EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement"), effective as of the 27th day of September, 2004, is by and among XFORMITY, INC., a Texas corporation (the "Company"), with offices at 00000 Xxxxxx Xxxxx, Xxxxxx, Xxxxx 00000; and XXXXX XXXX, an individual and a resident of the State of Texas, with an address at c/o XFormity, Inc., 00000 Xxxxxx Xxxxx, Xxxxxx, Xxxxx 00000 (the "Executive").

WITNESSETH:

WHEREAS, in recognition of the valuable nature of Executive's management and operational capabilities to the business of Company, Company desires to enter into this Agreement with Executive to be effective as of the date above first written (the "Effective Date"); and

WHEREAS, Executive desires to enter into this Agreement with Company and to be employed by Company in the capacity, for the period, and on the terms and conditions set forth herein;

NOW THEREFORE, in consideration of the mutual covenants, agreements and conditions contained herein, the parties hereto intending to be legally bound do hereby covenant and agree as follows:

1. Employment.
1. Company hereby agrees to employ Executive, and Executive hereby agrees to serve the Company, as Chief Financial Officer of the Company, and, subject to the direction of the Board of Directors of Company, to perform such duties, functions and responsibilities commensurate with and appropriate to such positions, and as the same may be from time to time set forth in the By-laws of the Company or otherwise delegated to Executive by the Board of Directors of Company or their designates. As of the Effective Date of this Agreement, said duties, responsibilities and functions of Executive are set forth in Schedule A attached hereto and incorporated herein by reference for all purposes.
2. Executive shall receive from Company the necessary power and authority to carry out and discharge all such duties, functions and responsibilities.
3. Executive shall be an employee of the Company and shall devote his entire business time and attention to the performance, discharge and fulfillment of all such duties, functions and responsibilities.
4. Executive will perform his services in the State of Illinois, or at such other location as may be mutually agreed upon by the Board of Directors of Company and Executive.
2. Term of Employment.
1. Subject to the provisions for termination as hereinafter provided, the term of employment under this Agreement shall be effective as of the Effective Date and shall continue for a period of one (1) year following the Effective Date (the "Expiration Date"); provided, however, that beginning with the first anniversary of the term of this Agreement, and on each subsequent anniversary date of the term thereafter (each a "Renewal Date"), the term of this Agreement shall automatically be extended for an additional one year so that on each Renewal Date the then remaining, unexpired term of this Agreement shall be one (1) year, unless either party gives the other written notice of non-renewal at least ninety (90) days prior to any such Renewal Date.
2. This Agreement shall terminate prior to the expiration of the initial term or any renewal term of this Agreement upon the earliest to occur of the following:
1. the death or permanent disability (as defined in Company's permanent disability insurance program, if any, then in effect covering Executive or if no permanent disability program is then in effect, in the opinion of the Executive exercised in good faith) of Executive; provided, however, that the Company shall remain responsible for and shall satisfy its obligations under its life and permanent disability insurance programs then in effect covering Executive as are referred to in Schedule B attached hereto and incorporated herein by reference for all purposes; and further provided, however, that in addition to Company's obligations to Executive under its life and permanent disability insurance programs then in effect covering Executive, the Company shall pay (a) to any beneficiary or beneficiaries designated by the Executive or, if none, (b) to his estate or other legal representative in the event of Executive's death a pro rata portion of the Annual Base Salary to the last day of the month in which his death occurs;
2. as permitted by Section 6 hereof by Executive for "Good Reason" (as hereinafter defined) pursuant to Section 6;
3. as permitted by Section 7 hereof by Executive upon a "Change of Control of the Company" (as hereinafter defined pursuant to Section 7); or
4. as permitted by Section 7 hereof, by Company for "Cause" (as hereinafter defined) pursuant to Section 7.

Sections 6, 7, 8, and 11 shall survive the termination of this Agreement.

3. Compensation.
1. In consideration for all of the services to be rendered by Executive to the Company, the Company shall pay Executive an initial monthly base salary ("Monthly Base Salary") of an amount equal to One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00). The Monthly Base Salary may be increased as approved by the Board of Directors or any authorized committee thereof in its sole discretion (the "Compensation Committee") (such annual base salary, as it may be increased from time to time hereafter, being herein referred to as the "Annual Base Salary").
2. The Monthly Base Salary shall be paid to Executive in consistent periodic installments throughout the year in accordance with Company's normal and customary pay policy for executive officers of Company.
3. In addition to the Monthly Base Salary to be paid pursuant to subsection 3(a) of this Agreement, during the term of this Agreement or any renewal or extension, the Executive may be eligible for annual bonuses as may be approved by the Board of Directors, subject to their sole discretion.
4. The amount of the Annual Base Salary and any other amounts payable pursuant to this Agreement are gross amounts due by Company to Executive hereunder, and Company shall have the right to deduct therefrom all taxes and other amounts which may be required to be deducted or withheld by law (including, but not limited to, federal income tax withholding and social security payments), whether such law is now in effect or becomes effective after the date of this Agreement.
5. In addition to the foregoing, in the event that Company grants equity options or similar incentives to its officers and employees from time to time hereafter, Executive shall be allowed to participate in any such future equity options or similar incentives on such terms as are approved by the Board of Directors of Company or the Compensation Committee and are offered to other executive officers of Company.
4. Executive Benefits and Business Expenses.
1. During the term hereof, Executive shall be entitled to participate in such employee benefit plans and programs maintained by the Company for the benefit of its executive officers, and to participate in applicable new or amended programs, including, but not limited to, medical, dental, health, life, accident and disability insurance programs, savings for retirement plans, bonus, stock option plans, and any other incentive compensation plans.
2. The Company shall cover all costs of domestic and international business travel.
3. Executive shall be reimbursed for any necessary business expenses reasonably incurred by Executive in carrying out Executive's duties, functions and responsibilities hereunder, including, without limitation, mobile telecommunications, taxi fares, parking and toll charges, and the like.
5. Vacation and Sick Leave Time.

Executive shall be entitled to annual sick leave time pursuant to the plan or policy adopted by the Company, or as hereafter may be amended, available for other executive officers of Company. Commencing on the Effective Date, the Executive shall be entitled to annual vacation time equal to no less than four (4) weeks paid vacation every year throughout the term of this Agreement.

6. Termination. In the event of (a) termination by the Company or any successor of the Executive's employment hereunder without Cause, or (b) Executive terminates his employment for Good Reason, then Executive shall be entitled to receive upon execution and delivery to the Company of a general release in a form mutually acceptable to the Company and the Executive: (i) an amount (the "Termination Amount") equal to (x) twelve (12) months of the then Annual Base Salary, payable monthly; (ii) Executive's outstanding options for membership interests and any options subject to purchase agreements or performance benchmarks shall accelerate and fully vest; and (iii) any and all deferred compensation, including, without limitation, accounts under any Company deferred compensation plans or arrangements shall accelerate and fully vest, including as to any amounts contributed by the Company for the year in which the termination occurs.

For the purpose of this Agreement, "Good Reason" is defined as (a) the material reduction of the Executive's title, duties, authority or responsibilities, relative to the Executive's title, duties, authority or responsibilities as in effect immediately prior to such reduction; (b) a reduction by the Company in the Annual Base Salary of the Executive as in effect immediately prior to such reduction; (c) any breach of this Agreement by the Company; or (d) any act or set of facts or circumstances which would, under Texas case law or statute, constitute a constructive termination of the Executive.

7. Change of Control. In the event of a Change of Control of the Company, at the option of the Executive, (a) the term of employment shall terminate, (b) Executive's outstanding options for membership interests and any options subject to purchase agreements or performance benchmarks shall accelerate and fully vest, and (c) the Company shall pay Executive, in a lump sum, an amount equal to the Termination Amount upon execution and delivery of a general release to the Company in a form mutually acceptable to the Company and the Executive.

For this purpose, "Change of Control of the Company" is defined as:

1. Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) (except Paradigm Millennium Fund, LP or Paradigm Group II, LLC) or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company's then outstanding voting securities; or
2. The consummation of a merger or consolidation of the Company with any other entity other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or
3. The consummation of the sale or disposition by the Company of all or substantially all of the Company's assets.
8. Golden Parachute Gross-Up for Taxes. In the event that the benefits provided for in this Agreement or otherwise payable to the Executive constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") or any successor provision and as a result are subject to the excise tax imposed by Section 4999 of the Code or any successor provision, then the Executive shall receive (a) a lump-sum cash payment from the Company sufficient to pay such excise tax, and (b) an additional lump-sum cash payment from the Company sufficient to pay the excise tax and all federal and state income taxes arising from the payments made by the Company to Executive pursuant to this sentence. Unless the Company and the Executive otherwise agree in writing, the determination of Executive's tax liability arising from such taxes, and the amount required to be paid under this Section 8, shall be made in writing by the Accountants. For purposes of making the calculations required by this Section 8, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code or any successor provision. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 8. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 8.
9. Breach by Company; Nonexclusive Remedy.
1. In the event of a material breach of this Agreement by the Company which remains uncured after written notice thereof by Executive to the Company and the expiration of thirty (30) days opportunity to cure such breach, the Company shall be obligated to pay Executive as liquidated damages, and not as a penalty, in a lump sum or on an annuity basis, at Executive's sole option, an amount equal to the Termination Amount. It is acknowledged and agreed to by the parties hereto that because actual damages would be difficult to ascertain in the event that Company breaches this Agreement, the amount of liquidated damages provided for herein is reasonable and appropriate to remedy any such breach and to compensate Executive for any damages incurred by him hereunder.
2. In the event that Company, or its successor or assigns, fails to perform or breaches this Agreement in any respect and Executive shall file any judicial action for enforcement of this Agreement and successfully recovers compensation or damages, Executive shall be entitled to recover an additional amount as interest at ten percent (10%) per annum on the amount owed from the date such amount was due and payable, together with all actual expenses and attorneys' fees reasonably incurred by Executive in obtaining legal advice regarding his rights under this Agreement and in prosecuting and disposing of such action.
3. The provisions of this Section 9 shall not constitute the exclusive remedy of Executive for Company's breach of this Agreement.
10. Breach by Executive.
1. In the event that Executive materially breaches this Agreement, Company may terminate this Agreement, at the option of Company, (i) effective thirty (30) days after Company gives written notice of such termination to Executive, or (ii) effective upon payment of thirty (30) days' pay in lieu of notice; provided, however, that the Company shall pay to Executive, on the date of such termination, all cash and non-cash compensation then accrued under this Agreement to the date of such termination. A termination under this Section 10(a) shall be deemed a termination for Cause (as hereinafter defined).
2. A material breach of this Agreement by Executive, shall be deemed to have occurred upon the happening of any of the following events (for "Cause"), to-wit:
1. Executive's conviction of any felony offense during the term of this Agreement; or
2. Executive's breach of any of Executive's material obligations hereunder, including, without limitation, Executive's obligations under Sections 11 and 12 hereof; or
3. Executive's refusal to abide by or comply with the reasonable and lawful directives of the Board of the Directors of the Company that are consistent with the duties of similarly-situated senior executives or are otherwise required under this Agreement; or
4. Executive's dishonesty, fraud, or willful misconduct with respect to the business or affairs of the Company; or
5. intentional damage to any material property of the Company. In each such event listed in (ii) through (v) above, the Company shall give the Executive notice thereof which shall specify in reasonable detail the circumstances constituting Cause, and there shall be no Cause with respect to any such circumstances if cured by the Executive within thirty (30) days after such notice.

In the event Company elects to terminate Executive pursuant to this Section 10, Company shall give written notice to Executive specifically stating each fact and reason, which is the basis for such termination. Following such termination, Company shall have no further obligation to Executive under this Agreement except for accrued and unpaid cash and non-cash compensation payments then due and owing to Executive.

11. Confidentiality, Proprietary Information and Trade Secrets.
1. During the term of this Agreement and for a period of three (3) years after the termination of this Agreement, Executive shall not disclose, communicate or divulge to any person, firm, association or company, other than the Company, any material referred to in Subsections 11(f), (g) and (h) hereof, or any proprietary information regarding the business methods, business, policies, procedures, techniques, research or development projects or results, trade secrets or other knowledge or processes of, or developed by, Company or any names and addresses of customers or clients or any data on or relating to past, present or prospective customers or clients or any other confidential information relating to or dealing with the business operations or activities of Company, made known to Executive or learned or acquired by Executive while employed by Company.
2. During the term of this Agreement and for a period of one (1) year after the termination of this Agreement, Executive shall not, directly or indirectly, in any geographic area served by Company or its affiliates induce or attempt to influence any employee of Company to terminate his or her employment with Company or to hire any such employee of Company, without the Company's prior written consent.
3. Executive covenants and agrees that Executive will not during the term of this Agreement and for a period of one (1) year following the termination of this Agreement for any reason, directly or indirectly, engage in any business or group of affiliated or unaffiliated businesses (other than Company) that engages in a business which is directly competitive with the business of the Company.
4. Executive acknowledges and agrees that the restrictions contained in Subsections 11(a), (b) and (c) (the "Restrictions"), in view of the nature of the business in which Company is engaged, are reasonable and necessary in order to protect the legitimate business interests of Company, and that any violation thereof would result in irreparable harm to Company, and Executive therefore further acknowledges and agrees that, in the event Executive violates, or threatens to violate, any of such Restrictions, Company shall be entitled to obtain from any court of competent jurisdiction, without the posting of any bond or other security, preliminary and permanent injunctive or equitable relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies at law or in equity to which Company may be entitled.
5. If any Restriction, or any part thereof, is determined in any judicial or administrative proceeding to be invalid or unenforceable, the remainder of the Restrictions shall not thereby be affected and shall be given full effect, without regard to the invalid provisions.
6. If Executive violates any of the Restrictions, the restrictive period shall not run in favor of Executive from the time of the commencement of any such violation until such time as such violation shall be cured by Executive to the reasonable satisfaction of Company.
7. It is recognized that Executive will have access to certain confidential information of Company and its affiliates, and that such information constitutes valuable, special and unique property of Company and its affiliates. Executive shall not at any time during the term of this Agreement and for a period of two (2) years after the termination of this Agreement disclose any such confidential information to any party for any reason or purpose except as may be made in the normal cause of business of Company and for its benefit.
8. For purposes of this Agreement, Confidential Information shall include the Company's trade secrets and proprietary information, techniques, sketches, drawings, know-how, processes, apparatus, equipment, algorithms, software programs, software source documents and formulae related to the current, future and proposed products and services of the Company, and/or the Company's parents, subsidiaries, customers and/or vendors, whether delivered in written (or other tangible) form or verbally, and includes, without limitation, information concerning research, design details and specifications, financial data, procurement requirements, customer lists, business forecasts and purchasing, sales, merchandising, development and marketing plans, but shall exclude (i) confidential information that was in the public domain at the time it was communicated to the Executive; (ii) confidential information that enters the public domain subsequent to the time it was communicated to Executive through no fault of the Executive; or (iii) confidential information that was in Executive's possession free of any obligation of confidence at the time it was communicated to Executive.
12. Representations and Warranties of Executive.

Except for restrictions heretofore disclosed in writing by Executive to Company, Executive represents and warrants to Company that (a) there are no restrictions, agreements or understandings whatsoever to which Executive is a party which would prevent or make unlawful the execution or performance of this Agreement or his employment hereunder; (b) his execution of this Agreement and his employment hereunder shall not constitute a breach of any contract, agreement or understanding to which he is a party or by which he may be bound; and (c) he is free and able to execute and perform this Agreement in all respects.

13. Successors.
1. This Agreement shall inure to the benefit of and be binding upon Company and Executive. This Agreement and the benefits and obligations of Company hereunder may be assigned by Company to any person acquiring all or substantially all of the assets or all of the issued and outstanding equity securities of the Company; provided, however, that the Company shall remain jointly and severally liable to Executive with such assignee for the fulfillment of Company's obligations under this Agreement, or to any corporation with which Company may be merged or consolidated.
2. This Agreement shall inure to the benefit of and be binding upon Executive and Executive's executors, administrators, trustees, heirs and legal representatives. Because Executive's duties, functions, responsibilities, and services hereunder are special, personal and unique in nature, Executive shall not transfer, sell or assign, by operation of law or otherwise, Executive's obligations under this Agreement.
14. Waivers. Neither the failure nor any delay on the part of either party hereto to exercise any right, remedy, power or privilege (collectively, "Right") under this Agreement shall operate as a waiver, abandonment or release thereof; nor shall any single or partial exercise of any Right preclude any other or further exercise of the same or of any other Right, nor shall any waiver of any Right with respect to any occurrence be construed as a waiver of such Right with respect to any other occurrence.
15. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect or impair the validity or enforceability of the remaining provisions of this Agreement, which provisions shall remain in full force and effect and the parties hereto shall continue to be bound thereby.
16. Entire Agreement. This Agreement contains the entire agreement between the parties relating to the subject matter hereof and supersedes all previous agreements and understandings between the parties, whether written or oral, with respect to the subject matter hereof. This Agreement shall not be modified, altered or amended except by a writing executed by both parties.
17. Notices. Any notice or other communication provided for in this Agreement or contemplated hereby shall be sufficiently given if given in writing and delivered personally or by certified mail, return receipt requested, and addressed, in the case of the Company, to the Company at:

Xxxxx Xxxx
c/o XFormity, Inc.
00000 Xxxxxx Xxxxx
Xxxxxx, Xxxxx 00000

and in the case of Executive, to the address set forth in the introductory paragraph. Notice shall be effective when so delivered personally. Either party may designate a different address by giving notice of change of address in the manner provided above.

18. Construction of Agreement. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Texas.

(Signature Page to Follow)

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on and as of the day and year above first written,

"Company"

XFORMITY, INC.
a Texas corporation



By:/s/ Xxxx Xxxxxxxxxx                                
Printed Name: Xxxx Xxxxxxxxxx
Title: President & CEO


"Executive"


/s/ Xxxxx Xxxx                                                    
XXXXX XXXX, an individual and resident of the State of Texas

XML-GLOBAL TECHNOLOGIES, INC., a Colorado corporation, agreeing to be bound hereby, hereby executes and delivers this Agreement for the purpose of covenanting and agreeing to guarantee the performance of the Company's duties, responsibilities and obligations to the Executive hereunder.

XML-GLOBAL TECHNOLOGIES, INC.,

a Colorado corporation

By: _________________________________

Printed Name: _________________________

Title: ________________________________

Schedule A
to
Employment Agreement by
and among XFormity, Inc., as the Company,
and
Xxxxx Xxxx, as the Executive.

Description of Functions, Duties and Responsibilities of Executive

Executive shall oversee and have the primary responsibility within the Company for all operations pertaining thereto.

Schedule B
to
Employment Agreement
by and among XFormity, Inc., as the Company
and
Xxxxx Xxxx, as Executive

Executive Officer Benefits of Company

1. Life insurance
2. Medical insurance
3. Dental insurance
4. Directors and Officers Insurance
5. Retirement Plan
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