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FULL AND FINAL RELEASE
 
AND SETTLEMENT AGREEMENT
 
This Full and Final Release and Settlement Agreement (“Settlement Agreement”) is
made and entered into by and between Andrews Kurth LLP (“AK”), XFormity, Inc.
and XFormity Technologies, Inc. (collectively hereinafter “the Parties”).
 
Recitals
 
WHEREAS, AK and XFormity, Inc. previously entered into an attorney-client
relationship pursuant to which AK provided legal services to XFormity, Inc.;
 
WHEREAS, XFormity, Inc., is a wholly owned subsidiary of XFormity Technologies,
Inc.;
 
WHEREAS, a dispute has arisen regarding the payment of certain of AK’s invoices
for legal services rendered by AK in connection with the B-50 patent litigation;
 
WHEREAS, the Parties now desire by this Settlement Agreement to settle the above
claims, including, but not limited to, any and all claims that have been raised
or could have been raised by the Parties relating to the above-referenced
dispute, the legal services performed by AK, or any other matter, with no party
admitting any liability to the other, but agreeing to settle solely as a means
of compromise to avoid proceeding further with this dispute;
 
Now, therefore, in consideration of the mutual obligations set forth herein, and
intending to be legally bound, the Parties agree as follows:
 
Settlement Agreement and Release
 
1.           Subject to the terms and conditions set forth herein, XFormity,
Inc. shall pay the following amounts and such other consideration provided
hereunder to AK.
 
(a).           Forty-eight (48) monthly payments of $10,000.00 for a total of
$480,000.00.  The first two (2) of these payments ($20,000.00) are to be paid
upon execution of this Settlement Agreement.  The third payment ($10,000.00) is
to be paid on the 10th day of December 2008.  Thereafter, each payment shall be
due on the 10th of the month.
 
(b).           At such time as the Company obtains funding of at least $300,000
in net proceeds (the “Financing”), an amount equal to the lesser of $300,000 or
the amount necessary to complete the payment in full of the $480,000, provided
for in paragraph 1(a) above, will be paid in a lump sum.  The remainder, if any,
of the $480,000.00 will continue to be paid on the 15th day of the month until
paid.

(c).           Upon execution of this Settlement Agreement, XFormity, Inc. shall
issue 1,000,000 of its shares of common stock to AK, shall provide AK with stock
certificates evidencing the 1,000,000 shares, and shall make all appropriate
entries on its books and records and file all appropriate papers before all
federal and state agencies to evidence the transfer of the shares of stock
certificates.  Such shares shall be “restricted securities” under the Securities
Act of 1933.   XFormity, Inc. shall not do anything or take any action to
significantly dilute the value of these 1,000,000 shares except for any dilution
resulting from lender or investor funding as referred to in paragraph
1(b).  XFormity, Inc. understands that it is the intent of AK to sell the
1,000,000 shares at a time and for a price to be determined by AK and as
permitted under federal law.  AK agrees that sales of the shares will not exceed
the volume limitation of Rule 144(e) under the Securities Act.  AK shall report
to XFormity Inc. all sales of the shares and the price per share so as to permit
the calculation required by paragraph 1(e).

(d).           In addition to the payments and stock referred to in paragraphs
1(a)-(c) there shall be up to four additional bonus payments of $65,000.00, when
XFormity, Inc.’s gross annual revenue reaches the following levels:
$2,000,000.00, $3,000,000.00, $4,000,000.00 and $5,000,000.00 up to fiscal year
end June 30, 2011.  If these revenue amounts are reached, each bonus payment
will be paid on or before 45 days after the company’s fiscal years ending June
30, 2009, 2010 and 2011.  The amount will be subject to verification upon audit
by the company’s independent accounting firm.

(e)           The cap on the aggregate of all payments referred to in paragraphs
1(a), 1(b), 1(d)  and the value of the stock referred to in paragraph 1(c) (when
it is sold) shall be $1,575,000.00.  If and when the cap is reached, no future
payments shall be made to AK and if any shares of common stock issued to AK
remain unsold, AK shall surrender such shares to XFormity Inc. for cancellation.

2.           For and in consideration of good and valuable consideration paid by
XFormity, Inc. as described in paragraph 1 above, the receipt and sufficiency of
which are hereby acknowledged, AK, and its partners, employees, agents,
attorneys, assigns, insurers and assurers, hereby RELEASE, ACQUIT AND FOREVER
DISCHARGE XFormity, Inc. and XFormity Technologies, Inc., and their employees,
agents, attorneys, predecessors, successors, affiliates, assigns, insurers, and
assurers, from all liability, actions, causes of action, damages, claims,
demands, charges, costs, and expenses, including, without limitation, attorneys’
fees, known or unknown, accrued or which may ever accrue, whether based in
contract or tort, statutory or common law, of every kind and nature.
 
3.           For and in consideration of good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, XFormity, Inc. and
XFormity Technologies, Inc., and their employees, agents, attorneys,
predecessors, successors, affiliates, assigns, insurers, and assurers, hereby
RELEASE, ACQUIT AND FOREVER DISCHARGE AK, and its partners, employees, agents,
attorneys, predecessors, successors, affiliates, assigns, insurers and assurers,
from all liability, actions, causes of action, damages, claims, demands,
charges, costs, and expenses, known or unknown, accrued or which may ever
accrue, whether based in contract or tort, statutory or common law, of every
kind and nature whatsoever that arise from or relate, or may arise from or
relate, in any way to the relationship between the Parties, and concerning legal
services provided by AK to Xformity, Inc, XFormity Technologies, Inc., and
their  affiliates, subsidiaries, and related parties, except for XFormity,
Inc.’s rights under this Settlement Agreement.
 
4.           The Parties agree that the terms of this Settlement Agreement are
contractual.  The Parties further agree that this Settlement Agreement shall not
be construed as an admission of liability and that this Settlement Agreement has
been negotiated and executed in order to compromise and settle disputed claims,
so that the Parties may avoid the expense, uncertainties, and hazards of
litigation.
 
5.           This Settlement Agreement shall not be construed more favorably for
or strongly against any Party based on a claim that one was the “Drafter” or
“Maker” of the Settlement Agreement.
 
6.           This Settlement Agreement constitutes the entire and complete
agreement between the Parties and there are no other side, prior, or collateral
agreements, oral or written, or representations or inducements other than as
expressly set forth in this Settlement Agreement.  This Settlement Agreement
supersedes any prior agreements, if any, made between the Parties relative to
such subject matter.  This Settlement Agreement cannot be amended, modified or
altered other than by signed, written agreement by the Parties hereto.
 
7.           Each Party hereby represents to the other that it has relied solely
and wholly upon his/its own judgment and belief regarding the nature and the
extent of the damages allegedly sustained by said Party.  Each Party further
represents to the other as follows: (a) that he/it has had an opportunity to
retain legal counsel before entering into this Settlement Agreement; (b) that
he/it is entering into this Settlement Agreement freely and voluntarily and, if
counsel has been retained, upon the advice of such counsel; (c) that no
representations, promises, or statements by any agent, partner, employee,
officer, director, attorney, or other representative of the other Party, other
than as set forth in this Settlement Agreement, have been made to or relied upon
in entering into this Settlement Agreement; and (d) that each Party’s authorized
agent has read and fully understands this Settlement Agreement.  Each Party,
through its authorized agent, realizes that this settlement is final and
conclusive, and it is each Party’s desire and intent that it be final and
conclusive.
 
8.           Each Party hereby represents and warrants to the other that he/it
has not assigned, pledged, or otherwise in any manner whatsoever sold or
transferred, either by instrument in writing or otherwise, any right, title,
interest, demand, cause of action, or claim that is the subject of the
Settlement Agreement and that no other person or entity of any kind has or had
any interest therein.  The Parties warrant that they have not entered into any
agreement or other arrangement that would limit the effectiveness of the
releases exchanged hereunder.
 
9.           The Parties’ duly authorized representatives expressly warrant and
represent that each of them: (a) is legally competent to execute this Settlement
Agreement; (b) has read and fully understands this Settlement Agreement; (c) is
duly authorized to execute this Settlement Agreement on behalf of the Party they
represent; and (d) is duly authorized to bind the Party they represent to the
terms and conditions contained in this Settlement Agreement; and (e) has
obtained all corporate approvals necessary to enter into this Settlement
Agreement.
 
10.           This Settlement Agreement may be executed in multiple
counterparts, all of which taken together shall constitute one and the same
document.
 
11.           This Settlement Agreement and any dispute arising out of this
Settlement Agreement shall be governed by the laws of the State of Texas.  Venue
for all disputes regarding this Settlement Agreement shall be Texas, and the
Parties submit themselves to the jurisdiction of Texas courts for purposes of
disputes regarding this Settlement Agreement.
 
12.           In the event that a court of competent jurisdiction should hold
any provision of this Settlement Agreement to be void or unenforceable for any
reason, the expressed intent of the Parties hereto is that all remaining
provisions are severable and should remain in force to the greatest possible
degree.
 
In witness thereof, the Parties hereto have caused this Settlement Agreement to
be executed by their duly authorized representatives on the date(s) set forth
below.
 

 
EXECUTED IN MULTIPLE ORIGINALS on this 10th day of October,  2008.
 

Andrews Kurth LLP
 
By: /s/Aldo Noto                                                           
Name:  Aldo Noto
Its:        Partner

 
XFormity, Inc.
 
By: /s/Chris Ball                                                           
Name:  Chris Ball                                                           
Its:  President and
CEO                                                           

XFormity Technologies, Inc.
 
By: /s/Jack Rabin                                                           
Name:  Jack Rabin                                                           
Its:  CFO                                                           

WAS:141222.2
 

 
 

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