PERNIX GROUP, INC. 2012 INCENTIVE STOCK OPTION PLAN

force reserve such number of authorized and unissued or treasury shares of Stock as will be sufficient to satisfy the requirement of outstanding options granted under the Plan.

3.2 Share Counting. If an outstanding Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company for an amount not greater than the Participant’s purchase price, the shares of stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of stock shall again be available for issuance under the Plan. Shares of stock shall not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash. If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of stock owned by the Participant, or by means of a Net-Exercise, the number of shares of stock available for issuance under the Plan shall be reduced by the gross number of shares of stock for which the Option is exercised. Shares of stock withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to Section 13.2 shall not again be available for issuance under the Plan.

4. ADMINISTRATION OF THE PLAN.

4.1 Administration by the Committee. The Plan shall be administered by the Committee. All questions of interpretation of the Plan, of any Award Agreement or of any other form of agreement or other document employed by the Company in the administration of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final, binding and conclusive upon all persons having an interest in the Plan or such Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or Award Agreement or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest therein.

4.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election.

4.3 Administration with Respect to Insiders. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.

4.4 Powers of the Committee. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:

(a) to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of stock  to be subject to each Award and the performance or market conditions applicable to the award as defined by Code 162(m) (see appendix 1);

(b) to determine the type of Award granted;

(c) to determine or opine on the Fair Market Value of shares of stock  or other property;

(d) to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares of stock   acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares of stock pursuant to any Award, (ii) the method of payment for  shares of stock purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with Award, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares of stock  acquired pursuant thereto, (v)  the time of the expiration of any Award, (vi) the effect of the Participant’s termination of Service on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to any Award or shares of stock acquired pursuant thereto not inconsistent with the terms of the Plan;

(e) to determine whether an Award will be settled in shares of stock , cash, or in any combination thereof;

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(f) to approve one or more forms of Award Agreement;

(g) to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares of stock acquired upon the exercise thereof;

(h) to accelerate, continue, extend or defer the exercisability of any Award or the vesting of any shares of stock   acquired upon the exercise thereof, including with respect to the period following a Participant’s termination of Service;

(i) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws or regulations of or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards; and

(j) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.

4.5 Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Company, members of the Board or the Committee and any officers or employees of the Company to whom authority to act for the Board, the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.

5. ELIGIBILITY RULES.

5.1 Eligible Employees. Participants in the Plan shall be selected by the Committee from the executive officers and other key employees of the Company or of a parent or subsidiary (within the meaning of Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the “Code”)), of the Company. No consultants or non-employee directors may participate in this plan. In making this selection and in determining the amount and terms of any options granted, the Committee may take into account the nature of the services rendered by such individuals, their present and potential contributions to the Company’s success, and such other factors as the Committee, in its sole discretion, shall deem relevant. Notwithstanding the foregoing, no option shall be granted to any individual who owns (within the meaning of Section 422(b)(6) and 424(d) of the Code) at the time the option is granted, more than 10% of the total combined voting power or value of all classes of stock of the Company or a parent or subsidiary of the Company, except as provided in Section 5.2 of the Plan.

5.2 Award Limits. Notwithstanding the provisions of Section 5.1 above, an option may be granted, consistent with the other terms of the Plan, to an employee who owns (within the meaning of Sections 422(b)(6) and 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or a parent or subsidiary of the Company if, at the time such option is granted, the option price is an amount which equals or exceeds 110% of the fair market value of the Stock subject to the option, and such option by its terms is not exercisable more than five (5) years after it is granted.

5.3 Company Authority. Nothing contained in the Plan shall be construed to limit the right of the Company to grant options otherwise than under the Plan.

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5.4 Additional Option Awards. Subject to Section 5.5 below, if options have been granted under the Plan, additional options may be granted from time to time to a holder of such an option, and options may be granted from time to time to one or more employees who have not previously been granted options under the Plan.

5.5 Additional Limits on Amounts of Awards. The aggregate fair market value of the Stock, with respect to which options are exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. For purposes of this Section 5.5 of the Plan, (i) options shall be taken into account in the order in which they were granted, (ii) the fair market value of any Stock shall be determined as of the time the option with respect to such Stock was granted, and (iii) the term “Stock” shall mean any stock of the Company or of its parent or subsidiary (within the meaning of Sections 424(e) and (f) of the Code) with respect to which the optionee has been granted incentive stock options (as defined in Section 422 of the Code).

6. TERMS OF OPTIONS AND ADDITIONAL PLAN LIMITS.

6.1 General Intent. All options granted under the Plan are intended to qualify as “incentive stock options” under the provisions of Section 422 of the Code. The terms of each option granted under the Plan shall be determined by the Committee consistent with the provisions of the Plan, including the following:

6.2 Required Purchase Price.  The purchase price of the shares of Stock subject to each option shall not be less than the fair market value of the Stock at the time such option is granted. Such fair market value shall be determined by the Committee and, if the Stock is listed on a national securities exchange or actively traded on the over-the-counter market, shall be the closing sale price of the Stock on such exchange, or on the over-the-counter market as quoted in the National Association of Securities Dealers Automated Quotation System (presently the NASDAQ National Market System) or the OTCBB (Over the Counter Bulletin Board), as the case may be, on the day on which the option is granted or, on the next business day, if such date is not a business day.

6.3 Additional Plan Limits. An option granted under the Plan shall not be exercisable until the expiration of six months from the date of its grant and in the case of a grant which is conditioned upon subsequent shareholder approval of the Plan, six months from the date of such shareholder approval. Unless otherwise provided in any option grant under the Plan, following the expiration of the applicable six-month holding period, up to one-fifth (ignoring fractional shares of stock) of the total number of shares of stock subject to an option granted under the Plan shall become exercisable in cumulative fashion on the first through fifth anniversary dates of the grant of the option. In no case may an option be exercised as to less than one hundred (100) shares of stock at any one time (or the remaining shares of stock covered by the option if less than one hundred (100)).

6.4 Ten-Year Limit. Each option granted under the Plan shall by its terms expire and shall not be exercisable after the expiration of ten years from the date of its grant (unless a shorter period is provided by the Committee or another Section of this Plan) and shall be subject to earlier termination as expressly provided in this Plan.

6.5 Methods of Payment. An option granted under the Plan shall be exercised by the delivery by the holder thereof to the Company at its principal office (attention of the Chief Financial Officer with a copy to the in house Legal Counsel) of written notice of the number of shares of stock with respect to which the option is being exercised accompanied by payment in full of the purchase price of such shares of stock. Payment for such shares of stock may be made (as determined by the Committee) (i) in cash, (ii) by certified check payable to the order of the Company in the amount of such purchase price, (iii) by delivery of Stock to the Company having a fair market value equal to said purchase price, or (iv) by any combination of the methods of payment described in (i) through (iii) above.

6.6 Rights of Optionee. The holder of an option shall have none of the rights of a shareholder with respect to the shares of stock covered by his option until such shares of stock shall be issued to him upon the exercise of his option.

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7.  EFFECT OF TERMINATION OF SERVICE.

7.1 Option Exercisability. Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Committee, an Option shall terminate immediately upon the Participant’s termination of Service to the extent that it is then unvested and shall be exercisable after the Participant’s termination of Service to the extent it is then vested only during the applicable time period determined in accordance with this Section and thereafter shall terminate:

(i) Disability. If the Participant’s Service terminates because of the Disability (within the meaning of Section 22(e)(3) of the Code)  of the Participant, the Option, to the extent unexercised and exercisable for vested shares of stock on the date on which the Participant’s Service terminated, may be exercised by the Participant (or the Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participant’s Service terminated, but in any event no later than the date of expiration of the Option’s term as set forth in the Award Agreement evidencing such Option (the Option Expiration Date).