Separation
        Agreement and Mutual Release

       

      This
        Separation Agreement and Mutual Release ("Agreement") is made this 30 day
        of
        May, 2008 (“Effective Date”), by and between XsunX, Inc., a Colorado corporation
        (“XsX”), on the one hand, and MVSystems, Inc., a Colorado corporation (“MVS”)
        and Dr. Arun Madan (“Madan”), on the other hand. XsX, MVS and Madan are
        collectively referred to herein as the “Parties.” Each of XsX, MVS and Madan is
        individually referred to herein as a “Party.”

       

      Recitals

       

      WHEREAS,
        prior to the date hereof the Parties entered into certain written agreements
        and
        understandings relating to the licensing and development of certain technology,
        including without limitation a “Phase 2” development proposal dated June 1,
        2004, a Technology Sharing and License Agreement dated September 17, 2004,
        a
        Consulting and Advisory Agreement dated September 17, 2004, a “Phase 3”
development proposal dated February 22, 2005, a “Phase 4 Four Terminal
        Development” agreement dated December 22, 2005, as amended by an Addendum dated
        December 22, 2005, a “Phase 4 Base Line Production” agreement dated December 2,
        2005, and an Expanded Use License Agreement dated October 12, 2005, and any
        attachments, amendments or revisions thereto (together, the “Contracts”);
        and

       

      WHEREAS,
        in connection with certain of the Contracts XsX granted to MVS and Madan
        certain
        warrants to purchase common stock of XsX, pursuant to the terms of a Technology
        Sharing Warrant, and License Agreement Warrant, a Consultancy and Advisory
        Warrant and an Expanded Use License Stock Warrant (together, the “Warrant
        Agreements”) in exchange for MVS’s and Madan’s performance under the Contracts;
        and 

       

      WHEREAS,
        the Parties have determined that it is mutually beneficial to terminate their
        business relationship, together with the joint development projects undertaken
        pursuant to the Contracts and Warrant Agreements, and to mutually release
        each
        other, and the Parties further wish to have no obligations whatsoever between
        or
        among them arising from or relating in any manner to the Contracts or Warrant
        Agreements upon execution of this Agreement;

       

      NOW
        THEREFORE, the parties enter into this Agreement on the terms set forth
        below.

       

      Agreement

       

      In
        consideration of the foregoing recitals, the covenants and provisions contained
        herein, and other good and valuable consideration, the receipt and adequacy
        of
        which are acknowledged by the Parties, the Parties agree as
        follows:

       


      
        
           

        

        
          
          

          
            

          

        

        
           

        

      


      


       

      1. Terms.
        

       

      1.1 Non-exclusive
        License and Cross-License Agreement.
        Contemporaneously herewith, and in consideration of the mutual obligations
        set
        forth herein, XsX, MVS and Madan agree to execute, and have executed, the
        Non-Exclusive License and Cross-License Agreement attached hereto as Ex.
        A
        (“License”).

       

      1.2 Sublease.
        Contemporaneously
        herewith, and in consideration of the mutual obligations set forth herein,
        XsX
        and MVS agree to execute, and have executed, the Sublease Agreement attached
        hereto as Ex. B (“Sublease”).

       

      1.3 Sale
        of x4-bpl machine to third party or Reimbursement Option by mvs or
        madan.
        

       

      1.3.1 Machine
        Sale Deadline. For
        purposes of this Section 1.3, “Machine Sale Deadline” means May 1,
        2009.

       

      1.3.2 Sale
        of Machine to third party/Sale Agreement.
        Subject
        to the terms set forth in this Agreement and the Sublease, including this
        Section 1.3, from the date hereof through the Machine Sale Deadline, MVS
        or
        Madan shall have the right to sell to any third party the X4-BPL machine
        (“Machine”) currently located in the Suite J facility at 500 Corporate Circle,
        Golden, Colorado, 80401 (“Facility”) upon such terms as MVS or Madan shall
        determine so long as MVS and Madan use commercially reasonable efforts to
        sell
        the Machine. Such sale shall be subject to a written sales agreement (“Sale
        Agreement”) approved in advance by XsX, which approval will not be unreasonably
        withheld; provided, however, that the foregoing approval requirement is limited
        to the terms of the Sale Agreement concerning: (a) net sale proceeds payable
        to
        XsX, including amount and disbursement schedule, if and only to the extent
        the
        net sale proceeds distributable to XsX pursuant to Section 1.3.3 are less
        than
        $1,412,000.00; and (b) any obligation or liability of XsunX, including without
        limitation any representation or warranty relating to the Machine. To the
        extent
        that XsX wishes to withhold its approval, XsX must provide its written
        objection, if any, to the Sale Agreement to MVS within five (5) business
        days of
        receipt of the Sale Agreement or XsX shall be deemed to have no objection
        to the
        Sale Agreement and approved of same. 

       

      In
        the
        event of a sale of the Machine by MVS or Madan to a third party, MVS shall
        be
        responsible to collect and remit to the appropriate government authority(ies)
        any sales tax or import duty. Such sales tax or import duty shall be in addition
        to the purchase price and payable by the third party purchaser upon closing
        of
        the Machine sale.  

       

      1.3.3 Distribution
        of proceeds from sale of machine to third party.
        In
        the
        event of a sale of the Machine by MVS or Madan to a third party as set forth
        in
        Section 1.3.2, the proceeds of such sale shall be distributed alternatively
        as
        follows: (a) if the sale proceeds are greater than or equal to $1,765,000.00,
        exclusive of sales tax, import duties and packaging and shipping costs, such
        proceeds will be allocated and disbursed 50% to XsX and 50% to MVS from such
        amount as may be left after payment, in the following order and to the extent
        sale proceeds remain available, of $1,412,000 to XsX, $353,000 to MVS, MVS’s
        Costs of Sale (defined hereafter), and one-half (1/2) of XsX’s rental payments
        made pursuant to the Master Lease during the term of the Sublease (“XsX Rental
        Payments”); (b) if the sale proceeds are less than $1,765,000.00, exclusive of
        sales tax, import duties and packaging and shipping costs, such proceeds
        will be
        allocated and disbursed 80% to XsX and 20% to MVS from such amount as may
        be
        left after payment of MVS’s Costs of Sale. 

       


      
        
           

        

        
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      “MVS’s
        Costs of Sale” for purposes of this Section 1.3.3 shall mean expenses incurred
        by MVS to effectuate a sale of the Machine to a third party hereunder and
        consisting of: (i) payments for Utilities and Insurance made by or due from
        MVS
        as defined in the Sublease; (ii) marketing, maintenance and closing costs
        for
        such sale not to exceed the sum of $20,000.00. 

       

      1.3.4 Machine
        Reimbursement Option of MVS and Madan. From
        the
        date hereof through the Machine Sale Deadline, MVS or Madan shall have the
        option, but not the obligation, to reimburse XsX for the payments XsX has
        previously made to MVS for the Machine ($1,412,000.00) plus one-half (1/2)
        of
        XsX’s Rental Payments (“Reimbursement Option”); provided, however, that if
        within six (6) months following written notice to XsX of the exercise of
        the
        Reimbursement Option, MVS or Madan enters into an agreement for sale of the
        Machine to a third party, then the proceeds of such sale shall be distributed
        in
        accordance with Section 1.3.3 less the sum of $1,412,000 already paid by
        MVS or
        Madan to XsX upon exercise of the Reimbursement Option. In the event that
        MVS or
        Madan exercises such Reimbursement Option, XsX shall have no warranty or
        other
        obligation whatsoever with respect to sale or delivery of the Machine and
        except
        as set forth in this Section 1.3.4 MVS shall own the Machine free and clear
        of
        any claim or right of any person including XsX and including any right of
        such
        person to sell or purchase the Machine.

       

      1.3.5 Notice
        of Machine Sale or Exercise of Reimbursement Option. On
        or
        before the Machine Sale Deadline, MVS and Madan shall either: (a) notify
        XsX of
        the sale, if any, of the Machine to a third party pursuant to Section 1.3.2,
        by
        providing to XsX a copy of the Sale Agreement; or (b) notify XsX in writing
        of
        any exercise, if any, by MVS or Madan of the Reimbursement Option set forth
        in
        Section 1.3.4.

       

      1.3.6 Sale/Option
        exercise closing date and Machine delivery. In
        the
        event that the Machine is sold by MVS or Madan to a third party pursuant
        to
        Sections 1.3.2, the closing of such sale, including payment in full by the
        purchaser, shall be completed on or before May 31, 2009 (“Closing Date”). The
        Machine shall be delivered to the purchaser, at purchaser’s expense, at a
        location other than the Facility, on or before the Closing Date. 

       

      In
        the
        event that MVS or Madan exercise the Machine Reimbursement Option pursuant
        to
        Sections 1.3.4, the closing of such option exercise, including payment in
        full
        by MVS or Madan, shall be completed on or before May 31, 2009 (“Closing Date”).
        The Machine shall be delivered to MVS or Madan, at MVS or Madan’s expense, at a
        location other than the Facility on or before the Closing Date.

       


      
        
           

        

        
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      1.3.7 Property
        Taxes and Delivery of Operational Documents.
        XsX
        shall be responsible to pay any applicable property, sales or other tax that
        may
        apply or may become due with respect to the Machine. In the event that the
        Machine is not sold to a third party by MVS or Madan by the Machine Sale
        Deadline pursuant to Section 1.3.2, and MVS or Madan chose not to exercise
        the
        Reimbursement Option set forth in Section 1.3.4 by the Machine Sale Deadline,
        then as of the Machine Sale Deadline: (a) XsX shall own the Machine free
        and
        clear of any claim or right of any person including MVS or Madan and including
        any right of such person to sell or purchase the Machine; (b) MVS and Madan
        shall deliver to XsX all such documents reasonably necessary to operate the
        Machine, including hardware and software documentation, manuals and passwords;
        (c) the Machine will be delivered to XsX at the Subleased Premises (as that
        term
        is defined in the Sublease) in the substantially same condition as it is
        as of
        the Effective Date, with no further warranties or obligations owed by MVS
        or
        Madan as to the Machine; and (d) XsX shall pay all applicable property, sales
        tax or other tax or duty that may apply or may become due.

       

      1.4 Warrant
        agreement termination 

       

      1.4.1 Warrants
        Ownership. MVS
        and
        Madan together represent that as of the date hereof, MVS and Madan together
        own
        and control, pursuant to the Warrant Agreements, unexercised warrants to
        purchase 12,650,000 shares of XsX common stock (the “Retained Warrants”). MVS
        and Madan together represent that warrants to purchase an additional 1,350,000
        shares of common stock, pursuant to the Warrant Agreements, have been assigned
        by MVS or Madan as of the date hereof to certain third parties (“Assigned
        Warrants”), with the prior written consent of XsX, subject to the terms of the
        Contracts, the Warrant Agreements and the assignment agreements. MVS and
        Madan
        represent and warrant that the Retained Warrants have not been assigned,
        transferred, pledged, hypothecated or otherwise conveyed to any third party.
        

       

      1.4.2 Warrant
        Agreements Termination. The
        Warrant Agreements shall be, and hereby are, terminated, together with the
        warrants issued thereunder, notwithstanding any term therein relating to
        vesting, notice, termination with or without cause or any other provision,
        with
        no surviving duties or obligations thereunder. MVS and Madan agree that the
        Retained Warrants are hereby cancelled. MVS and Madan take no position as
        to the
        effect of the foregoing Warrant Agreements termination on the Assigned Warrants,
        and covenant and agree not to assert any such position hereafter.

       

      1.5 Termination
        of the contracts and Discharge of Duties

       

      1.5.1 Termination
        of the Contracts. Each
        of
        the Contracts shall be, and hereby is, terminated, notwithstanding any term
        therein relating to notice, termination with or without cause or any other
        provision, with no surviving duties or obligations thereunder surviving this
        termination. Such termination shall have no effect upon the duties and
        obligations of the Parties arising under this Agreement, the Cross-License
        or
        the Sublease.

       


      
        
           

        

        
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      1.5.2 Discharge
        of XsX.
        The
        Parties agree that from the date hereof, XsX shall have no duty to perform
        or
        other obligation of any kind to MVS or Madan, express or implied, arising
        under
        the Contracts or Warrant Agreements and all such duties and obligations shall
        be
        deemed fully discharged. Such discharge is exclusive of duties and obligations
        expressly set forth in this Agreement, the License and Sublease. 

       

      1.5.3 Discharge
        of MVS and Madan.
        The
        Parties agree that from the date hereof, MVS and Madan shall have no duty
        to
        perform or other obligation of any kind to XsX, express or implied, arising
        under the Contracts or Warrant Agreements and all such duties and obligations
        shall be deemed fully discharged. Such discharge is exclusive of duties and
        obligations expressly set forth in this Agreement, the License and
        Sublease.

       

      1.6 X4-LCT
        Chamber.
        Upon
        execution of this Agreement, MVS and Madan shall deliver, within three (3)
        weeks
        to XsX, at the Retained Premises (as that term is defined in the Sublease),
        the
        X4-LCT chamber currently located at the Facility together with any operating
        and
        component manuals available for and specifically relating to the X4-LCT chamber.
        Upon delivery MVS and Madan shall have no further warranties or obligations
        as
        to, nor ownership or other interest in, the X4-LCT chamber.

       

      2. XsX’s
        Release.

       

      2.1 XsX’s
        Representations and Warranties.
        XsX
        represents and warrants that it has full authority to enter into this Agreement,
        and it has not assigned or transferred in any way any claims against MVS
        or
        Madan or any XsX Releasee (as defined in Section 2.2).

       

      2.2 General
        Release.
        With the
        exception of any claims arising under this Agreement, the License and the
        Sublease, XsX hereby fully releases, discharges, and acquits MVS, Madan and
        their subsidiaries, parent corporations, affiliates, and their respective
        past
        and present officers, directors, shareholders, employees, contractors, agents,
        predecessors, successors, assigns, guarantors, indemnitors, sureties, insurers,
        subrogors, accountants, auditors and attorneys (each, a “XsX Releasee”), from
        any claims, causes of action, or liabilities which XsX now has, may have,
        may
        have had, or claims to have had, whether directly or indirectly, whether
        accrued
        in the past, present, or future, whether known or unknown, whether for damages
        or equitable relief of any sort including, without limitation, economic damages,
        lost profits, exemplary damages, treble damages, consequential damages, and
        attorneys' fees, in any way arising prior to the date hereof and related
        or
        unrelated to the course of dealing among the Parties and the relationships,
        facts, circumstances, events, and agreements which gave rise to or which
        are
        related to the Contracts or the Warrant Agreements. The Parties intend for
        this
        to be a general release by XsX, which said release shall survive any termination
        of this Agreement, the License and/or Sublease.

       


      
        
           

        

        
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      3. Mvs
        and Madan Release.

       

      3.1 Mvs
        and madan Representations and Warranties.
        MVS
        and
        Madan represent and warrant that each has full authority to enter into this
        Agreement, and that neither has assigned or transferred in any way any claims
        against XsX or any MVS Releasee (as defined in Section 3.2).

       

      3.2 General
        Release.
        With the
        exception of any claims arising under this Agreement, the License and the
        Sublease, each of MVS and Madan hereby fully releases, discharges, and acquits
        XsX and its subsidiaries, parent corporations, affiliates, and their respective
        past and present officers, directors, shareholders, employees, contractors,
        agents, predecessors, successors, assigns, guarantors, indemnitors, sureties,
        insurers, subrogors, accountants, auditors and attorneys (each, an “MVS
        Releasee”), from any claims, causes of action, or liabilities which MVS or Madan
        now has, may have, may have had, or claims to have had, whether directly
        or
        indirectly, whether accrued in the past, present, or future, whether known
        or
        unknown, whether for damages or equitable relief of any sort including, without
        limitation, economic damages, lost profits, exemplary damages, treble damages,
        consequential damages, and attorneys' fees, in any way arising prior to the
        date
        hereof and related or unrelated to the course of dealing among the Parties
        and
        the relationships, facts, circumstances, events, and agreements which gave
        rise
        to or which are related to the Contracts or the Warrant Agreements. The Parties
        intend for this to be a general release by MVS and Madan, which said release
        shall survive any termination of this Agreement, the License and/or Sublease.
        

       

      4. Integration.
        This
        Agreement and all exhibits thereto contain the entire understanding between
        the
        Parties with respect to the matters set forth herein. Any modification, change,
        or termination of this Agreement (or any part thereof) must be agreed to
        in
        writing by the Parties. The terms of this Agreement are intended to be
        contractual.

       

      5. Default
        and Termination. A
        default
        shall occur under this Agreement in the event of a material default by any
        of
        the Parties under the terms of this Agreement, the License or the Sublease.
        In
        the event of such default, the non-defaulting party shall given written notice
        to the Party in default that a default has occurred. If such default is not
        cured by the Party in default within thirty (30) days of such notice, a Material
        Default will result. In the event of a Material Default, the non-defaulting
        Party shall be entitled to terminate the Agreement, the License or Sublease
        and
        exercise any remedy otherwise available by law to the non-defaulting Party.
        

       

      6. Notice.
        All
        notices and other communications required under this Agreement shall be in
        writing and shall be given by United States first class mail, postage prepaid,
        registered or certified, return receipt requested, facsimile or by hand delivery
        (including by means of a professional messenger service) addressed as
        follows:

       


      
        
           

        

        
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      If
        to
        XsX:                                              
XsunX,
        Inc.

      65
        Enterprise

      Aliso
        Viejo, CA 92656   

      Attn:
        Tom
        Djokovich

      (Tel)
        (949) 330-8060

      (Fax)
        (949) 330-8061

      


      With
        copy
        to:                      
Tobin
        D.
        Kern, Esq.

      Sherman
        & Howard, LLC

      633
        17th
        Street, Suite 3000

      Denver,
        Colorado 80202

      (Tel)
        (303) 299-8384

      (Fax)
        (303) 298-0940

      


      If
        to MVS
        or Madan:          
MVSystems,
        Inc.

      500
        Corporate Circle, Unit L

      Golden,
        Colorado 80401

      Attn:
        Dr.
        Arun Madan

      (Tel)
        (303) 271-9907

      (Fax)
        (303) 526-1408

      


      With
        copy
        to:                      
Lee
        F.
        Johnston, Esq.

      Holland
        & Hart LLP

      555
        17th
        Street, Suite 3200

      Denver,
        Colorado 80218

      (Tel)
        (303) 295-8562

      (Fax)
        (303) 295-8261

      


       

      7. Enforcement.
        The
        Parties agree that all obligations, representations, and covenants in this
        Agreement are uniquely beneficial to the Party to which they run and shall
        be
        specifically enforceable, including through an action for injunctive
        relief.

       

      8. Governing
        Law. Colorado
        substantive law, excluding Colorado’s choice of law rules, governs the validity,
        effect, and interpretation of this Agreement.

       

      9. Execution
        in Counterparts. This
        Agreement may be executed in counterparts by facsimile to be followed by
        originally executed counterparts, each one of which shall be deemed an original
        and all of which together shall constitute one and the same
        agreement.

       

      10. Counsel.
        Each
        Party hereby expressly acknowledges that the effect and import of this
        Agreement, including all rights and obligations arising under the Agreement,
        have been fully explained to it by its respective counsel, and that it fully
        understands this Agreement.

       

      11. Joint
        Authorship. This
        Agreement is the product of the negotiation of all of the Parties. For
        convenience, this Agreement has been drafted initially in substantial part
        by
        legal counsel for certain of the Parties, but by agreement of the Parties,
        this
        Agreement shall be deemed to have been drafted by all Parties jointly, and
        any
        ambiguity herein shall not be construed for or against any Party by virtue
        of
        the identity of the any drafter, initial or otherwise.

       

      
        
          
             

          

          
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      12. Headings.
        The
        headings used in this Agreement are not intended by the Parties to have
        independent meaning or to modify in any way the terms of this
        Agreement. 

       

       

      
        
           

        

        
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      [Remainder
        of page intentionally left blank]


      This
        Agreement has been executed effective as of the date written on page
        1.

      


      XsunX,
        Inc.

      


      


      


      By:________________________________

      Name:______________________________

      Title:_______________________________

      


      


      


      MVSystems,
        Inc.

      


      


      


      By:________________________________

      Name:______________________________

      Title:_______________________________

      


      


      Arun
        Madan

      


      


      


      ________________________________ 

      

 

      
        
           

        

        
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