Exhibit 10.7
                              SETTLEMENT AGREEMENT


         THIS  AGREEMENT is  made effective this 30th day of July,  1996, by and
between   American  Dental   Technologies   (hereinafter,   "ADT"),  a  Delaware
corporation,   having  offices  at  28411  Northwestern  Highway,   Suite  1100,
Southfield,  Michigan 48034-5541, and Sunrise Technologies  International,  Inc.
(hereinafter,  "SUNRISE"),  a  Delaware  corporation,  having  offices  at 47257
Fremont Boulevard, Fremont, California.

                                   WITNESSETH:


         WHEREAS,  ADT  and  SUNRISE  are  presently  engaged  in the  following
litigation:

                  (a)   Appellate   Action  No.   A072262,   entitled   "Sunrise
Technologies International,  Inc.,  Plaintiff/Cross-Defendant  and Respondent v.
American  Dental   Technologies,   Inc.,  f/k/a  American  Dental  Laser,  Inc.,
Defendant/Cross-Claimant  and  Appellant," now pending in the Court of Appeal of
the State of California,  First Appellate  District,  Division Four, as appealed
from  the  lower  court  Civil  Action  No.   H-172132-2,   entitled,   "Sunrise
Technologies International,  Inc. et al. v. American Dental Technologies," which
was  litigated  in the  Superior  Court  for the  County of  Alameda -  Southern
Division (collectively hereinafter, "State Court Action"); and

                  (b)  Civil  Action  No.  C94-1512  (EFL),   entitled  "Sunrise
Technologies  International,  Inc. and Danville Manufacturing v. American Dental
Technologies,  Inc.," now pending in the United  States  District  Court for the
Northern  District of California,  Civil Action No.  C94-1513  (EFL),  entitled,
"Sunrise Technologies International, Inc. and Danville Manufacturing v. American
Dental Technologies,  Inc.," now pending in the United States District Court for
the Northern District of California; and Civil Action No. C95-2048-EFL, entitled
"American Dental Technologies, Inc. v. Sunrise Technologies International,  Inc.
et al." (collectively hereinafter, "Federal Court Actions");

         WHEREAS,  a  judgment  was  entered  against  ADT  in the  lower  court
proceedings  of the State Court Action in the sum of  $940,178.00,  plus taxable
costs and  interest,  ADT  having  posted a cash  deposit  with the state  court
pending an appeal in the State Court Action in the sum of $1,410,267.00;

         WHEREAS,  ADT and SUNRISE  desire to settle and terminate the foregoing
litigation  and as part of such  settlement  SUNRISE  desires to obtain  certain
patent licenses from ADT;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants hereinafter set forth, ADT and SUNRISE agree as follows:

                               State Court Action

         1. SUNRISE shall relinquish and forgive the judgment in the State Court
Action in its full amount of  $940,178.00,  plus costs,  interest  and  attorney
fees. SUNRISE shall release ADT, its officers, agents, affiliates, and attorneys
from any and all claims and counterclaims arising prior


<PAGE>

to the effective date of this Agreement which were made or which could have been
made arising out of the subject matter of the State Court Action,  including all
such claims for damages, costs, interest and attorney fees. SUNRISE will execute
all documents  necessary to dismiss the State Court Action with prejudice and to
release the full amount of the cash deposit (plus interest)  posted on appeal by
ADT  immediately  upon execution of this  Agreement,  each party to bear its own
costs and attorney  fees.  SUNRISE  represents  and warrants that it has made no
assignment or hypothecation of any judgment or claims, including but not limited
to claims  for  attorney  fees,  arising  out of the State  Court  Action to any
creditor,  attorney or other third  party and agrees to  indemnify  and hold ADT
harmless  from  any  such  third  party  claim.   As  used  in  this  Agreement,
"affiliates"  shall mean any corporation of which fifty percent (51%) or more of
the voting stock is owned or controlled by a party to this Agreement.

         2. ADT shall release  SUNRISE,  its officers,  agents,  affiliates  and
attorneys  from  any and all  claims  and  counterclaims  arising  prior  to the
effective date of this  Agreement  which were made or which could have been made
arising out of the subject matter of the State Court Action,  including all such
claims for damages,  costs,  interest and  attorney  fees.  ADT will execute all
documents necessary to dismiss the State Court Action with prejudice immediately
upon execution of this Agreement,  each party to bear its own costs and attorney
fees.   ADT   represents  and  warrants  that  it  has  made  no  assignment  or
hypothecation  of any claims,  including  but not limited to claims for attorney
fees,  arising out of the State Court Action to any creditor,  attorney or other
third party and agrees to  indemnify  and hold  SUNRISE  harmless  from any such
third party claim.

                              Federal Court Actions

         3. ADT shall release  SUNRISE,  its officers,  agents,  affiliates  and
attorneys  from  any and all  claims  and  counterclaims  arising  prior  to the
effective date of this  Agreement  which were made or which could have been made
arising out of the subject  matter of the Federal Court  Actions,  including all
such claims for damages, costs, interest and attorney fees. ADT further releases
SUNRISE  with  respect to  SUNRISE's  past Senior  model and  current  MicroPrep
Associate and Director models, as described and identified in the depositions of
Mark Fernwood and Joseph Shaffer in the Federal Court Actions,  from any and all
claims of  infringement  under  patents  issuing  on any  pending  or  presently
contemplated  patent applications owned or controlled by ADT which relate to air
abrasive  equipment  or  apparatus,  other  than such  patents  or  applications
covering  air  abrasive  dental  systems or methods of  treatment  as  otherwise
provided  herein.  ADT will execute all documents  necessary to dismiss  SUNRISE
from the Federal Court Actions with prejudice immediately upon execution of this
Agreement,  each  party to bear its own costs and  attorney  fees.  In no event,
however,  shall this  paragraph 3 be  interpreted to constitute a release of any
liability  or damages,  directly  or  indirectly,  arising  out of ADT's  claims
against  Danville  Manufacturing  or a  dismissal  of any of the  claims  in the
Federal Court Actions  against  Danville  Manufacturing.  Notwithstanding,  upon
execution of this  Agreement,  ADT will offer to dismiss  without  prejudice all
pending  litigation  by ADT  against  Danville  Manufacturing  in  return  for a
dismissal without prejudice by Danville  Manufacturing of all pending litigation
by  Danville  Manufacturing  against  ADT,  each party to bear its own costs and
attorneys  fees.  ADT  represents and warrants that it has made no assignment or
hypothecation  of any claims,  including  but not limited to claims for attorney
fees, arising out of the Federal Court Actions to any creditor,



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attorney or other third party and agrees to indemnify and hold SUNRISE  harmless
from any such third party claim.

         4. SUNRISE  shall  release ADT, its officers,  agents,  affiliates  and
attorneys  from  any and all  claims  and  counterclaims  arising  prior  to the
effective date of this  Agreement  which were made or which could have been made
arising out of the subject  matter of the Federal Court  Actions,  including all
such claims for  declaratory  judgment,  damages,  costs,  interest and attorney
fees. SUNRISE will execute all documents  necessary to dismiss its claims in the
Federal Court Actions against ADT with prejudice  immediately  upon execution of
this  Agreement,  each party to bear its own costs and attorneys  fees.  SUNRISE
represents and warrants that it has made no assignment or  hypothecation  of any
claims,  including but not limited to claims for attorney  fees,  arising out of
the State Court  Action to any  creditor,  attorney or third party and agrees to
indemnify and hold ADT harmless from any such third party claim.

         5. The dismissals submitted to the Court pursuant to paragraphs 3 and 4
of this  Agreement  shall include (i) a stipulation  by SUNRISE that the patents
asserted in Civil Action No. C95-2048 (EFL), to wit, U.S. Patent No.  5,330,354,
U.S. Patent No.  5,350,299 and U.S. Patent No. 5,525,058 and the patent asserted
in Civil Action No.  C94-1513  (ELF),  to wit, U.S.  Patent No.  5,275,561,  are
acknowledged  by SUNRISE to be valid;  (ii) an order  commensurate in scope with
the  stipulation  of section (i) of this paragraph 5; (iii) a stipulation by ADT
that the patents  asserted in Civil  Action No.  C94-1512  (EFL),  to wit,  U.S.
Patent No. 4,893,440,  U.S. Patent No. 4,733,503,  U.S. Patent No. 4,708,534 and
U.S.  Patent No.  4,635,897,  and any non-dental air abrasive  patents or patent
applications  presently  owned by ADT are not infringed by SUNRISE's past Senior
model and current  MicroPrep  Associate  and Director  models as  described  and
identified in the depositions of Mark Fernwood and Joseph Shaffer in the Federal
Court Actions;  and (iv) an order  commensurate in scope with the stipulation of
section (iii) of this paragraph 5.

                                 Patent License

         6. ADT  hereby  grants to  SUNRISE a  nonexclusive  license  under U.S.
Patent No. 5,275,561,  U.S. Patent No. 5,330,354,  U.S. Patent No. 5,350,299 and
U.S.  Patent  No.  5,525,058,  and  any  foreign  counterparts,  reexaminations,
reissues, continuations or continuations-in-part based on the disclosures of the
patents of this paragraph 6, for the life of such patents,  to make,  use, lease
and sell SUNRISE's current MicroPrep  Associate and Director models as described
and  identified in the  depositions  of Mark Fernwood and Joseph  Shaffer in the
Federal Court Actions, and future models to the extent such future models do not
infringe any non-dental patents or patent  applications (for example, on helical
powder feed  mechanisms)  of ADT,  throughout  the world,  but  excluding  those
territories  (Japan,  China,  including Hong Kong,  Taiwan,  North Korea,  South
Korea, India, Pakistan,  Australia, New Zealand,  Singapore,  Thailand, Malaysia
and Indonesia) presently covered by agreements between ADT and Denics Co., Ltd.,
a/k/a Dental Innovative Corporation, a Japanese corporation. The license granted
in this paragraph 6 is non-transferable by assignment, sublicense or other means
of  transfer  except  as  provided  in  paragraphs  7 and 8 of  this  Agreement,
provided,  further,  that the  period in which  SUNRISE is  licensed  under this
Agreement, SUNRISE shall have the right to have the products of this paragraph 6
manufactured by a third party solely for SUNRISE. The license granted in


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this  paragraph 6 is subject to the  payments  provided  in  paragraph 9 of this
Agreement.  ADT represents and warrants that other than the patents  licensed in
this  paragraph 6, ADT does not presently own or hold  licensable  rights in any
other patents or patent applications covering the products of this paragraph 6.

         7.  The  license   granted  in   paragraph  6  of  this   Agreement  is
non-transferable for a period of eighteen (18) months from the effective date of
this  Agreement  and SUNRISE  shall make no such transfer or promise to transfer
within such  eighteen  (18) month  period,  except as provided in paragraph 8 of
this Agreement. After the expiration of such eighteen (18) month period, SUNRISE
shall have the right to transfer  the license of  paragraph 6 of this  Agreement
upon the  following  terms and  conditions:  the  transferee  shall  assume  all
obligations  of SUNRISE under this  Agreement,  including the obligation to make
the payments required by paragraph 9 of this Agreement;  provided, however, that
no such  transfer  of the  license  after such  eighteen  (18) month  period has
expired,  but  before  the  expiration  of  twenty-four  (24)  months  after the
effective date of this  Agreement,  shall be made  conditioned on the subsequent
sale or transfer of all of SUNRISE's dental air abrasive products business.

         8. SUNRISE may at any time  transfer the license of paragraph 6 of this
Agreement if such transfer is made with the transfer of all of SUNRISE's  dental
air abrasive products  business (for the purposes of this Agreement,  the phrase
"transfer of all of SUNRISE's dental air abrasive products  business" shall mean
any such  transfer by asset sale or exchange or by stock  transfer or  exchange,
and  shall  further  include  any  merger  by or into,  or  consolidation  with,
SUNRISE);  provided, however, that, if such transfer occurs within two (2) years
of the effective date of this Agreement, then SUNRISE shall pay to ADT, in cash,
a transfer  fee equal to ten percent  (10%) of the gross  consideration  for the
transfer of the license and the dental air abrasive  products  business received
by SUNRISE,  regardless of the form of the consideration  (provided that, in the
event of a merger,  such gross  consideration  shall be based on the fair market
value of the shares  thereupon  issued by SUNRISE or thereupon issued to SUNRISE
and/or its shareholders) and the transferee or surviving entity shall assume all
obligations  of SUNRISE under this  Agreement,  including the obligation to make
the  payments  required  by  paragraph  9 of this  Agreement.  In the event such
transfer of all of SUNRISE's dental air abrasive  products  business shall occur
more  than two (2)  years  after  the  effective  date of this  Agreement,  then
SUNRISE's only  obligation  upon transfer shall be to require such transferee or
continuing  entity to assume all  obligations  of SUNRISE under this  Agreement,
including the  obligation  to make the payments  required by paragraph 9 of this
Agreement.

                                    Payments

         9. Beginning on January 1, 1997, SUNRISE, or its permitted successor or
assignee,  shall pay to ADT the sum of seven percent (7%) on the net sales price
(defined  as gross  sales  price  less  freight,  duties  and  taxes) on all air
abrasive  products  manufactured,  sold or leased by SUNRISE,  or its  permitted
successor or assignee, which are manufactured (by or on behalf of SUNRISE), sold
or leased in a county in which ADT, presently or in the future, owns or controls
patents or patent applications on any dental air abrasive products or methods of
treatment, until the expiration of all such patents/patent applications.  In the
event that SUNRISE, or its permitted successor or assignee,  manufactures or has
manufactured on its behalf, and sells or leases (i.e.,


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manufactures and sells or manufactures and leases), air abrasive products wholly
within a country where ADT holds no such patents or patent applications or where
all such patents have  expired,  then no such  payments  shall be required.  The
payments required under this paragraph 9 of this Agreement shall accrue when the
subject  products are delivered,  invoiced or paid for,  whichever occurs first.
All  payments  shall be made in U.S.  dollars.  In no event  shall a payment  by
SUNRISE  under this  paragraph 9 be required for products that are both made and
sold prior to January 1, 1997.

         10. SUNRISE,  and any permitted  successor or assignee,  shall (i) make
the payments  required in paragraph 9 of this  Agreement on February  15th,  May
15th, June 15th and November 15th for the preceding accounting quarter, with the
first payment to be made on May 15, 1997.  SUNRISE shall keep accurate books and
records reflecting transactions made under this Agreement and shall make reports
at the time of such payments fully  supporting the calculation of payments made,
including  the  number of units  sold or  leased  and the  sales  price  used to
determine  payments.  ADT shall have the right to inspect such books and records
through an independent  certified  accountant,  not to exceed one such audit per
year.

                                   Termination

         11.  ADT may  terminate  the  license  granted by  paragraph  6 of this
Agreement  only in the event of a material  breach of this Agreement by SUNRISE,
and then only if, upon  receiving  notice of such breach  SUNRISE  fails to cure
such breach  within thirty (30) days of such notice;  such right of  termination
shall not be in lieu of other remedies such as specific performance.

                                 Patent Marking

         12. SUNRISE shall apply statutory  notice to its MicroPrep air abrasive
units sold in the United States substantially as follows: "This unit and its use
is protected by one or more of the following U.S. Patents: 5,275,561, 5,330,354,
5,350,299 and 5,525,058."

                                     Notice

         13. All  notices  required to be given  under this  Agreement  shall be
given in writing and shall be sent by regular mail,  postage prepaid,  certified
mail or by  recognized  overnight  express  mail  service to the  parties at the
addresses below.
                          If to ADT, to:
                          Anthony D. Fiorillo
                          President and Chief Executive Officer
                          American Dental Technologies, Inc.
                          28411 Northwestern Highway, Suite 1100
                          Southfield, Michigan 48034-5541
                          Tel.: (810) 353-5300
                          Fax: (810) 353-0663


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                          With a copy to:
                          Dykema Gossett PLLC
                          1577 North Woodward Avenue, Suite 300
                          Bloomfield Hills, Michigan 48304
                          Attention: Robert L. Kelly, Esq.
                          Tel.: (810) 540-0849
                          Fax: (810) 540-0763

                          If to SUNRISE, to:
                          David W. Light
                          President and Chief Executive Officer
                          Sunrise Technologies International
                          47257 Fremont Boulevard
                          Fremont, California
                          Tel.:
                          Fax:

                          With a copy to:
                          Daniel Johnson, Esq.
                          Cooley Godward Castro Huddleson & Tatum
                          Five Palo Alto Square, 4th Floor
                          Palo Alto, California 94306
                          Tel.: (415) 843-5000
                          Fax: (415) 857-0663

         14. A notice sent pursuant to paragraph 13 of this  Agreement  shall be
deemed  given  on the date it is  mailed,  unless  the  intended  recipient  can
establish that such notice was not timely received.

                                  Jurisdiction

         15. The Court in the Federal Court Actions shall retain jurisdiction of
the parties and this  Agreement  for purposes of resolving any dispute which may
arise hereunder.

                                  Governing Law

         16. This Agreement is made in the County of Oakland, State of Michigan,
and shall be governed by the laws of the State of Michigan without regard to its
conflict of laws principles.

                                   Warranties

         17. Both parties represent that their undersigned  representatives have
the full power and authority to enter into this  Agreement.  ADT  represents and
warrants  that it has the right and power to grant the license of paragraph 6 of
this Agreement,  but makes no other warranties  whatsoever regarding the patents
so licensed.


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                             Relationship of Parties

         18. This  Agreement  is not  intended by the parties to, and shall not,
constitute or create a joint venture, partnership or other business organization
and neither party shall be nor shall act as an agent of the other party. Neither
party shall use the other party's name in any marketing efforts.

                                  Severabilitv

         19. The invalidity of any provision of this Agreement  shall not affect
the validity of any other provision of this Agreement.

                               Complete Agreement

         20. This  Agreement  constitutes  the entire  agreement  of the parties
regarding   this   subject   matter  and   supercedes   any  and  all  prior  or
contemporaneous  oral or written  agreements,  understandings,  negotiations  or
discussions among the parties  regarding this subject matter.  Any amendments or
other  modifications  to this Agreement must be made in writing and must be duly
executed by an authorized representative or agent of each party.

                                  Counterparts

         21. This  Agreement may be executed in multiple  counterparts,  each of
which  shall  be  deemed  to be an  original,  and all such  counterparts  shall
constitute but one instrument.

                        Permitted Successors and Assigns

         22. This Agreement,  and all provisions herein,  shall bind the parties
and their permitted successors and permitted assigns.

         The parties have  executed  this  Agreement as effective the date first
written above by their duly authorized agents.

AMERICAN DENTAL                              SUNRISE TECHNOLOGIES
TECHNOLOGIES, INC.                           INTERNATIONAL, INC.


------------------------------------     ---------------------------------------
   By:  Anthony D. Fiorillo                By:  David W. Light
   President and Chief Executive           President and Chief Executive
   Officer                                 Officer

   Date:  __________________________       Date:________________________________