not to solicit, recruit, hire, or assist in the hiring of any employee of the Company
to work for you or another person, firm, corporation, or business in competition with, or
reasonably likely to become in competition with, the Company.

11. Return of Documents. Upon termination of your employment for any reason, you shall
immediately return to the Company all documents and things belonging to the Company. This
includes, but is not limited to, trade secrets, confidential information, knowledge, data or
know-how, and software containing such information, whether or not the documents are marked
“Confidential.”

12. Remedies. You acknowledge that in the event of breach of this Agreement by you, actual
damages to the Company will be impossible to calculate, the Company’s remedies at law will be
inadequate, and the Company will suffer irreparable harm. Therefore, you agree that any of the
covenants contained in this Agreement may be specifically enforced through injunctive relief, but
such right to injunctive relief shall not preclude the Company from other remedies which may be
available to it. You further agree that should you fail to keep any of the promises made by you in
this Agreement, or any way violate this Agreement, the Company shall be entitled to recover all
monies the Company is required to spend, including attorneys fees, to enforce the provisions of
this Agreement.

13. Debarment. You represent and warrant that you have not been debarred and will
notify the Company immediately if you are debarred, pursuant to subsection 306(a) or 306(b) of the
Federal Food, Drug, and Cosmetic Act.

14. Notice. Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing and if sent by registered or certified mail to your residence or to the
Company’s principal office in the case of the Company.

15. Waiver. The waiver by either party of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach.

 

 

16. Entire Agreement. This Agreement contains the entire agreement of the parties and
may not be changed orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension, or discharge is sought.

17. Governance. This Agreement shall be governed by the laws of the State of
Tennessee. Any dispute arising out of this Agreement shall be resolved, at the Company’s sole
option, by courts sitting in Nashville, Tennessee, and you waive any objection to such venue.

18. Enforceability. In the event that any provision of this Agreement shall be held
by a court to be unenforceable, such provision will be enforced to the maximum extent permissible,
and the remaining portions of this Agreement shall remain in full force and effect.

19. Survival. Notwithstanding any termination of your employment, this Agreement
shall survive and remain in effect in accordance with its terms.

This letter agreement may be signed in one or more counterparts, each of which shall be an
original and all of which will constitute one and the same instrument.

	 	 	 	 	 
	 

	 	Sincerely yours,
	 
	 	 	 	 
	 

	 	CUMBERLAND PHARMACEUTICALS INC.
	 
	 	 	 	 
	 
	 	/s/ Jean W. Marstiller
	 

	 	 
	 

	 	By:
	 	Jean W. Marstiller
	 

	 	 	 	Corporate Secretary
	 

	Accepted as to all terms and conditions

as of the ___ of January, 2009:
	 	 	 	 
	 
	 	 	 	 
	/s/
A.J. Kazimi 
	 	 	 	 
	 
	A.J. Kazimi
	 	 	 	 

 

 

Exhibit A

Option Agreement

The Company’s standard option agreement shall be forthcoming at the appropriate time and shall
incorporate the following several terms:

	1.	 	Subject to the terms therein, the Company will provide a grant of options under its 2007
Long-Term Incentive Compensation Plan to purchase up to thirty thousand (30,000) of its shares
of common stock.

	2.	 	As determined and approved by the Board of Directors, up to 7,500 options will vest on each
31st of December over the four-year period from 2009-2012.

	3.	 	The options awarded will have an Exercise Price of 110% of Fair Market Value on Date of
Grant.

	4.	 	The options awarded will have a term of five years from Date of Grant.

It is important that, after you receive your option agreement and other related documents, you read
and understand the terms and conditions of the option agreement. The Company recommends that you
always seek guidance from your personal accountant or tax advisor prior to initiating any exercise
or action involving your option agreement.

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