8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report: June 5, 2008

XSUNX, INC.

(Exact name of registrant as specified in its charter)

Colorado	000-29621	84-1384159
(State or other	(Commission	(IRS Employer
jurisdiction of	File Number)	Identification No.)
incorporation)

65 Enterprise, Aliso Viejo, CA 92656

(New address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (949) 330-8060

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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SECTION 1. Registrant's Business and Operations

Item 1.01 Entry into a Material Definitive Agreement.

On May 30, 2008 XsunX, Inc. (the “Company”) and MVSystems, Inc. (“MVS), a vendor previously performing research and technology development services for XsunX and from which XsunX had licensed certain patented and patent-pending technologies, and the MVS principal officer Dr. Arun Madan (“Madan”) entered into a Separation and Mutual Release Agreement, Non-Exclusive License and Cross License Agreement, and Sublease Agreement (together, the “Contracts”). The Contracts terminate all previous agreements and obligations between the parties, releases all claims related to the previous agreements, provide for the continued licensure of technologies and patents, terminate all warrants provided by the Company to MVS under previous agreements for certain license rights and special services, and provides for the sublease of certain portions of the Company’s Golden Colorado facility to MVS.

The Separation and Mutual Release Agreement provides for the termination of all existing agreements between the parties including all warrant grants providing for the purchase by MVS of up to 14,000,000 shares of the Company’s common stock with exercise prices ranging from $.15 to $.25 cents. The agreement further defines the efforts required by MVS to market for sale a first run production prototype multi-chamber plasma enhanced chemical vapor deposition (“PECVD) system built for the Company by MVS, and the distribution of the proceeds between the Company and MVS from the sale of the PECVD system. The agreement discharges the parties from any further obligations stemming from any previous agreement between the parties, and with the exception of any claims that might arise from the performance under the Contracts, releases the parties and forever discharges each other from claims related to all previous agreements between the parties.

The Non-Exclusive License and Cross License Agreement provides XsunX a worldwide, non-exclusive, royalty-free, irrevocable, fully-paid up right and license, with the right to sublicense the following patents and patent application and any reissues, re-examinations, divisionals, continuations and extensions thereof: (a) U.S. Patent No. 6,488,777 B2; (b) U.S. Patent No. 6,258,408 B1; and (c) U.S. Patent App. No. 10/905,545 (Pub. No. US 2005/0150542 A1) (together, the “Patents”). The license limits XsunX to the use of the Patents for the development by XsunX of commercial-grade (i.e., web width 30 cms or more and nominal output exceeding 1 megawatt/year based on 1 shift operation) semi-transparent (greater than 5% transparency) and opaque solar cells, photovoltaic technologies, solar cell panels and methods of manufacture. The agreement further provides that MVS will continue to be the exclusive owner of the Patents and grants XsunX exclusive ownership of any improvements made by XsunX to the licensed Patents.

The Non-Exclusive License and Cross License Agreement provides MVS a worldwide, non-exclusive, royalty-free, irrevocable, fully-paid up right and license, with the right to sublicense the derivative works produced by the parties under the various phased technology development programs between September 17, 2004 and May 30, 2008. The agreement further provides that XsunX will continue to be the exclusive owner of the derivative works and grants MVS exclusive ownership of any improvements made by MVS to the licensed derivative works.

The Company and MVS have also entered into a Sublease Agreement providing for the sublease by MVS of the rear warehouse and assembly floor area of the Company’s facilities located in Golden Colorado. The Company will continue to occupy the front or office portions of the facility. Under the agreement MVS will pay for utilities necessary to operate and demonstrate the PECVD system in its marketing efforts of the system. Subject to various acceleration clauses contained in the sublease, the sublease terminates on or before May 31, 2009.

The foregoing description of the Contracts is qualified in their entirety by reference to the full text of the Contracts, copies of which are attached hereto as Exhibit 10.1 through 10.3, and which are incorporated herein in their entirety by reference.

SECTION 2. Financial Information

None.

SECTION 3. Securities and Trading Markets

None.

SECTION 4. Matters Related to Accountants and Financial Statements

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None.

SECTION 5. Corporate Governance and Management

None

SECTION 6. Asset-Backed Securities

None

SECTION 7 - Regulation FD

None

SECTION 8. Other Events

None.

SECTION 9. Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

The following exhibit(s) is furnished as part of this report:

A. Financial Statements - None

B. Exhibit - 10.1 Separation and Mutual Release Agreement, dated as of May 30, 2008 by and between the Company and MVSystems, Inc.

C. Exhibit - 10.2 Non-Exclusive License and Cross License Agreement, dated as of May 30, 2008 by and between the Company and MVSystems, Inc.

D. Exhibit - 10.3 Sublease Agreement, dated as of May 30, 2008 by and between the Company and MVSystems, Inc.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: June 5, 2008
	XSUNX, INC.
	By:	/s/ Tom Djokovich
		Tom Djokovich, CEO/President

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EX-10.1

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.

1.1Non-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”).

1.2Sublease. 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”).

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

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

1.3.2Sale 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.

1.3.3Distribution 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.

1.3.4Machine 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.

1.3.5Notice 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.

1.3.6Sale/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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1.3.7Property 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.

1.4Warrant agreement termination

1.4.1Warrants 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.

1.4.2Warrant 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.

1.5Termination of the contracts and Discharge of Duties

1.5.1Termination 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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1.5.2Discharge 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.

1.5.3Discharge 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.

1.6X4-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.

2.1XsX’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).

2.2General 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.

3.1Mvs 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).

3.2General 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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EX-10.2

NON-EXCLUSIVE LICENSE AND CROSS-LICENSE AGREEMENT

This Non-Exclusive License and Cross-License Agreement (the “License”) is made and entered into effective as of May 30, 2008 (“Effective Date”) by and between the XsunX, Inc., a Colorado Corporation ("XsunX"), MVSystems, Inc., a Colorado Corporation (“MVSI”), and Arun Madan (“Dr. Madan”), an individual (collectively, the “MVS Parties”). XsunX and the MVS Parties hereinafter may be referred to individually as a “party” and collectively as the “parties.”

RECITALS

A.       WHEREAS, XsunX and the MVS Parties are parties to that certain Technology Sharing and License Agreement dated September 17, 2004, as amended (“Technology Sharing and License Agreement”), under which the MVS Parties licensed certain technologies to XsunX, in accordance with the terms set forth therein, including, without limitation, the Licensed Patents (as defined below).

B.       WHEREAS, XsunX and the MVS Parties are parties to that certain Expanded Use License Agreement dated October 12, 2005 (“Expanded Use License Agreement”), under which the Technology Sharing and License Agreement was amended to expand the scope and use of certain technology, all in accordance with the terms set forth therein. The Technology Sharing and License Agreement and the Expanded Use License Agreement hereinafter are collectively referred to as the “Original License Agreements.”

C.       WHEREAS, XsunX and MVSI are parties to those certain Phase Agreements, as defined below, pursuant which MVSI agreed to undertake certain research and development activities on a no-profit basis, all in accordance with the terms set forth in the applicable Phase Agreement and in accordance with the terms and conditions set forth in the Original License Agreements.

D.        WHEREAS, the parties have determined to terminate their business relationship and wish to have no obligation to one another after the date hereof, whether arising under the Original License Agreements, the Phase Agreements or any other agreement between or among the parties existing prior to the Effective Date, and to mutually release each other, and, in furtherance of such goal, have contemporaneously herewith entered into that certain Separation Agreement and Mutual Release effective as of May 30, 2008 (the “Agreement”) under which Agreement any and all prior agreements between the parties, including without limitation, the Original License Agreements (including all attachments and agreements appended thereto, and all amendments, purported or otherwise) and the Phase Agreements (including all attachments thereto, and all amendments, purported or otherwise) are being completely terminated with no surviving obligations or duties, and pursuant to which Agreement, the parties desire to execute this License whereby (i) the MVS Parties shall license the Licensed Patents to XsunX, and (ii) XsunX shall license the Derivative Works (as defined below) to MVSI.

NOW THEREFORE, in consideration of the foregoing Recitals, which are made a part of this License, the mutual covenants, agreements, representations, and warranties contained in this License, and other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties agree as follows:

AGREEMENT

1.DEFINITIONS.

In addition to the terms defined elsewhere in this License and in any attached exhibits or schedules, the following terms shall have the meanings set forth below:

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1.1.       “Commercial Development” means development, manufacturing, marketing, sale, offer(s) to sell, lease, licensing, installation, application, service, training, use, import, export or other promotional or market activities of any kind.

1.2.       “Derivative Works”shall mean any product or process, including research or development related to such product or process, whether in complete or incomplete form, developed by the parties between September 17, 2004 and the Effective Date pursuant to the Original License Agreements or the Phase Agreements and delivered to the parties in connection therewith.

1.3.       “IP Rights” means all forms of intellectual property rights or industrial property rights and protections throughout the world, whether currently existing or hereafter developed or acquired and whether now known or hereafter recognized, and whether arising under United States (state or federal) or foreign common or statutory law, granted by contract, license, or otherwise and including, without limitation, all: (a) inventions and discoveries (whether patentable or unpatentable and whether or not reduced to practice), utility models, and all related patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations thereof; (b) trademarks, service marks, trade dress, slogans, logos, together with all goodwill associated therewith, and all applications, registrations and renewals in connection therewith; (c) copyrightable works, all copyrights and all applications, registrations and renewals in connection therewith; (d) know-how, software programs (in object code and source code form), modules, components, utilities, subsets, objects, program listings, rights in databases, rights to confidential or other proprietary information and equivalent rights; (e) rights relating to substrate glazing agents and reagents, disposables, chemical compounds and like materials; (f) any other proprietary and/or intellectual property rights; (g) copies, personal property and tangible embodiments of any of the foregoing (in whatever form or medium); and (h) any improvements, modifications, enhancements and/or derivatives of the foregoing.

1.4.       “Licensed Patents” means the following patents and patent application and any reissues, re-examinations, divisionals, continuations and extensions thereof: (a) U.S. Patent No. 6,488,777 B2; (b) U.S. Patent No. 6,258,408 B1; and (c) U.S. Patent Appl. No. 10/905,545 (Pub. No. US 2005/0150542 A1).

1.5.       “MVSImprovement” means any innovation, variation, enhancement, modification, improvement, change relating to, or derivative work of, the Licensed Patents or Derivative Works which the MVS Parties, their Related Persons, sub-licensees or any of their employees or agents or any other party engaged by the MVS Parties, make, author, invent, discover, originate, conceive or reduce to practice solely or in conjunction with others not a party to this License following the Effective Date of this License.

1.6.       “Phase Agreements” means the Phase 2 Development Agreement, Phase 3 Development Agreement, Phase 4 Development Agreement, and Phase 4 X4-Base Line Production Agreement.

1.7.       “Phase 2 Development Agreement” means that certain written agreement between XsunX and MVSI effective June 1, 2004, as amended.

1.8.       “Phase 3 Development Agreement” means that certain written agreement between XsunX and MVSI effective February 22, 2005, as amended.

1.9.       “Phase 4 Development Agreement” means that certain written agreement between XsunX and MVSI entitled “Four Terminal Development” dated December 22, 2005, as amended, together with the “Addendum to Phase 4 proposal” between XsunX and MVSI dated December 22, 2005.

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1.10.       “Phase 4 X4-Base Line Production Agreement” means that certain written agreement between XsunX and MVSI for work memorialized in proposals effective December 2, 2005.

1.11.       “Related Person” means any person or entity directly, or indirectly through one or more intermediaries, controlling, controlled by, or under common control with, a party to this License, as the case may be and as context requires. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through ownership of voting securities or otherwise; provided, that a person or entity shall no longer be a Related Person when through loss, divestment, dilution or other reduction of ownership or management or operational responsibility, the requisite control no longer exists.

1.12.       “Reserved Fields of Use” means all fields of use other than the XsunX Field of Use.

1.13.       “XsunX Field of Use” means Commercial Development by XsunX of commercial-grade (i.e., web width 30 cms or more and nominal output exceeding 1 megawatt/year based on 1 shift operation) semi-transparent (greater than 5% transparency) and opaque solar cells, photovoltaic technologies, solar cell panels and methods of manufacture.

1.14.       “XsunXImprovement” means any innovation, variation, enhancement, modification, improvement, change relating to, or derivative work of, the Licensed Patents or Derivative Works, which XsunX, its Related Persons, sub-licensees or any of their employees or agents or any other party engaged by XsunX, make, author, invent, discover, originate, conceive or reduce to practice solely or in conjunction with others not a party to this License following the Effective Date of this License.

2.       GRANT AND SCOPE OF RIGHTS.

2.1.       Grant and Scope of License.

a) During the term of this License and subject to the terms and conditions hereof, the MVS Parties grant to XsunX a worldwide, non-exclusive, royalty-free, irrevocable, fully-paid up right and license, with the right to sublicense under the terms of Section 2.2 (Sublicenses),to use and practice the Licensed Patents solely in the XsunX Field of Use. For the avoidance of doubt, the foregoing license grant to XsunX expressly excludes the use, transfer and/or Commercial Development of the Licensed Patents in the Reserved Fields of Use; provided, however, that XsunX or its sub-licensee shall be permitted to develop non-commercial grade semi-transparent and opaque solar cells solely for internal research and development of XsunX or its sub-licensee and not for any use or sale or other transfer by XsunX or its sub-licensee to a third party.

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b) During the term of this License and subject to the terms and conditions hereof, XsunX hereby grants to MVSI a worldwide, non-exclusive, royalty-free, irrevocable, fully-paid up right and license, with the right to sublicense under the terms of Section 2.2 (Sublicenses),to use, practice, modify, adapt, distribute, sell, transfer, and/or commercialize the Derivative Works.

2.2.Sublicenses.

a) During the term of this License and subject to the terms and conditions hereof, the MVS Parties grant to XsunX the right to grant limited, non-transferable, revocable sublicenses to third parties, without further right to sublicense, to use or practice the Licensed Patents solely in the XsunX Field of Use and otherwise in accordance with the rights, restrictions and obligations of XsunX under this License. Unless prohibited by law, XsunX shall ensure that the terms of any sub1icense granted by it prohibits its sub-licensees from granting to any other person a license of the rights granted to such sub-licensee by XsunX .

b) During the term of this License and subject to the terms and conditions hereof, XsunX grants to MVSI the right to grant limited, non-transferable, revocable sublicenses to third parties, without further right to sublicense, to use, import, sell and offer to sell the Derivative Worksin accordance with the rights, restrictions and obligations of MVSI under this License. Unless prohibited by law, MVSI shall ensure that the terms of any sublicense granted by it prohibits its sub-licensees from granting to any other person a license of the rights granted to such sub-licensee by MVSI.

c) Sublicenses granted under this Section shall be in writing signed by each sub-licensee and shall contain all of the material terms, conditions, restrictions and reservations of this License and shall preserve the rights and reservations of each party existing under this License. Notwithstanding anything herein to the contrary, any breach of such terms or conditions of this License by any sub-licensee shall be deemed to be a breach of this License by the party granting such sub-license. Without limiting any rights or remedies of either party hereunder, provided herein or otherwise available at law or in equity, each party hereby appoints and designates the other party as a third party beneficiary of each sublicense granted by such party; the party granting the sublicense shall include in each sublicense a stipulation that the other party shall retain third party beneficiary rights to enforce (in such other party’s name, if required by law) such other party’s rights and remedies in connection therewith.

d) Termination of this License by either party shall automatically operate as a termination of any sublicense granted by the non-terminating party pursuant to the Section 2 and an assignment by such non-terminating party to the terminating party of all of the non-terminating party’s right, title and interest in and to such sublicense.

e) Each party shall be free to determine the royalties or pricing at which it enters into a permitted sub-license.

3.       TERM, DEFAULT AND TERMINATION.

3.1.       Term. This License shall be effective upon the Effective Date and, unless sooner terminated by operation of law or pursuant to Section 3.3 of this License, shall continue in force and effect from the Effective Date until the expiration of the last to expire of the patents included within the Licensed Patents.

3.2.       Default.

A default shall occur under this License in the event of: (a) any breach of a material term of this License which is not cured (if curable) by the defaulting party within thirty (30) business days after receiving written notice of default from the non-defaulting party; or (b)       the filing by a Party of a voluntary petition in bankruptcy or under any similar insolvency law, or an assignment for the benefit of creditors, or the filing of an involuntary petition in bankruptcy or under any similar insolvency law which remains undismissed thirty (30) days after such filing, or a levy or attachment against all or substantially all of a Party’s assets, or if a Party ceases to function as a going concern or ceases to conduct its operations in the normal course of business or is wound up or dissolved or declared insolvent.

(c)       A default by any one of the MVS Parties shall be deemed a default of the other of the MVS Parties.

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3.3.       Termination. In the event of a default under Section 3.2(a), 3.2(b) or 3.2(c), the non-defaulting party may elect to terminate this License. Except as otherwise expressly provided in this License, in the event of such termination, no residual rights will remain with the parties and within fifteen (15) calendar days of such termination: (a) MVSI shall cease all use of the Derivative Works and shall notify any sublicensee of the Derivative Works that the sublicense is terminated pursuant to this License and provide a copy of such notification to XsunX; and (b) XsunX shall cease all use of the Licensed Patents and shall notify any sublicensee of the Licensed Patents that the sublicense is terminated pursuant to this License and provide a copy of such notification to the MVS Parties.

3.4.       Other Remedies; Preservation of Rights Under Section 365(n) of Bankruptcy Code. Subject to the terms of this License, in the event of a default of this License, the non-defaulting Party(ies)’s right to terminate this License pursuant to Section 3.3 shall be non-exclusive, and the non-defaulting Party(ies) shall be entitled to pursue any additional or other remedy available by law. Without limiting the foregoing, nothing in this License shall be deemed a waiver with respect to the rights of any Party arising under Section 365(n) of the United States Bankruptcy Code, 11 U.S.C. § 365(n), or any other remedy available by law.

3.5.       Survival. The rights and obligations of the parties which by their nature are intended to survive any such termination, shall survive the termination of this License and continue in force.

4.       PROPRIETARY RIGHTS.

4.1.       Ownership of Licensed Patents and/or Derivative Works.

a) Subject to the license granted to XsunX in Article 2 (Grant and Scope of Rights) and except for the Derivative Works, XsunX acknowledges that, as between the MVS Parties and XsunX, the MVS Parties are and shall remain the exclusive owner of all right, title and interest in and to the Licensed Patents. Except for the Derivative Works, if XsunX or any third party engaged by XsunX is deemed to have any ownership interest or rights in any of the Licensed Patents, then XsunX shall assign and/or cause such third party to assign, and XsunX does hereby irrevocably and royalty-free assign, all of such ownership interest and rights to the MVS Parties.

b) Subject to the license granted to MVSI in Article 2 (Grant and Scope of Rights) and except for the Licensed Patents, the MVS Parties acknowledge that, as between the MVS Parties and XsunX, XsunX is and shall remain the exclusive owner of all right, title and interest in and to the Derivative Works. Except for the Licensed Patents, if MVSI or any third party engaged by the MVSI is deemed to have any ownership interest or rights in any of the Derivative Works, then the MVSI shall assign and/or cause such third party to assign, and MVSI hereby does irrevocably and royalty-free assign, all of such ownership interest and rights to XsunX.

4.2.       Ownership of Improvements.

a) As between the MVS Parties and XsunX, any and all MVS Improvements, and all IP Rights therein, shall be the sole and exclusive property of the MVS Parties and are expressly excluded from this License.

b) As between the MVS Parties and XsunX, any and all XsunX Improvements, and all IP Rights therein, shall be the sole and exclusive property of XsunX and are expressly excluded from this License.

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4.3.       IP Rights and Patent Prosecution; Maintenance; Disclaimer.

a) The MVS Parties shall have the sole right to file and maintain IP Rights protections, perfections or registrations with respect to the Licensed Patents and any the MVS Improvements and the issuance of such applications or registrations shall be in the MVS Parties’ or their designee’s name. Any IP Rights protections, perfections or registrations with respect to the Licensed Patents and/or MVS Improvements shall be prosecuted to issuance or final rejection or abandonment by the MVS Parties in their sole and absolute discretion; provided however, that the MVS Parties shall use commercially reasonable efforts to prosecute U.S. Patent Appl. No. 10/905,545 (Pub. No. US 2005/0150542 A1) (“Application”) to issuance or final rejection or abandonment and shall provide to XsunX copies of all correspondence with the United States Patent and Trademark Office regarding the Application within fifteen (15) days of delivery or receipt. If the MVS Parties determine to abandon the Application, the MVS Parties will provide timely notice to XsunX and shall provide to XsunX reasonable opportunity to continue to prosecute or maintain such Application, at XsunX’s sole cost and expense.

b) Notwithstanding anything to the contrary contained in Section 4.3(a), XsunX acknowledges and agrees that the prosecution of patent applications is uncertain and that certain claims therein may not be allowed or may receive narrower breadth of scope than when originally filed and that patent applications within the Licensed Patents may not issue as a U.S. patent. Therefore, the MVS Parties provide no representation or warranty that any of the Licensed Patents, including without limitation U.S. Patent Appl. No.10/905,545 (Pub. No. US 2005/0150542 A1), will issue as U.S. Patents or that the scope of claims coverage of any resulting patent issuing thereon will have the same scope of claims coverage as when filed by the MVS Parties.

c) XsunX shall have the sole right and obligation to file IP Rights protections, perfections or registrations with respect to the Derivative Works and any XsunX Improvements and the issuance of such applications or registrations shall be in XsunX’s or its designee’s name. XsunX shall be solely responsible for filing, prosecution and maintenance of any and all such IP Rights protections, perfections or registrations and for the maintenance and other management of the same.

4.4.       Markings; Use of Names, Trade Names and Trademarks. Each party agrees that it will not use the name, trademark or other identifier of the other party for any advertising, promotion, or other commercially related purpose without the express prior written consent of the other party, which may be withheld at such party’s sole discretion. Except as permitted by Section 8.10, nothing contained in this License shall be construed as conferring any right to use in advertising, publicity or other promotional activities any name, trade name, trademark or other designation of a party hereto including any contraction, abbreviation or simulation of any of the foregoing, unless the express written permission of the other party has been obtained, provided that each party may state the existence of this License and the fact that all of the parties entered into it.

5.       NO ONGOING OBLIGATIONS.

5.1.       No Technology Sharing; Consulting, Audit Rights. The parties hereby acknowledge and agree that with respect to this License, as of the Effective Date, there are no obligations between the parties to share or collaborate with, deliver and/or disclose to the other party any further information, whether oral and/or written, concerning the Licensed Patents, the Derivative Works and/or any processes related thereto, or any other information or data pertaining to the licenses granted herein, and neither party shall have any such ongoing or future obligation in connection therewith. The parties further acknowledge and agree that under this License, neither party has the right to inspect or view each others’ books and records, and nothing in this License is intended to confer or does confer on either party any such right.

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5.2.       Infringement/Indemnifications.

a) In the case of a third party claim of infringement against a party (“accused party”), the other party shall have no obligation to defend against such claim nor to indemnify or hold harmless the accused party against such claim or procure the right for the accused party, or the accused party’s Related Persons or any of its sub-licensees, representatives, successors or assigns to continue using the Licensed Patents and/or the Derivative Works. Notwithstanding the foregoing, in no event shall either party enter into a settlement or compromise of any claim of infringement if such settlement or compromise would adversely affect the Licensed Patents or Derivative Works.

b) In the case of a third party’s alleged infringement of the Licensed Patents or the Derivative Works, the parties’ only obligation with respect to third party infringement shall be to promptly inform the other party of (i) any alleged infringement of the Licensed Patents or the Derivative Works by a third party of which such party is aware and (ii) any actions or possible actions by third parties which may affect the ownership or validity of the Licensed Patents or the Derivative Works.

c) If a party elects to bring or defend against a legal action, such action shall be at the sole expense of the party initiating or defending such legal action and all damages, awards, settlement proceeds or other recovery or special or punitive damages shall belong solely and exclusively to such party.

6.       REPRESENTATIONS, WARRANTIES AND DISCLAIMER.

6.1.       By the MVS Parties. The MVS Parties represent, warrant and covenant to XsunX that (a) the execution of this License and performance of the transactions contemplated by this License have been approved by the MVS Parties and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, any agreement to which MVSI or Dr. Madan is a party or by which MVSI or Dr. Madan is bound, (b) the MVS Parties own or have licensed and sub-licensable interest in the Licensed Patents and have the right to grant to XsunX the license set forth herein, (c) this License, when duly executed and delivered, shall constitute a legal and binding obligation of the MVS Parties enforceable against the MVS Parties in accordance with its terms; (d) the Licensed Patents are not subject to any lien, encumbrance or other interest of a third party; (e) as of the Effective Date, the MVS Parties are not aware of any infringement of the Licensed Patents by a third party; and (f) as of the Effective Date, MVSI has delivered to XsunX all technical data, documentation and reports relating to its research, development or other work performed pursuant to the Original License Agreements or the Phase Agreements.

6.2.       By XsunX. XsunX represents, warrants and covenants to the MVS Parties that (a) the execution of this License and performance of the transactions contemplated by this License have been approved by XsunX and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, any agreement to which XsunX is a party or by which XsunX is bound; (b) XsunX owns or has a licensed and sub-licensable interest in the Derivative Works and has the right to grant to MVSI the license set forth herein; (c) this License, when duly executed and delivered, shall constitute a legal and binding obligation of XsunX enforceable against XsunX in accordance with its terms; (d) the Derivative Works are not subject to any lien, encumbrance or other interest of a third party; (e) as of the Effective Date, XsunX is not aware of any infringement of the Derivative Works by a third party, and (f) as of the Effective Date, XsunX has delivered to MVSI all technical data, documentation and reports relating to the Derivative Works.

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6.3.       Disclaimer.

(a)       The express representations and warranties set forth in this Section 6 are the sole representations and warranties made by each party with respect to this License and the transactions contemplated herein. Without limiting the generality of the foregoing, nothing in this License shall be construed as:

(1) a warranty or representation by the MVS Parties as to the validity or scope of the Licensed Patents, or a warranty or representation by XsunX as to the validity or scope of the Derivative Works;

(2) an obligation of either party to bring or prosecute actions or suits against third parties for infringement;

(3) an obligation by MVSI or Dr. Madan or XsunX to furnish any technical or other assistance.

(b)       THE LICENSED PATENTS ARE PROVIDED “AS IS,” AND THE MVS PARTIES MAKE NO REPRESENTATIONS OR WARRANTIES, CONDITIONS OR GUARANTEES, WHETHER EXPRESS, IMPLIED, STATUTORY, ORAL OR IN WRITING OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, NONINFRINGEMENT OF THIRD PARTY RIGHTS, OR WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE, AND THE SAME ARE HEREBY EXPRESSLY DISCLAIMED TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE MVS PARTIES DO NOT MAKE ANY REPRESENTATION OR WARRANTY AS TO THE VALIDITY OR SCOPE OF THE LICENSED PATENTS OR THE ACCURACY OR COMPLETENESS OF ANY INFORMATION DISCLOSED TO XSUNX IN CONNECTION WITH THIS LICENSE. THE MVS PARTIES MAKE NO REPRESENTATION OR WARRANTY THAT THE LICENSED PATENTS WILL MEET XSUNX’S REQUIREMENTS OR EXPECTATIONS OR THAT THE EXERCISE OF THE RIGHTS GRANTED TO XSUNX WITH RESPECT TO THE LICENSED PATENTS WILL NOT INFRINGE THE IP RIGHTS OF ANY THIRD PARTY. THE MVS PARTIES WILL NOT INDEMNIFY XSUNX, ITS EMPLOYEES, AGENTS, REPRESENTATIVES, RELATED PERSONS OR ANY THIRD PARTY FOR ANY LOSSES, COSTS, LIABILITIES, DAMAGES, FEES, OR EXPENSES WITH RESPECT TO THE LICENSED PATENTS, INCLUDING WITHOUT LIMITATION, ANY CLAIMS THAT THE LICENSED PATENTS THEREIN INFRINGE THE IP RIGHTS OF ANY THIRD PARTY. NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY XSUNX FROM THE MVS PARTIES OR THEIR RELATED PERSONS SHALL CREATE ANY WARRANTY, REPRESENTATION, OR GUARANTEE NOT EXPRESSLY STATED IN THIS LICENSE.

(c)       THE DERIVATIVE WORKS ARE PROVIDED “AS IS,” AND XSUNX MAKES NO REPRESENTATIONS OR WARRANTIES, CONDITIONS OR GUARANTEES, WHETHER EXPRESS, IMPLIED, STATUTORY, ORAL OR IN WRITING OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, NONINFRINGEMENT OF THIRD PARTY RIGHTS, OR WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE, AND THE SAME ARE HEREBY EXPRESSLY DISCLAIMED TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, XSUNX DOES NOT MAKE ANY REPRESENTATION OR WARRANTY AS TO THE VALIDITY OR SCOPE OF THE DERIVATIVE WORKS OR THE ACCURACY OR COMPLETENESS OF ANY INFORMATION DISCLOSED TO MVSI IN CONNECTION WITH THIS LICENSE. XSUNX MAKES NO REPRESENTATION OR WARRANTY THAT THE DERIVATIVE WORKS WILL MEET MVSI’S REQUIREMENTS OR EXPECTATIONS OR THAT THE EXERCISE OF THE RIGHTS GRANTED TO MVSI WITH RESPECT TO THE DERIVATIVE WORKS WILL NOT INFRINGE THE IP RIGHTS OF ANY THIRD PARTY. XSUNX WILL NOT INDEMNIFY MVSI, ITS EMPLOYEES, AGENTS, REPRESENTATIVES, RELATED PERSONS OR ANY THIRD PARTY FOR ANY LOSSES, COSTS, LIABILITIES, DAMAGES, FEES, OR EXPENSES WITH RESPECT TO THE DERIVATIVE WORKS, INCLUDING WITHOUT LIMITATION, ANY CLAIMS THAT THE DERIVATIVE WORKS INFRINGE THE IP RIGHTS OF ANY THIRD PARTY. NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY MVSI FROM XSUNX, OR ITS RELATED PERSONS SHALL CREATE ANY WARRANTY, REPRESENTATION, OR GUARANTEE NOT EXPRESSLY STATED IN THIS LICENSE.

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7.       LIMITATION OF LIABILITY.

7.1.       EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION, NEITHER PARTY OR ITS RESPECTIVE RELATED PERSONS SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL (INCLUDING LOST PROFITS), PUNITIVE, INDIRECT, SPECIAL, OR EXEMPLARY DAMAGES ARISING OUT OF OR RELATED TO THIS LICENSE OR THE TRANSACTIONS CONTEMPLATED HEREIN, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), IP RIGHTS INFRINGEMENT, PRODUCT LIABILITY OR OTHERWISE, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE LIMITATIONS SET FORTH IN THIS SECTION SHALL HAVE NO EFFECT UPON, AND SHALL NOT LIMIT LIABILITY FOR ANY DAMAGES RESULTING FROM GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

8.       MISCELLANEOUS.

8.1.       Assignment. This License may be assigned or transferred, in whole or in part, whether by operation of law or otherwise, by either party without the prior written consent of the other party, provided the assigning party provides the other party with contemporaneous written notice of such assignment or transfer.

8.2.       Notices. Any notice, request, approval, authorization, consent, demand or other communication required or permitted to be given or made pursuant to this License shall be in writing and shall be deemed given on the earliest of (a) actual receipt, irrespective of the method of delivery, (b) on the delivery day following dispatch if sent by express mail (or similar next day air courier service), or (c) on the sixth (6th) day after mailing by registered or certified United States mail, return receipt requested, postage prepaid and addressed as follows:

If to the MVS Parties: MVSystems, Inc. 500 Corporate Circle, Unit L Golden, CO 80401 Attention: Dr. Arun Madan Telephone No.:(303) 271-9907 or (303) 526-9016 Facsimile No.: (303) 526-1408

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with a copy to:	Holland & Hart LLP
	555 17th Street, Ste. 3200
	Denver, CO 80201-8749
	Phone: (303) 295-8562
	Fax: (303) 295-8261
	Attention: Lee F. Johnston, Esq.
If to XsunX:	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

or to such substitute addresses and persons as either party may designate to the other from time to time by written notice in accordance with this Section.

8.3.       Choice of Law; Dispute Resolution. This License shall be governed by and construed in accordance with the laws of the State of Colorado, other than such laws, rules, regulations and case law that would result in the application of the laws of a jurisdiction other than the State of Colorado. Any suit to enforce any provision of this License, or arising out of or based upon this License, shall be brought exclusively in the United States District Court for the District of Colorado or the District Court in and for the City and County of Denver, State of Colorado. Each party hereby agrees that such courts shall have inpersonam jurisdiction and venue with respect to such party, and each party hereby submits to the inpersonam jurisdiction and venue of such courts and waives any objection based on inconvenient forum. Process in any action or proceeding referred to in this Section may be served on any party anywhere in the world. The United Nations Convention on Contracts for the International Sale of Goods is hereby excluded from application to this License.

8.4.       Counterparts. This License may be executed in two or more counterparts, each of which will be deemed to be an original copy of this License and all of which, when taken together, will be deemed to constitute one and the same agreement. Facsimile signatures shall be effective as original signatures.

8.5.       Headings; Construction. For all purposes of this License, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined herein include the plural as well as the singular and vice-versa; (b) words importing gender include all genders; (c) all references to this License and the words “herein”, “hereof”, “hereto” and “hereunder” and other words of similar import refer to this License as a whole and not to any particular Article, Section, or other subdivision; (d) all Article and Section headings are for convenience only and shall not affect the interpretation or construction of this License, (e) the words “including,” “included” and “includes” mean inclusion without limitation; and (f) in the event of any conflict between the terms in the body of the Agreement and the terms in this License, the terms of this License shall prevail to the extent that there is such a conflict. This License is executed in the English language and that version of the Agreement shall control despite any other version prepared in any other language, whether or not executed. This License has been drafted jointly by the parties and in the event of any ambiguities in the language hereof, there shall be no inference drawn in favor of or against either party.

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8.6.       Binding Effect. This License shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

8.7.       Entire Agreement; Amendment.This License constitutes the entire and exclusive statement of the parties’ agreement with respect to its subject matter and supersedes any and all prior or contemporaneous oral or written representations, understandings, or agreements relating thereto. This License may be modified, supplemented or changed only by an agreement in writing which makes specific reference to this License and which is signed by the parties.

8.8.       Waiver. The rights and remedies of the parties to this License are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this License or the documents referred to in this License will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this License or the documents referred to in this License can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this License or the documents referred to in this License.

8.9.       Severability. In the event that any one or more of the provisions contained in this License shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this License, and all other provisions shall remain in full force and effect. If any of the provisions of this License is held to be excessively broad or invalid, illegal or unenforceable in any jurisdiction, it shall be reformed and construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by law in conformance with its original intent.

8.10.       Publicity. Except as necessary for a Party to comply with its legal or financial reporting and disclosure obligations, including filings by XsunX with the U.S. Securities and Exchange Commission and financial reporting by XsunX in conformity with Generally Accepted Accounting Principles (GAAP), none of the Parties, nor any of their Related Persons, shall originate any publicity, news release or other public announcement (“Announcements”), written or oral, relating to this License or the existence of an arrangement between the parties, without the prior written approval of the other party, which approval shall not be unreasonably withheld.

8.11.       No Agency. The relationship of XsunX, on the one hand, and the MVS Parties and their respective successors in interest, on the other hand, is that of licensee and licensor, and not one of principal and agent, joint venture or partnership. Neither XsunX, on the one hand, nor MVS or Dr. Madan, on the other hand, shall have any authority to create or assume, in the name or on behalf of the other party, any obligation, express or implied, nor to act or purport to act as the agent or the legally empowered representative of the other party for any purpose whatsoever.

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8.12.       No Individual Liability for Dr. Madan. Except as to Sections 4.3(a) and 6.1, the Parties agree that no individual duties, obligations or liabilities shall be deemed to arise under this License with respect to Dr. Madan.

8.13.       Force Majeure. Neither the MVS Parties nor XsunX shall be liable to the other for failure or delay in the performance of a required obligation, other than the payment of monies due and owing, if such failure or delay is caused by strike, riot, fire, flood, natural disaster, or other similar cause beyond such party’s control, provided that such party gives prompt written notice of such condition and resumes its performance as soon as possible, and provided further that the other party may terminate the Agreement if such condition continues for an uninterrupted period of ninety (90) days from the initial occurrence of such condition. Neither the MVS Parties nor XsunX is entitled to relief under this Section to the extent that any event otherwise constituting such event of force majeure results from the negligence or fault of the applicable party or its Related Persons.

8.14.       No Third-Party Beneficiaries. Except as provided in Section 2.2 (Sublicenses), nothing in this License, expressed or implied, is intended or shall be construed to confer upon any entity, other than the MVS Parties and XsunX (and the parties’ and respective Related Persons, and permitted successors and assigns), any remedy or claim by reason of this License, and any such remedies or claims shall be for the exclusive benefit of the MVS Parties and XsunX.

8.15.       Expenses. Each of the parties shall pay its own costs and expenses associated with the execution and performance of this License.

IN WITNESS WHEREOF, the parties hereto have caused this License to be effective as of the Effective Date. The persons signing below warrant their authority to sign the Agreement on behalf of the MVS Parties and XsunX, respectively.

MVSystems, Inc.		XsunX, Inc.
By		By:
	Signature		Signature
	Printed Name		Printed Name
	Title		Title
	Date		Date
Dr. Arun Madan
By:
	Signature
	Printed Name
	Date

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EX-10.3

SUBLEASE AGREEMENT

This Sublease Agreement (“Sublease”) is made and entered into by XsunX, Inc., a Colorado corporation (“Sublandlord”), and MVSystems, Inc., a Colorado corporation (“Subtenant”) as of May 30, 2008. For valuable consideration, the receipt and adequacy of which are hereby acknowledged, Sublandlord and Subtenant agree as follows:

1.Definitions. In this Sublease, the following terms have the meaning given to them:

a.Building: The building located at 500 Corporate Circle, Golden, Colorado 80401, which building contains the Subleased Premises and the Original Premises.

b.Sublease Commencement Date: May 31, 2008.

c.Master Lease: Lease dated April 28, 2006, between Green Mountain Corporate Center II, LLP as Landlord, and Sublandlord, as Tenant. A copy of the Master Lease is attached to this Sublease as Exhibit A and is made a part of this Sublease by this reference.

d.Subleased Premises: That portion of the Original Premises designated as the “Warehouse” portion, together with any interior windows which shall remain unobstructed, as depicted on the floor plan attached to this Sublease as Exhibit B, which floor plan is made a part of this Sublease by reference.

e.Retained Premises: That portion of the Original Premises designated as the “Workshop,” “Open Office Area,” “Office 01,” “Office 02” and “Restroom” portions, together with any interior windows which shall remain unobstructed, as depicted on the floor plan attached to this Sublease as Exhibit B.

f.Original Premises: The premises demised to Sublandlord under the Master Lease, known as Suite J of the Building.

g.Termination Date: May 31, 2009, unless earlier terminated as provided in this Sublease.

2.Agreement. Sublandlord subleases the Subleased Premises to Subtenant, and Subtenant subleases the Subleased Premises from Sublandlord, according to the terms of this Sublease.

3.Acceptance of Subleased Premises. Sublandlord will deliver the Subleased Premises, and Subtenant will accept the Subleased Premises, in an “as is” condition on the Sublease Commencement Date.

4.Term. The term of this Sublease will begin on the Sublease Commencement Date and shall end on the Termination Date, unless earlier terminated as provided in this Sublease (“Sublease Term”). The parties expressly agree and acknowledge that this Sublease shall terminate upon the closing of a sale to a third party purchaser or the exercise of the Reimbursement Option, as provided for in the Separation Agreement and Mutual Release executed by Subtenant and Sublandlord contemporaneously herewith (“Separation Agreement”).

5.Subtenant Use of and Access to Subleased Premises. Subtenant may use the Subleased Premises for office, laboratory and manufacturing purposes. Sublandlord and Subtenant acknowledge that Subtenant will be operating or maintaining within the Subleased Premises the X4-BPL machine currently located in the Subleased Premises (the “Machine”) for purposes of a potential sale to a third party as set forth in the Separation Agreement. Sublandlord and Subtenant further acknowledge that Subtenant will use for such purpose, as necessary to demonstrate the Machine, the gas cabinets currently installed in the Subleased Premises (“Gas Lines”). Access by Subtenant to the Subleased Premises shall be through the doorway located in Suite L of the Building, the same being the doorway in the “Warehouse” portion as depicted on Exhibit B hereto.

6.Representations and Obligations of Subtenant Regarding Machine. Subtenant represents that as of February 12, 2008, the Machine fully complied with the functionality and system operating standards set forth in Section 11 of the Machine proposal of Subtenant to Sublandlord dated December 2, 2005, which Section 11 bears the heading “Process and System Guaranties.” Subtenant further represents and warrants that throughout the Sublease Term, the Machine: (a) will not be relocated from the Subleased Premises except as provided for in the Separation Agreement; (b) will be maintained in its present condition as of the date hereof, without disassembly or removal of any parts except as necessary for replacement of parts to demonstrate the Machine to potential purchasers; and (c) will be used by Subtenant solely for demonstration to potential buyers in connection with a potential sale of the Machine to a third party as set forth in the Separation Agreement together with such operation and maintenance as necessary to demonstrate the Machine for purposes of a potential sale. Subtenant’s representations and obligations set forth in this paragraph 6 are referred to as the “Machine Representations.”

7.Sublandlord Use of and Access to the Subleased Premises. During the Sublease Term, Sublandlord shall have no use of or access to the Subleased Premises except as follows: two representatives of Sublandlord shall be granted access, together, to the Subleased Premises solely for purposes of verifying Subtenant’s compliance with the Machine Representations, which access shall be limited to once a quarter during the Sublease Term on a date mutually agreed by Subtenant and Sublandlord at least five (5) business days in advance.

8.Rent. In consideration of the mutual obligations set forth herein, Sublandlord entered into the Separation Agreement. Sublandlord and Subtenant mutually acknowledge that execution of the Separation Agreement, together with the mutual obligations set forth therein, is full and adequate consideration for the obligations set forth in this Sublease. Accordingly, Subtenant will pay no rent to Sublandlord hereunder. Sublandlord further agrees that throughout the Sublease Term the Sublandlord shall be responsible to pay, and shall pay, any rent due under the terms of the Master Lease (hereinafter, “XsX Rental Payments”), together with any additional rent, real estate taxes and assessments and expenses of operating and maintaining the Subleased Premises other than the Utilities and Insurance as set forth in paragraphs 9 and 10 below.

9.Utilities. Beginning on the Sublease Commencement Date, Sublandlord’s account with electrical, water, sewer and other utilities for the Original Premises will be transferred to Subtenant for the Sublease Term. Throughout the Sublease Term, Subtenant shall be responsible to pay, and shall pay, all utilities for both the Subleased Premises and the Retained Premises less the monthly sum of $100.00, which monthly $100.00 amount shall be payment by Sublandlord for utilities used in connection with the Retained Premises (“XsX Utilities Payment”). The XsX Utilities Payment shall be due to Subtenant and payable by Sublandlord to Subtenant on or before the 5th day of each month during the Sublease Term. Subtenant shall be reimbursed for its payment of Utilities (excluding the XsX Utilities Payment paid by Sublandlord) in accordance with, and to the extent permitted by, the Separation Agreement.

10.Insurance. Beginning on the Sublease Commencement Date, and throughout the Sublease Term, Subtenant shall maintain in full force and effect, with a commercial insurance carrier licensed and duly authorized to issue such insurance in the State of Colorado, insurance policies and coverages for the Subleased Premises approved by Sublandlord and to include premises, fire and casualty, and commercial general liability coverages. Subtenant shall be reimbursed for the cost of any insurance premium paid by Subtenant to comply with this paragraph 10 in accordance with, and to the extent permitted by, the Separation Agreement.

11.Maintenance and Condition of the Subleased Premises. Throughout the term of the Sublease, Subtenant shall maintain the Subleased Premises in such condition as delivered by Sublandlord to Subtenant on the Sublease Commencement Date. Upon expiration of the Sublease Term, the Subleased Premises shall be surrendered to Sublandlord in the same condition and without removal of any equipment other than the Machine in the event of a sale or exercise of the Reimbursement Option as set forth in the Separation Agreement. Without limiting the foregoing, Subtenant and Sublandlord specifically agree that the Gas Lines will be maintained throughout the Sublease Term and surrendered to Sublandlord upon expiration of the Sublease Term in the same condition as delivered on the Sublease Commencement Date. Without Sublandlord’s prior written consent, the Gas Lines shall not be used by Subtenant except as set forth herein, shall not be included in any sale of the Machine and shall not be removed from the Subleased Premises.

12.Alterations. Subtenant shall not make any alterations, additions, or improvements to the Subleased Premises without Sublandlord’s prior written consent, which consent shall not be unreasonably withheld, and in compliance with the Master Lease. Notwithstanding the foregoing, Sublandlord hereby consents to Subtenant installing new locks on all doors accessing the Subleased Premises.

13.Assignment and Subletting. No portion of the Subleased Premises or of Subtenant’s interest in this Sublease may be acquired by any other person or entity, whether by assignment, mortgage, sublease, transfer, operation of law or act of Subtenant, without the prior written consent of Sublandlord and Landlord in accordance with the Master Lease, such consents not to be unreasonably withheld.

14.Termination for Cause. This Sublease may be terminated by either party for cause in the event of a material breach by the other party (“breaching party”) of this Sublease or a “Material Breach” as defined in the Separation Agreement, upon thirty (30) days advance written notice to the breaching party if said material breach is not cured within thirty (30) days of the written notice. Upon such termination for cause, Subtenant shall have vacated the Subleased Premises and the Subleased Premises shall revert to Sublandlord.

15.The Master Lease. This Sublease is subject to the Master Lease. The provisions of the Master Lease are incorporated into this Sublease as though Sublandlord were the Landlord under the Master Lease and Subtenant were the Tenant under the Master Lease, to the extent any such provisions apply to the Subleased Premises. Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Master Lease. Subtenant has received a copy of the Master Lease. In the event the Master Lease terminates or expires for any reason, this Sublease shall automatically terminate as well.

Without limiting the foregoing in any manner, Subtenant expressly agrees with respect to the Subleased Premises that Tenant’s restoration, maintenance and repair obligations set forth at paragraphs 9 - 10 of the Master Lease shall apply to Subtenant; provided, however, that Subtenant’s obligations hereunder shall be limited to the conditions of the Subleased Premises as they exist on the Sublease Commencement Date. Subtenant further expressly agrees with respect to paragraph 20 of the Master Lease that: (i) Tenant’s indemnity obligations set forth therein shall apply to Subtenant, and Sublandlord shall be an additional indemnitee with respect to such obligations; and (ii) Subtenant shall maintain Commercial General Liability insurance as set forth therein, naming Sublandlord as an additional insured, and Subtenant shall provide a certificate or other proof of such insurance coverage to Sublandlord at its request.

Provided further, that such restoration, maintenance, repair and indemnity obligations of Subtenant shall exclude any liability, damage or injury caused by Sublandlord and/or its employees, contractors and agents in connection with Sublandlord’s use of the Retained Premises and/or access to the Subleased Premises pursuant to Paragraph 7 above.

16.Notices. All notices and other communications required under this Sublease 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:

If to Sublandlord: XsunX, Inc.

65 Enterprise

Aliso Viejo, CA 92656

Attn: Tom Djokovich

(Tel) (949) 330-8062

(Fax)

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 Subtenant:   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

17.Entire Agreement.This Sublease, together with the Separation Agreement, constitutes the entire agreement between Sublandlord and Subtenant, and there are no other oral or written agreements with respect to the Subleased Premises between them. No modification or amendment of the Sublease will be made without the prior written consent of Sublandlord and Subtenant, which consent shall not be unreasonably withheld, conditioned or delayed.

18.Consent. The effectiveness of this Sublease is conditioned upon the execution of the Consent to Sublease below by Landlord, the terms of which are incorporated herein.

19.Execution in Counterparts. This Sublease 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.

Sublandlord and Subtenant have executed this Sublease as of the date first above written.

 SUBLANDLORD:

XSUNX, INC.,

a Colorado corporation

By: _____________________________

Name: __________________________

Title: ___________________________

SUBTENANT:

MVSYSTEMS, INC.

a Colorado corporation

By: _____________________________

Name: __________________________

Title: ___________________________

EXHIBITS

Exhibit A--The Master Lease

Exhibit B--Subleased Premises

CONSENT TO SUBLEASE

Landlord:Green Mountain Corporate Center II, LLP, a __________________ limited liability partnership

Tenant:  XSunX, Inc., a Colorado corporation

Subtenant:                  MVSystems, Inc., a Colorado corporation

Master Lease: Lease dated April 28, 2006, between Landlord and Tenant.

Sublease:                    Sublease Agreement between Tenant, as Sublandlord, and Subtenant, dated May ___, 2008, a copy of which is attached hereto.

Date:     May ___, 2008

Landlord hereby consents to the subletting of the subleased premises described in the Sublease (the “Subleased Premises”) by Tenant to Subtenant, so long as:

1.Tenant continues to pay all Rent and other sums and the performance of all covenants required of Tenant under the Master Lease, in accordance with the terms of the Master Lease.

2.If a default by Tenant under the Master Lease occurs beyond any applicable period of notice and cure, Landlord agrees to provide notice of such default to Subtenant in accordance with paragraph 16 of the Sublease, and Subtenant shall have the right, but not obligation, to cure Tenant’s default within five (5) days after receipt of such notice. Providing Subtenant an additional period to cure Tenant’s default will not constitute a waiver by Landlord of any of Landlord’s rights against Tenant as result of such default. If Subtenant fails to cure Tenant’s default within such 5 day period, Landlord may exercise all rights and remedies it may have against Tenant under the Master Lease or otherwise. If the Master Lease is terminated as a result of Tenant’s default under the Master Lease, in addition to all other rights and remedies of Landlord, the Sublease will automatically terminate.

3.The Sublease may not be amended except by written consent in advance of Landlord.

4.All rights and remedies of Subtenant pursuant to the Sublease, if any, will be solely against Sublandlord. Neither this Consent nor the Sublease will give Subtenant any rights under the Master Lease except those expressly granted by the Sublease.

5.If any conflict between the Master Lease and the Sublease occurs, the Master Lease will control.

6.Landlord approves of the terms, conditions and agreements contained in the Sublease (all of which shall be subordinate and subject at all times to the terms, covenants and conditions of the Master Lease), provided, however, Landlord assumes no liability or obligation of any kind whatsoever on account of anything contained in the Sublease. Landlord hereby consents to Subtenant changing the locks on all doors accessing the Subleased Premises, so long as Subtenant provides a copy of all keys to such locks to Landlord for fire or police department emergency access.

7.By executing this consent, Landlord shall not be deemed to have waived any rights under the Master Lease, Tenant shall not be deemed to have waived or been released from any of its obligations under the Master Lease, nor shall Landlord be deemed to have waived Tenant’s obligations to obtain any required consents under the Master Lease (other than consent to the Sublease itself).

8.The Sublease shall be deemed and agreed to be a sublease only and not an assignment and there shall be no further subletting or assignment of all or any portion of the Subleased Premises without the prior written consent of Landlord in accordance with the terms and conditions of the Master Lease.

LANDLORD:

GREEN MOUNTAIN CORPORATE CENTER II, LLP,

a _______________ limited liability partnership

By:_______________________

Name:____________________

Title:_____________________