SETTLEMENT
      AGREEMENT

     

    

      This
        Settlement Agreement (the “Agreement”) is made and entered into this 30th day of
        May, 2008, by and between: (1) Wharton Capital Partners, Ltd. (“Wharton
        Partners”) and Wharton Capital Markets LLC (collectively, with Wharton Partners,
“Wharton”), and (2) XsunX, Inc. (“XsunX”) (Wharton and XsunX each individually a
“Party,” and collectively the “Parties”). 

       

    

    WHEREAS:

     

    A.    
      On or about December 7, 2007, XsunX filed an action in the Superior Court of
      California, County of Orange, captioned as XsunX,
      Inc. v. Wharton Capital Partners, Ltd., and Wharton Capital Markets LLC, et
      al.,
      No. 07CC12772, which action was subsequently removed to the United States
      District Court for the Central District of California, No. SACV08-00156 (the
      “California Action”); and

     

    B.    
      On or about January 3, 2008, Wharton filed an action in the United States
      District Court for the Southern District of New York, captioned as Wharton
      Capital Partners Ltd., and Wharton Capital Markets LLC v. XsunX,
Inc.,
      No. 08
      CV 0056 (SHS) (the “New York Action”); and

     

    C.    
      On or about February 26, 2008, the California Action was transferred to the
      United States District Court for the Southern District of New York, assigned
      docket number 08 CV 2150, and thereafter consolidated with the New York
      Action.

     

    NOW,
      THEREFORE,
      in
      consideration of the promises contained in this Settlement Agreement, and other
      good and valuable consideration, the sufficiency of which is hereby
      acknowledged, the Parties hereby agree as follows:

     

    1.    
       Cash
      Payments: 
      Within five business days after the Effective Date (as defined below), XsunX
      shall cause a cash payment to be made to Wharton Partners, via wire transfer,
      in
      the amount of $25,000. Thereafter, XsunX shall cause three cash payments to
      be
      made to Wharton Partners, each in the amount of $25,000, on or before thirty,
      sixty and ninety days, respectively, after the Effective Date. In the event
      that
      XsunX shall fail to make any payment described in this paragraph in a timely
      fashion, Wharton shall have the right, no sooner than five business days after
      giving XsunX notice of said failure and an opportunity to cure the same, to
      enter judgment against XsunX for the full amount of all payments remaining
      under
      this paragraph.

     

    2.    
       Stock
      Payment:  
      Within five business days after the Effective Date, XsunX shall cause to be
      delivered to Wharton Partners 875,000 shares of XsunX common stock (the
“Shares”), restricted according to the terms set forth in this Paragraph and the
      following Paragraph 3. The Parties agree and acknowledge that Wharton had earned
      the right to receipt of the Shares on or about November 1, 2007. The Parties
      further agree that Wharton seeks the right to sell such Shares according to
      the
      timetable set forth in Paragraph 3.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    3.    
       Ability
      to Freely Market:  
      Subject to fulfillment of the requirements under Rule 144 of the Securities
      Act,
      Wharton Partners shall enjoy the right to freely sell or otherwise transfer
      up
      to 250,000 of the Shares within the first thirty days after the day on which
      XsunX has delivered such Shares to Wharton Partners (the “Delivery Date”).
      Thereafter, subject to the fulfillment of the requirements of Rule 144 of the
      Securities Act of 1933, Wharton Partners shall enjoy the right to freely sell
      or
      otherwise transfer up to 250,000 additional Shares within each of the sixty
      and
      ninety days following the Delivery Date, and may sell or otherwise transfer
      the
      remaining Shares in its possession on or after the ninety-first day after the
      Delivery Date. XsunX shall affix appropriate legends on the Shares consistent
      with the terms of this Paragraph 3. Upon receipt of appropriate documentation
      as
      required by Rule 144, XsunX shall instruct its counsel to deliver an opinion
      in
      the form annexed hereto as Exhibit “A” with respect to any such sale within
      three business days of receipt of such documentation. Upon execution of this
      Agreement, XsunX shall deliver to its transfer agent an irrevocable letter
      in
      the form annexed hereto as Exhibit “B” instructing the transfer agent to modify
      the legends on the shares in accordance with the provisions of this paragraph
      “3.”

     

    4.
           Dismissal: 
      Within five business day after XsunX has made the final payment described in
      Paragraph 1, above, the Parties shall file a joint motion, pursuant to Federal
      Rule of Civil Procedure 41(a)(1)(A)(ii), to dismiss both the New York Action
      and
      the California Action with prejudice. 

     

    5.     
      Wharton
      Releases: 
      In consideration of the promises set forth in this Agreement, Wharton does
      hereby release and forever discharge XsunX and its agents, directors, officers,
      employees, representatives, successors and assigns from any and all manner
      of
      action, causes of action, suits, debts, dues, sums of money, accounts,
      reckonings, bonds, bills, specialties, covenants, contracts, controversies,
      agreements, promises, variances, trespasses, damages, judgments, extents,
      executions, claims, and demands whatsoever, in law, admiralty, or equity, which,
      against XsunX and its agents, directors, officers, employees, representatives,
      successors and assigns, Wharton ever had, now has, or hereafter can, shall,
      or
      may have, whether known or unknown, asserted or unasserted, for, upon, or by
      reason of any matter, cause, or thing whatsoever related to any claim that
      it
      could have raised in the New York Action, or as a counterclaim in the California
      Action. 

     

    6.
           XsunX
      Releases:
       In consideration of this Agreement, XsunX does hereby release and forever
      discharge Wharton and its agents, directors, officers, employees,
      representatives, successors and assigns from any and all manner of action,
      causes of action, suits, debts, dues, sums of money, accounts, reckonings,
      bonds, bills, specialties, covenants, contracts, controversies, agreements,
      promises, variances, trespasses, damages, judgments, extents, executions,
      claims, and demands whatsoever, in law, admiralty, or equity, which, against
      Wharton and its agents, directors, officers, employees, representatives,
      successors and assigns, XsunX ever had, now has, or hereafter can, shall, or
      may
      have, whether known or unknown, asserted or unasserted, for, upon, or by reason
      of any matter, cause, or thing whatsoever related to any claim that it could
      have raised in the California Action, or as a counterclaim in the New York
      Action.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    7.
           Choice
      of Law: 
      All disputes arising from or related to this Agreement or the Releases contained
      herein shall be governed by New York law, without regard to the choice of law
      principles thereof.

     

    8.     
      Attorneys’
      Fees and Other Costs: 
      Each Party will bear its own costs and attorneys’ fees, except that, in the
      event of a breach of this Agreement by any Party which results in litigation
      and/or formal action, the prevailing Party shall be entitled to recover its
      costs and attorneys’ fees. No failure or delay by either Party in exercising any
      right, power, or remedy under this Agreement shall operate as a waiver of such
      right, power, or remedy, or shall operate as a default of this Agreement or
      shall be construed as a waiver of any other term or condition of the
      Agreement.

     

    9.    
       No
      Admission with Respect to Liability or Damages:  
      Nothing in this Agreement, or in connection with this Agreement and the Releases
      contained herein, shall constitute an admission of liability or an admission
      concerning the existence or scope of damages on behalf of any Party
      hereto.

     

    10.   
      Entire
      Agreement: 
      The Parties agree that this Agreement represents the entire agreement between
      the Parties hereto and supersedes all prior agreements, with the exception
      of
      that certain agreement between the parties dated February 8, 2007 (attached
      hereto as Exhibit “C”).
      

     

    11.
         Authorization: 
      Wharton and XsunX each represents and warrants to the other: (a) that each
      has
      full power and authority to execute this Agreement and to be bound by and
      perform the terms hereof; and (b) that this Agreement is fully enforceable
      against the Parties in accordance with its terms.

     

    12.  
       Severability: 
      If any term, condition, or provision of this Agreement is invalid, illegal,
      or
      otherwise incapable of being enforced by any rule of law or public policy,
      all
      other terms, conditions, and provisions of this Agreement shall nevertheless
      remain in full force and effect. 

     

    13.   
      Joint
      Drafting: 
      This Agreement reflects the joint drafting efforts of the Parties hereto, and
      any ambiguities in this Agreement shall not be construed against any Party
      hereto. 

     

    14.  
       Amendments:
      This
      Agreement may not be waived, amended, modified, or revoked in whole or in part
      except by a writing executed by the Party against whom the Agreement is waived,
      amended, modified, or revoked. 

     

    15.   
      Representation
      by Counsel: 
      The Parties represent and warrant that each has been represented by counsel
      in
      connection with the review and execution of this Agreement and each has
      authorized the signatories below to execute this Agreement.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    16.  
      Notices:  
      Any notice required or permitted to be given under this Agreement shall be
      in
      writing and shall be deemed to have been duly given to the applicable party
      (a)
      on the date of hand delivery with signed receipt; (b) on the business day
      immediately following transmittal to any nationally recognized overnight
      commercial courier with signed receipt; or (c) five (5) days after deposit
      in
      the United States mail, postage and other fees prepaid, return receipt
      requested. Such notice shall be addressed to the address of the applicable
      party
      set forth below, or such other address as such party may hereafter specify
      by
      notice to the other in accordance with the notice procedures described in this
      paragraph. The parties likewise designate the following persons as agents for
      receipt of service of process:

     

    
      
        	
                If
                  to Wharton, to:

              	
                Jeffrey
                  A Udell

                Olshan
                  Grundman Frome Rosenzweig & Wolosky LLP

                Park
                  Avenue Tower

                65
                  East 55th
                  Street

                New
                  York, New York 10022

                (t)
                  212 451-2300

                (f)
                  212 451-2222

                judell@olshanlaw.com

              
	 	 
	
                If
                  to XsunX, to

              	
                Howard
                  M. Miller

                Bond,
                  Schoeneck & King, PLLC

                1399
                  Franklin Avenue, Suite 200

                Garden
                  City, New York 11530

                (t)
                  516 267-6300

                (f)
                  516 267-6301

                hmiller@bsk.com

              


      

    

     

    17.  
       Effective
      Date: 
       This Agreement shall become effective once it has been signed by all
      Parties hereto (the “Effective Date”).

     

    18.   
      Counterparts:   
      This Agreement may be executed in two or more counterparts, each of which will
      be deemed an original, but all of which together shall constitute one and the
      same instrument. Faxed or e-mailed copies shall be effective and enforceable.
      

     

    [SIGNATURES
      COMMENCE ON THE FOLLOWING PAGE]

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        	
                Wharton Capital Partners,
                  Ltd.

                 

                 

                
                  By:                                                                                    
                    
                    Name:
                      
                      Title:

                    

                  

                

              	
                XsunX,
                  Inc.

                 

                 

                By:  
                  /s/ Tom M.
                  Djokovich                                   
                  

                
                   Name:
                    
                     Title:    President
                      & CEO

                  

                

                 

              
	 	 
	
                Wharton
                  Capital Markets LLC

                 

                 

                 

                By:                                                                                    
                  Name:
                    
                    Title:

                  

                

              	 


      

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Exhibit
      “A”

     

    FORM
      OF OPINION

     

    __________,
      2008

     

     

    Via
      Facsimile and First Class Mail

     

    Mountain
      Share Transfer, Inc.

    1625
      Abilene Dr.

    Broomfield,
      CO 80020

     

    Re:         Restricted
      Shares of XsunX, Inc.

     

    Ladies
      and Gentlemen:

     

    We
      have
      been requested by Wharton Capital Partners, Ltd. (the “Stockholder”)
      to
      furnish our opinion to you concerning the proposed transfer and sale of up
      to
      875,000 shares (the “Shares”)
      of
      common stock of XsunX, Inc. (the “Company”)
      that
      are registered in the name of the Stockholder. The Shares are represented by
      the
      following certificate:

     

    
      	
              Certificate
                No.

            	
              Number
                of Shares

            
	
              [______]

            	
              875,000

            


    

     

    We
      understand that the transfer of the Shares is restricted on the Company’s stock
      records, and that the certificate for the Shares bears a legend restricting
      such
      transfer, otherwise than pursuant to registration or an exemption from
      registration under the Securities Act of 1933, as amended (the “Securities
      Act”).

     

    In
      connection with rendering the opinion set forth below, we have examined copies
      of the following documents (collectively, the “Supporting
      Documents”):

     

    
      
        	
              	·	
                Settlement Agreement
                  dated [______], 2008 among the Stockholder, Wharton Capital Markets
                  LLC
                  and the Company;

              


      

       

      
        	
              	·	
                Seller
                  Representation Letter, dated [______], 2008, from the Stockholder
                  with
                  respect to the proposed sale of the Shares;
                  and

              


      

       

      
        	
              	·	
                Certificate
                  No. [______], dated [______], 2008 (the
                  “Certificate”).

              


      

    

     

    For
      the
      purposes of this opinion, we have relied on the Supporting Documents without
      investigation. We have made the assumptions that are customary in opinion
      letters of this kind, including the assumptions that each document submitted
      to
      us is accurate and complete, that each document that is an original is
      authentic, that each copy conforms to an authentic original, that all signatures
      on each such document are genuine, and that no changes have occurred or will
      occur in the facts certified in the Supporting Documents. We have assumed the
      legal capacity of the Stockholder. We have not verified any of those
      assumptions.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    Based
      solely on our review of the Supporting Documents and subject to the foregoing
      and the other matters set forth below, it is our opinion that the proposed
      transfer and sale of the Shares, effected in the manner described in the
      Supporting Documents and the instruction letter attached as Exhibit
      A
      hereto,
      is not required to be registered under the Securities Act by reason of the
      exemption provided by Section 4(1) thereof and Rule 144 thereunder, and that
      the
      restrictive legend on the Certificate for the Shares and the restrictions on
      the
      Company’s records, concerning the transfer of such Shares under the Securities
      Act, may be removed in connection with such transfer and sale. Any stock
      certificate evidencing a balance of Shares not so transferred shall bear the
      same restrictive legends as appear on the canceled certificate and stop transfer
      orders shall remain in effect thereto.

     

    The
      foregoing opinion is limited to the registration provisions of the Securities
      Act and relates only to the Shares. It does not address any other provision
      of
      law, any other securities, or any other aspect of the subject transaction.
      We
      have not undertaken to update or supplement this opinion letter to reflect
      any
      changes of law or fact that may occur.

     

    We
      are
      furnishing this opinion letter to you solely in connection with the above
      matter. You may not rely on this opinion letter in any other connection, and
      it
      may not be furnished to or relied upon by any other person for any purpose,
      without our specific prior written consent. The Stockholder may not rely on
      this
      letter, although he may receive information copies solely as a
      courtesy.

     

    
      	
              Yours
                truly,

            	 
	 	 
	 	 
	
              Kirkpatrick
                & Lockhart Preston Gates Ellis LLP

            	 


    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Exhibit
      “B”

     

    XSUNX,
      INC.

    65
      Enterprise

    Aliso
      Viejo, California 92656

     

     

    ___________,
      2008

     

    Mountain
      Share Transfer, Inc.

    1625
      Abilene Dr.

    Broomfield,
      CO  80020

    Attn:
      Beth Powell 

     

    Re:         
      Special
      Instructions for Wharton Capital Partners, Ltd.

     

     

    Dear
      Ms.
      Powell:

     

    Wharton
      Capital Partners, Ltd. (the “Stockholder”)
      holds
      875,000 shares (the “Shares”)
      of
      common stock of XsunX, Inc. (the “Company”)
      that
      are registered in the name of the Stockholder. The Shares are represented by
      Certificate No. [______], dated [______], 2008 (the “Certificate”).
      The
      Certificate bears a legend restricting the transfer of such Shares (the
“Restrictive
      Legend”)
      otherwise than pursuant to registration or an exemption from registration under
      the Securities Act of 1933, as amended.

     

    Please
      be
      advised that (i) after [_____], 2008 (the “Delivery
      Date”),
      upon
      the sale of the Shares by the Stockholder, the Restrictive Legend may be removed
      from the Certificate with respect to 250,000 Shares and any stock certificate
      evidencing a balance of Shares not so transferred shall bear the Restricted
      Legend, (ii) thirty days after the Delivery Date, upon the sale of the Shares
      by
      the Stockholder, the Restrictive Legend may be removed with respect to an
      additional 250,000 Shares and any stock certificate evidencing a balance of
      Shares not so transferred shall bear the Restrictive Legend, (iii) sixty days
      after the Delivery Date, upon the sale of the Shares by the Stockholder, the
      Restrictive Legend may be removed with respect to an additional 250,000 Shares
      and any stock certificate evidencing a balance of Shares not so transferred
      shall bear the Restrictive Legend and (iv) ninety-one days after the Delivery
      Date, upon the sale of the Shares by the Stockholder, the Restrictive Legend
      may
      be removed with respect any remaining Shares. 

     

    
      	 	 	 
	 	 
	 	Very truly yours,
	 	 
	 	Tom M. Djokovich
	 	President 


    

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Exhibit
      “C”

     

     

    February
      8, 2007

    Wharton
      Capital Partners, Ltd.

    545
      Madison Avenue

    New
      York,
      NY 10022

     

    Gentlemen:

     

    This
      letter is to confirm that Wharton Capital Partners Ltd. and Wharton Capital
      Markets, LLC (Wharton) are authorized to act as an exclusive financial
      consultant and/or placement agent for XSUNX Inc. (XSNX) through April 7, 2007
      for the purpose of introducing prospective purchasers including Josh Brain
      to
      XSNX in connection with the financing or purchase of up to $30 million or more
      of various types of offerings including common stock or convertible debentures
      of XSNX under Regulation D of the Securities Act of 1933 as amended, and under
      terms mutually acceptable to the parties. 

     

    At
      the
      closing of a transaction between XSNX and a purchaser introduced to XSNX by
      Wharton, XSNX agrees to pay to Wharton or its designee a fee equal to 8.5%
      of
      the gross transaction amount for such tranche, (of which Wharton Capital
      Markets, LLC shall receive 2% as a placement agent fee) which fee may be
      deducted from the proceeds at closing and/or paid directly by the escrow agent.
      In addition, XSNX agrees to pay Wharton or its’ designee 50,000 five year
      warrants per million dollars of financing subscribed for or pro-rated portion
      thereof at a strike price equal to 110% of the market price at the time of
      closing. The fees set forth above are due and payable to Wharton irrespective
      of
      whether the transaction closes during the term hereof or thereafter.


     

    XSNX
      acknowledges that the relationships between Wharton and the persons and/or
      entities to be introduced to XSNX for the purposes contemplated by this
      agreement are proprietary to Wharton and essential to its business. Accordingly,
      XSNX agrees, to keep the names of investors confidential, except for SEC
      reporting purposes or if legally required and to a three-year period following
      the execution of this agreement, that neither XSNX, nor any of its officers
      directors or other representatives, will contact, either directly or indirectly,
      any sources introduced to XSNX by Wharton hereunder for the purpose of arranging
      any future financing for XSNX or any of its affiliates, without the express
      written consent of Wharton and without satisfactory compensation to Wharton.
      XSNX also agrees not to issue any press releases relating to this transaction
      without the prior review of Wharton and without mentioning that Wharton
      facilitated the transaction, unless prohibited by applicable law.

     

    XSNX
      represents it is free to enter into this transaction will act in good faith
      and
      will not hinder Wharton's efforts hereunder. XSNX further agrees, in
      consideration of Wharton’s
      services as set forth above, that XSNX will indemnify and hold harmless Wharton,
      its affiliates, officers, directors, members, partners, agents, controlling
      persons and employees against any and all losses, claims, damages or liabilities
      (collectively, “Losses”)
      incurred in connection with or as a result of either its engagement hereunder
      of
      any matter referred to in this engagement letter (except to the extent that
      any
      such Losses result from the gross negligence or bad faith of Wharton performing
      the services that are subject of this letter) and the Company agrees that it
      will in connection therewith reimburse Wharton and such other indemnified
      parties listed above for its and their legal and other expenses, which must
      be
      reasonable and documented.

     

    Very
      truly yours,

     

    XSUNX
      Inc.

    By:
       /s/
      Tom M. Djokovich

           
      President & CEO

     

    
      
        
        

      

      
        10