THE
SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF.  NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.





STOCK
OPTION AGREEMENT





THIS STOCK OPTION AGREEMENT
("Agreement") is made effective as of the date of grant set forth below ("Date
of Grant") by and between XSUNX, INC., a Colorado corporation ("Company"), and
the optionee named below ("Optionee") as contemplated in the Company’s 2007
Option Plan (“Plan”). Capitalized terms not defined herein shall have the
meaning ascribed to them in the Plan.





Optionee:
Joseph Grimes





Social
Security Number:





Address:





Total
Option Shares:    1,000,000





Exercise
Price Per Share as Set by the Board of Directors on October 18, 2010:
$0.10





Date of
Grant as Approved by the Board of Directors: October 18, 2010





First
Vesting Date:        see section
3





Expiration
Date for Exercise of
Options:        October 18,
2015





Stock
Option Number: 37-2010




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1.           Conditional Grant of Option.
The Company hereby conditionally grants to Optionee an option ("Option") to
purchase the total number of shares of Common Stock of the Company set forth
above ("Shares") at the Exercise Price Per Share set forth above ("Exercise
Price"), subject to all of the terms and conditions of this Agreement and the
Plan.  If designated as an Incentive Stock Option the Option is
intended to qualify as an "incentive stock option" ("ISO") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended
("Code").  Subject to the Plan, only Employees of the Company shall
receive ISOs.  This Agreement shall be deemed a Stock Option Agreement
as defined in the Plan.  The terms and conditions of the Plan are
incorporated herein by this reference.  All specific terms and
references, including capitalized terms and references, which are undefined in
this Agreement, shall have the definition and meaning ascribed to them in the
Plan, including, without limitation, the definition of the terms Employee and
Consultant.





2.           Exercise Price. The Exercise
Price, is not less than the fair market value per share of Common Stock on the
date of grant, as determined by the Board; provided, however, in the event
Optionee is an Employee and owns stock representing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or of
its Parent or Subsidiary corporations immediately before the Option is granted,
said exercise price is not less than one hundred ten percent (110%) of the fair
market value per share of Common Stock on the date of grant as determined by the
Board.





3.           Exercise of
Option.  Subject to the vesting schedule contained herein
and the other conditions set forth in this Agreement, all or part of the Option
may be exercised prior to its expiration from the first vesting date set forth
above (“First Vesting Date”) up to and including 5:00 p.m. Pacific Standard Time
on the expiration date set forth above ("Expiration Date") at the time or times
set forth herein in accordance with the provisions of the Plan as
follows:





(i)          Vesting:





(a)
            The
      Option shall become exercisable in the amount of 1,000,000 shares upon
      Optionees management of the assembly and operation of initial baseline
      CIGSolar process equipment contemplated under the Company’s CIGS solar
      cell equipment and technology plan, and the subsequent production of 1,000
      full size solar cells (dimension of 125 or 156 mm square) that achieve a
      minimum of >10% conversion efficiency over a five (5) day operating
      period in which the system operates at the designed through-put speed
      range delivering a cell yield of >80%. Cells measured at AM1.5 using a
      light source and tester calibrated to NIST
  standards.





(b)
            In
      the event of a sale or merger of all or substantially all of the Company’s
      assets to an acquiring party following which the Company would not be a
      surviving operating entity, the Company will provide Optionee a fifteen
      (15) day prior notice of such proposed event providing for immediate
      vesting of all remaining unvested Options under this
      Agreement.




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(c)
            This
      Option may not be exercised for a fraction of a
  Share.





(d)
            In
      the event of Optionee's death, disability or other termination of
      employment, the exercisability of the Option is governed by Sections 7, 8
      and 9 below, subject to the limitations contained in subsection 3(i)(d)
      below.





(e)
            In
      no event may the Option be exercised after the date of expiration of the
      term of the Option as set forth in Section 11
  below.





(ii)
            Method of Exercise. The
      Option shall be exercisable by written notice which shall state the
      election to exercise the Option, the number of Shares in respect of which
      the Option is being exercised, and such other representations and
      agreements as to the holder's investment intent with respect to such
      shares of Common Stock as may be required by the Company pursuant to the
      provisions of the Plan. Such written notice shall be signed by Optionee
      and shall be delivered in person or by certified mail to the President,
      Secretary or Chief Financial Officer of the Company. The written notice
      shall be accompanied by payment of the exercise
  price.





(iii)
            Compliance with
      Law.  No Shares will be issued pursuant to the exercise
      of an Option unless such issuance and such exercise shall comply with all
      relevant provisions of law and the requirements of any stock exchange or
      quotation medium upon which the Shares may then be listed or quoted.
      Assuming such compliance, for income tax purposes the Shares shall be
      considered transferred to the Optionee on the date on which the Option is
      exercised with respect to such
Shares.





(iv)
            Adjustments, Merger,
      etc. The number and class of the Shares and/or the exercise price
      specified above are subject to appropriate adjustment in the event of
      changes in the capital stock of the Company by reason of stock dividends,
      stock splits, combination or recombination of shares, reclassifications,
      mergers, consolidations, reorganizations or liquidations. Subject to any
      required action of the stockholders of the Company, if the Company shall
      be the surviving corporation in any merger or consolidation, the Option
      (to the extent that it is still outstanding) shall pertain to and apply to
      the securities to which a holder of the same number of shares of Common
      Stock that are then subject to the Option would have been entitled. A
      dissolution or liquidation of the Company, or a merger or consolidation in
      which the Company is not the surviving corporation, will cause the Option
      to terminate, unless such dissolution or liquidation of the Company, or a
      merger or consolidation shall otherwise provide. Prior to the termination
      of the Option the Company shall provide Optionee a notice of the intent to
      terminate the Option fifteen days prior to a dissolution or liquidation of
      the Company, or a merger or consolidation in which the Company is not the
      surviving corporation, and Optionee shall have the right under such notice
      to exercise this Option in whole or part (to the extent that the Option is
      still outstanding) during a ten-day period ending on the fifth day prior
      to such dissolution or liquidation of the Company, or a merger or
      consolidation. To the extent that the foregoing adjustments relate to
      stock or securities of the Company, such adjustments shall be made by the
      Board, whose determination in that respect shall be final, binding and
      conclusive.


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4.           Optionee's Representations. By
receipt of the Option, by its execution, and by its exercise in whole or in
part, Optionee represents to the Company that Optionee understands
that:





(i)
            Both
      the Option and any Shares purchased upon its exercise are securities, the
      issuance by the Company of which requires compliance with federal and
      state securities laws;





(ii)
            These
      securities are made available to Optionee only on the condition that
      Optionee makes the representations contained in this Section 4 to the
      Company;





(iii)
            Optionee
      has made a reasonable investigation of the affairs of the Company
      sufficient to be well informed as to the rights and the value of these
      securities;





(iv)
            Optionee
      understands that the securities have not been registered under the
      Securities Act of 1933, as amended (the "Act") in reliance upon one or
      more specific exemptions contained in the Act, which may include reliance
      on Rule 701 promulgated under the Act, if available, or which may depend
      upon: (a) Optionee's bona fide investment intention in acquiring these
      securities; (b) Optionee's intention to hold these securities in
      compliance with federal and state securities laws; (c) Optionee having no
      present intention of selling or transferring any part thereof (recognizing
      that the Option is not transferable) in violation of applicable federal
      and state securities laws; and (d) there being certain restrictions on
      transfer of the Shares subject to the
Option;





(v)
            Optionee
      understands that the Shares subject to the Option, in addition to other
      restrictions on transfer, must be held indefinitely unless subsequently
      registered under the Act, or unless an exemption from registration is
      available; that Rule 144, the usual exemption from registration, is only
      available after the satisfaction of certain holding periods and in the
      presence of a public market for the Shares; that there is no certainty
      that a public market for the Shares will exist, and that otherwise it will
      be necessary that the Shares be sold pursuant to another exemption from
      registration which may be difficult to satisfy;
  and,





(vi)
            Optionee
      understands that the certificate representing the Shares will bear a
      legend prohibiting their transfer in the absence of their registration or
      the opinion of counsel for the Company that registration is not required,
      and a legend prohibiting their transfer in compliance with applicable
      state securities laws unless otherwise
exempted.





5.           Method of
Payment.  Payment of the purchase price may be made subject to
the terms of Section 14 herein, or by cash, check or, in the sole discretion of
the Board at the time of exercise, promissory notes or other Shares of Common
Stock having a fair market value on the date of surrender equal to the aggregate
purchase price of the Shares being purchased.




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6.           Restrictions on Exercise. The
Option may not be exercised if the issuance of such Shares upon such exercise or
the method of payment of consideration for such Shares would constitute a
violation of any applicable federal or state securities or other law or
regulation. As a condition to the exercise of the Option, the Company may
require Optionee to make any representation and warranty to the Company as may
be required by any applicable law or regulation.





7.           Termination of Status as an Employee
or Consultant. In the event of termination of Optionee's continuous
status as an Employee or Consultant, as such status may be determined and
construed by the Company in its sole discretion (“Continuous Status”), for any
reason other than death or disability or the completed term and performance
under any consulting or employment agreement between the Optionee and the
Company, Optionee may, but only within sixty (60) days after the date of such
termination (but in no event later than the date of expiration of the term of
the Option as set forth in Section 11 below), exercise the Option to the extent
that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise the Option within the time
specified herein, the Option shall terminate.





8.           Disability of Optionee. In the
event of termination of Optionee's Continuous Status as an Employee or
Consultant as a result of Optionee's disability, Optionee may, but only within
six (6) months from the date of termination of employment or consulting
relationship (but in no event later than the date of expiration of the term of
the Option as set forth in Section 11 below), exercise the Option to the extent
Optionee was entitled to exercise it at the date of such termination; provided,
however that if the disability is not total and permanent (as defined in Section
22(e)(3) of the Code) and the Optionee exercises the option within the period
provided above but more than three months after the date of termination, the
Option shall automatically be deemed to be a Nonstatutory Stock Option and not
an Incentive Stock Option; and provided, further, that if the disability is
total and permanent (as defined in Section 22(e)(3) of the Code), then the
Optionee may, but only within one (1) year from the date of termination of
employment or consulting relationship (but in no event later than the date of
expiration of the term of the Option as set forth in Section 11 below), exercise
the Option to the extent Optionee was entitled to exercise it at the date of
such termination. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
(which Optionee was entitled to exercise) within the time periods specified
herein, the Option shall terminate.





9.           Death of Optionee. In the
event of the death of Optionee:





(i)
            During
      the term of the Option while an Employee or Consultant of the Company and
      having been in Continuous Status as an Employee or Consultant since the
      date of grant of the Option, the Option may be exercised, at any time
      within one (1) year following the date of death (but, in the case of an
      Incentive Stock Option, in no event later than the date of expiration of
      the term of the Option as set forth in Section 11 below), by Optionee's
      estate or by a person who acquired the right to exercise the Option by
      bequest or inheritance, but only to the extent of the right to exercise
      that had accrued at the time of death of the Optionee. To the extent that
      such Employee or Consultant was not entitled to exercise the Option at the
      date of death, or if such Employee, Consultant, estate or other person
      does not exercise such Option (which such Employee, Consultant, estate or
      person was entitled to exercise) within the one (1) year time period
      specified herein, the Option shall terminate;
  or,


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(ii)
            During
      the sixty (60) day period specified in Section 7 or the one (1) year
      period specified in Section 8, after the termination of Optionee's
      Continuous Status as an Employee or Consultant, the Option may be
      exercised, at any time within one (1) year following the date of death
      (but, in the case of an Incentive Stock Option, in no event later than the
      date of expiration of the term of the Option as set forth in Section 11
      below), by Optionee's estate or by a person who acquired the right to
      exercise the Option by bequest or inheritance, but only to the extent of
      the right to exercise that had accrued at the date of termination. To the
      extent that such Employee or Consultant was not entitled to exercise the
      Option at the date of death, or if such Employee, Consultant, estate or
      other person does not exercise such Option (which such Employee,
      Consultant, estate or person was entitled to exercise) within the one (1)
      year time period specified herein, the Option shall
    terminate.





10.     Non-Transferability of Option.
The Option may not be transferred in any manner otherwise than by will or by the
laws of descent or distribution and may be exercised during the lifetime of
Optionee, only by Optionee. The terms of the Option shall be binding upon the
executors, administrators, heirs, successors and assigns of
Optionee.





11.     Term of Option. The Option may
not be exercised more than five (5) years from the date of grant of the Option,
and may be exercised during such term only in accordance with the Plan and terms
of the Option; provided, however, that the term of this option, if it is a
Nonstatutory Stock Option, may be extended for the period set forth in Section
9(i) or Section 9(ii) in the circumstances set forth in such
Sections.





12.         Early Disposition of Stock; Taxation
Upon Exercise of Option. If Optionee is an Employee and the Option
qualifies as an ISO, Optionee understands that, if Optionee disposes of any
Shares received under the Option within two (2) years after the date of this
Agreement or within one (1) year after such Shares were transferred to Optionee,
Optionee may be treated for federal income tax purposes as having received
ordinary income at the time of such disposition in any amount generally measured
as the difference between the price paid for the Shares and the lower of the
fair market value of the Shares at the date of exercise or the fair market value
of the Shares at the of disposition. Any gain recognized on such premature sale
of the Shares in excess of the amount treated as ordinary income may be
characterized as capital gain. Optionee hereby agrees to notify the Company in
writing within thirty (30) days after the date of any such disposition. Optionee
understands that if Optionee disposes of such Shares at any time after the
expiration of such two-year and one-year holding periods, any gain on such sale
may be treated as long-term capital gain laws subject to meeting various
qualifications. If Optionee is a Consultant or this is a Nonstatutory Stock
Option, Optionee understands that, upon exercise of the Option, Optionee may
recognize income for tax purposes in an amount equal to the excess of the then
fair market value of the Shares over the exercise price.  Upon a
resale of such shares by the Optionee, any difference between the sale price and
the fair market value of the Shares on the date of exercise of the Option may be
treated as capital gain or loss. Optionee understands that the Company may be
required to withhold tax from Optionee's current compensation in some of the
circumstances described above (and Optionee hereby so authorizes the Company);
to the extent that Optionee's current compensation is insufficient to satisfy
the withholding tax liability, the Company may require the Optionee to make a
cash payment to cover such liability as a condition to exercise of the
Option.


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13.         Tax Consequences. The Optionee
understands that any of the foregoing references to taxation are based on
federal income tax laws and regulations now in effect, and may not be applicable
to the Optionee under certain circumstances. The Optionee may also have adverse
tax consequences under state or local law. The Optionee has reviewed with the
Optionee's own tax advisors the federal, state, local and foreign tax
consequences of the transactions contemplated by this Agreement. The Optionee is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Optionee understands that the Optionee
(and not the Company) shall be responsible for the Optionee's own tax liability
that may arise as a result of the transactions contemplated by this
Agreement.





14.Net Issue Exercise.Notwithstanding any
provisions herein to the contrary, if the fair market value of one share of the
Company’s Common Stock is greater than the Per Share Exercise Price (at the date
of calculation as set forth below), in lieu of exercising the Option for cash,
the Optionee may elect to receive shares equal to the value (as determined
below) of the Option (or the portion thereof being canceled) by surrender of the
Option at the principal office of the Company together with the properly
endorsed Notice of Exercise and Subscription Form and notice of such election,
in which event the Company will issue to the Optionee a number of shares of
Common Stock computed using the following formula:





X =
                Y (A-B)A





Where X = the number of shares of
Common Stock to be issued to the Optionee





Y = the
number of shares of Common Stock purchasable under the Option or, if only a
portion of the Option is being exercised, the portion of the Option being
canceled (at the date of such calculation)





A = the
fair market value of one share of the Company’s Common Stock (at the date of
such calculation)





B = Per
Share Exercise Price (as adjusted to the date of such calculation)





For purposes of the above calculation,
fair market value of one share of the Company’s Stock will be the average of the
closing prices of the Company’s shares of Common Stock as quoted on the OTC
Bulletin Board (the “OTCBB”) (or on such other United States stock exchange or
public trading market or quotation medium on or by which the shares of the
Company trade or are quoted if, at the time of the election, they are not
trading or being quoted on the OTCBB), for the five (5) consecutive trading days
immediately preceding the date of the date the completed, executed Notice of
Exercise and Subscription Form is received.




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15.         Damages. The parties agree
that any violation of the Option (other than a default in the payment of money)
cannot be compensated for by damages, and any aggrieved party shall have the
right, and is hereby granted the privilege, of obtaining specific performance of
the Option in any court of competent jurisdiction in the event of any breach
hereunder.





16.         Delay. No delay or failure on
the part of the Company or the Optionee in the exercise of any right, power or
remedy shall operate as a waiver thereof, nor shall any single or partial
exercise by any of them of any right, power or remedy preclude other or further
exercise thereof, or the exercise of any other right, power or
remedy.





17.         Restrictions. Notwithstanding
anything herein to the contrary, Optionee understands and agrees that Optionee
shall not dispose of any of the Shares, whether by sale, exchange, assignment,
transfer, gift, devise, bequest, mortgage, pledge, encumbrance or otherwise,
except in accordance with the terms and conditions of this Agreement, and
Optionee shall not take or omit any action which will impair the absolute and
unrestricted right, power, authority and capacity of Optionee to sell Shares in
accordance with the terms and conditions hereof.





Any
purported transfer of Shares by Optionee that violates any provision of this
Section 17 shall be wholly void and ineffectual and shall give to the Company or
its designee the right to purchase from Optionee all but not less than all of
the Shares then owned by Optionee for a period of ninety (90) days from the date
the Company first learns of the purported transfer at the Agreement Price and on
the Agreement Terms (as those terms are defined in subsections (iv) and (v),
respectively, of this Section 17).





The
Company shall not cause or permit the transfer of any Shares to be made on its
books except in accordance with the terms hereof.





(i)          Permitted
Transfers.





(a)
            Optionee
      may sell, assign or transfer any Shares held by the Optionee but only by
      complying with the provisions of this Section
  17.





(b)
            Upon
      the death of Optionee, Shares held by the Optionee may be transferred to
      the personal representative of the Optionee's estate.  Shares so
      transferred shall be subject to the provisions of the Option and this
      Agreement.




(ii)
            Stock Certificate
      Legend. Each stock certificate for Shares issued to the Optionee
      shall have conspicuously written, printed, typed or stamped upon the face
      thereof, or upon the reverse thereof with a conspicuous reference on the
      face thereof, one or both of the following
  legends:




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THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF REGISTRATION THEREUNDER OR AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT. SUCH SHARES MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN ANY MANNER EXCEPT IN ACCORDANCE WITH
AND SUBJECT TO THE TERMS OF THE STOCK OPTION AGREEMENT, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. EVERY CREDITOR OF THE HOLDER HEREOF
AND ANY PERSON ACQUIRING OR PURPORTING TO ACQUIRE THIS CERTIFICATE OR THE SHARES
HEREBY EVIDENCED OR ANY INTEREST THEREIN IS HEREBY NOTIFIED OF THE EXISTENCE OF
SUCH STOCK OPTION AGREEMENT, AND ANY ACQUISITION OR PURPORTED ACQUISITION OF
THIS CERTIFICATE OR THE SHARES HEREBY EVIDENCED OR ANY INTEREST THEREIN SHALL BE
SUBJECT TO ALL RIGHTS AND OBLIGATIONS OF THE PARTIES TO SUCH STOCK OPTION
AGREEMENT AS THEREIN SET FORTH.





IT IS
UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.





(iii)
            Manner of
      Exercise.  Any right to purchase hereunder shall be
      exercised by giving written notice of election to the Optionee, the
      Optionee's personal representative or any other selling person, as the
      case may be, prior to the expiration of such right to
      purchase.





(iv)
            Agreement Price. The
      "Agreement Price" shall be the higher of (a) the fair market value of the
      Shares to be purchased determined in good faith by the Board of Directors
      of the Company and (b) the original exercise price of the Shares to be
      purchased.





(v)
            Agreement Terms.
      "Agreement Terms" shall mean and include the
  following:




(a)
            Delivery
      of Shares and Closing Date. At the closing, the Optionee, the Optionee's
      personal representative or such other selling person, as the case may be,
      shall deliver certificates representing the Shares, properly endorsed for
      transfer, and with the necessary documentary and transfer tax stamps, if
      any, affixed, to the purchaser of such Shares. Payment of the purchase
      price therefore shall concurrently be made to the Optionee, the Optionee's
      personal representative or such other selling person, as provided in
      subsection (b) of this subsection (v). Such delivery and payment shall be
      made at the principal office of the Company or at such other place as the
      parties mutually agree.





(b)
            Payment
      of Purchase Price. The Company shall pay the purchase price to the
      Optionee at the closing.


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(vi)
            Right to Purchase Upon Certain
      Events.  The Company or its designee shall have the right
      to purchase all, but not less than all, of the Shares held by the Optionee
      at the Agreement Price and on the Agreement Terms for a period of ninety
      (90) days after any of the following
events:





(a)
            An
      attempt by a creditor to levy upon or sell any of the Optionee's
      Shares;





(b)
            The
      filing of a petition by the Optionee under the U.S. Bankruptcy Code or any
      insolvency laws;





(c)
            The
      filing of a petition against Optionee under any insolvency or bankruptcy
      laws by any creditor of the Optionee if such petition is not dismissed
      within thirty (30) days of filing;





(d)
            The
      entry of a decree of divorce between the Optionee and the Optionee's
      spouse; or,





(e)
            The
      termination of Optionee's services as an employee or consultant with the
      Company.





The
Optionee shall provide the Company written notice of the occurrence of any such
event within 30 days of such event.





(vii)
            Termination. The
      provisions of this Section 17 shall terminate and all rights of each such
      party hereunder shall cease except for those which shall have theretofore
      accrued upon the occurrence of any of the following
  events:





(a)
            Cessation
      of the Company's business;





(b)
            Bankruptcy,
      receivership or dissolution of the
Company;




(c)
            Written
      consent or agreement of the shareholders of the Company holding Fifty
      Percent (50%) of the then issued and outstanding shares of the Company
      (determined on a fully diluted
basis);





(d)
            Consent
      or agreement of a majority of the members of the Board of Directors of the
      Company; or,





(e)
            Registration
      of any class of equity securities of the Company pursuant to Section 12 of
      the Securities Exchange Act of 1934, as
amended.





(viii)
            Amendment. This Section
      17 may be modified or amended in whole or in part by a written instrument
      signed by shareholders of the Company holding 50% of the outstanding
      shares of Common Stock (determined on a fully diluted basis) or a majority
      of the members of the Board of Directors of the
  Company.


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18.         Market Standoff. Unless the
Board of Directors otherwise consents, Optionee agrees hereby not to sell or
otherwise transfer any Shares or other securities of the Company during the
180-day period following the effective date of a registration statement of the
Company filed under the Act; provided, however, that such restriction shall
apply only to the first two registration statements of the Company to become
effective under the Act which includes securities to be sold on behalf of the
Company to the public in an underwritten public offering under the Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such 180-day period.





19.         Rule 144.  Optionee
acknowledges and understands that the Shares may be subject to transfer and sale
restrictions imposed pursuant to SEC Rule 144 of the Rules promulgated under the
Securities Act of 1933 (“Act”) and the regulations promulgated
thereunder.  Optionee shall comply with Rule 144 and with all policies
and procedures established by the Company with regard to Rule 144
matters.  Optionee acknowledged that the Company or its attorneys or
transfer agent may require a restrictive legend on the certificate or
certificates representing the Shares pursuant to the restrictions on transfer of
the Shares imposed by Rule 144.





20.         No
Distribution.  Notwithstanding anything in this Agreement to
the contrary, Optionee acknowledges that: (i) the Option, and the Shares upon
exercise, is and are being acquired in a private transaction which is not part
of a distribution of the Option or Shares; (ii) the Optionee intends to hold the
Option and Shares for the account of the Optionee and does not intend to sell
the Option or Shares as a part of a distribution or otherwise; and (iii) neither
the Optionee nor the Company is an underwriter with regard to the Option or the
Shares for purposes of Rule 144.





21.         Securities
Compliance.  Optionee understands that the Option and the
Shares may be offered and sold in reliance on one or more exemptions from the
registration requirements of federal and state securities laws, which exemptions
may include, without limitation, Regulation D promulgated under the Securities
Act, and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Optionee set forth herein in order to determine the applicability of such
exemptions and the suitability of Optionee to acquire the Option and the
Shares.  The representations, warranties and agreements contained
herein are true and correct as of the date hereof and may be relied upon by the
Company and Optionee will notify the Company immediately of any adverse change
in any such representations and warranties which may occur prior to the issuance
of Shares.  The representations, warranties and agreements of Optionee
contained herein shall survive the execution and delivery of this Agreement and
the exercise of the Option and the issuance of the Shares.





22.Complete Agreement. This Agreement
constitutes the entire agreement between the parties with respect to its subject
matter, and supersedes all other prior or contemporaneous agreements and
understandings both oral or written; subject, however, that in the event of any
conflict between this Agreement and the Plan, the Plan shall govern. This
Agreement may only be amended in a writing signed by the Company and the
Optionee.


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23.         Privileges of Stock Ownership.
Optionee shall not have any of the rights of a shareholder with respect to any
Shares until Optionee exercises the Option and pays the Exercise Price, Shares
are issued and delivered to Optionee, and Optionee is shown as a shareholder of
record on the books and records of the Company.





24.         Further Acts.  The
parties hereto shall cooperate with each other and execute such additional
documents or instruments and perform such further acts as may be reasonably
necessary to affect the purpose and intent of the Agreement.





25.         Effect of
Headings.   The subject headings of the paragraphs and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.





26.         Notices. Any notice required
to be given or delivered to the Company under the terms of this Agreement shall
be in writing and addressed to the Corporate Secretary of the Company at its
principal corporate offices. Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at the address indicated
herein or to such other address as such party may designate in writing from time
to time to the Company. All notices shall be deemed to have been given or
delivered upon actual personal delivery; three (3) days after deposit in the
United States mail by certified or registered mail (return receipt requested);
one (1) business day after deposit with any return receipt express courier
(prepaid); or one (1) business day after transmission by facsimile with a
corresponding facsimile transmission confirmation sheet.





27.         Counterparts.  This
Agreement may be executed simultaneously in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.  The exhibits attached hereto and
initialed by the parties are made a part hereof and incorporated herein by this
reference.





28.         Parties in
Interest.  Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third party to this Agreement, nor
shall any provision give any third person any right of subrogation or action
over against any party to this Agreement.





29.         Recovery of Litigation
Costs.  If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover as an element of their damages, reasonable
attorneys' fees and other costs incurred in that action or proceeding, in
addition to any other relief to which they may be entitled.





30.         Severability; Construction. In
the event that any provision in this Agreement shall be invalid or
unenforceable, such provision shall be severable from, and such invalidity or
unenforceability shall not be construed to have any effect on, the remaining
provisions of this Agreement. This Agreement shall be construed as to its fair
meaning and not for or against either party.


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31.         Survival of Representations and
Obligations.  All representations, warranties and agreements of
the parties contained in this Agreement, or in any instrument, certificate,
opinion or other writing provided for in it, shall survive the exercise of the
Option and the issuance of the Shares.





32.         Specific
Performance.  Each party's obligations under this Agreement are
unique.  If any party should default in its obligations under this
Agreement, the parties each acknowledge that it would be extremely impracticable
to measure the resulting damages; accordingly, the nondefaulting party, in
addition to any other available rights or remedies, may sue in equity for
specific performance without the necessity of posting a bond or other security,
and the parties each expressly waive the defense that a remedy in damages will
be adequate.





33.         Gender;
Number.  Whenever the context of this Agreement requires, the
masculine gender includes the feminine or neuter gender, and the singular number
includes the plural.





34.         Governing Law and
Venue.  This Agreement will be construed and enforced in
accordance with, and the rights of the parties will be governed by, the laws of
the State of California without regard to conflict of laws
principles.  Venue in any action arising by reason of this Agreement
shall lie exclusively in Orange County, California.





35.         Employment Agreement. The
terms of any Employment Agreement between the Optionee and the Company shall
control over any conflicting terms in this Option. Any breach under the
Employment Agreement shall constitute a breach under this Option and allows the
Company to terminate this Option in whole or in part.





IN WITNESS WHEREOF, this
Agreement is made effective on the date first set forth above at Orange County,
California.




Company:
        XSUNX, INC, a Colorado CorporationBy:Name:
      Tom M. DjokovichTitle:   CEO


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OPTIONEE
ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 3 HEREOF
IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT OF THE COMPANY
(NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING
SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS OPTION,
THE COMPANY'S PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE
OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT
CAUSE.





Optionee
acknowledges receipt of a copy of the Plan, represents that Optionee is familiar
with the terms and provisions thereof, and hereby accepts the Option subject to
all of the terms and provisions thereof. Optionee has reviewed the Plan and this
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Agreement and fully understands all provisions
of the Plan and this Agreement. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board or of the
Committee upon any questions arising under the Plan.





IN WITNESS WHEREOF, this
Agreement is made effective on the date first set forth above at Multnomah
County, Oregon.





OPTIONEEName:


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CONSENT
OF SPOUSE





The
undersigned spouse of the Optionee to the foregoing Stock Option Agreement
acknowledges on his or her own behalf that: I have read the foregoing Stock
Option Agreement and I know its contents. I hereby consent to and approve of the
provisions of the Stock Option Agreement, and agree that the Shares issued upon
exercise of the Option covered thereby and my interest in them shall be subject
to the provisions of the Stock Option Agreement and that I will take no action
at any time to hinder operation of the Stock Option Agreement as to the Shares
or my interest in the Shares.





IN WITNESS WHEREOF, this
Agreement is made effective on the date first set forth above at Multnomah
County, Oregon.





Name:




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EXHIBIT  TO
OPTION





SUBSCRIPTION
FORM AND NOTICE OF EXERCISE





Xsunx,
Inc.                                                                                                           Date:


Attn:
President


65
Enterprise


Aliso
Viejo, CA 92656





Ladies
and Gentlemen:





The undersigned, the holder of the
enclosed Option, hereby irrevocably elects to exercise the purchase rights
represented by the Option and to purchase there under __________ shares of
Common Stock of XSUNX, INC. (the “Company”), and herewith
encloses payment of $___________ and/or ___________ shares of the Company's
common stock, (the “Purchase Price”) in full payment of the Purchase Price of
such shares being purchased.




Exercise
of the Option shall not be deemed effective unless and until good and
immediately available funds in the full amount of the Purchase Price have been
confirmed in the account of the Company.  The original Option shall be
presented with this Subscription Form and Notice of Exercise.





The Company may, in its discretion,
withhold a portion of some or all of the exercised shares or other amounts for
the payment of taxes or other items.  Holder represents that Holder is
not subject to any backup withholding requirements.  Holder
acknowledges that the shares of stock of the Company issued upon exercise will
not be entitled to any dividend declared upon such stock prior to the effective
date of exercise of the Option.





Holder hereby constitutes this
Subscription Form and Notice of Exercise as an assignment, deposit tender, and
transfer in blank of the Option as set forth therein.  Holder hereby
irrevocably constitutes and appoints the secretary of the Company as Holder’s
attorney in fact to issue shares upon the exercise of the Option and reflect the
same on the books and records of the Company, cancel the Option, issue a new
Option, if applicable, and perform any necessary act on behalf of Holder, with
full power substitution.





Very
      truly yours,By:Title:


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