EX-10.1








SETTLEMENT AGREEMENT AND MUTUAL RELEASE




THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (“Agreement”) is made, effective December 3,
2004, by and between Lightrays, Ltd. a California limited partnership (“Lightrays”), on the one
hand, and Xenonics Holdings, Inc. (“Xenonics”) and its subsidiary, Xenonics, Inc. (“Subsidiary”) on
the other hand. Xenonics and Subsidiary are collectively referred to herein as the “Xenonics
Parties.” Lightrays and the Xenonics Parties are collectively referred to as the “Parties.”



RECITALS




a. Lightrays and Subsidiary are parties to that certain Agreement for License and
Transfer of Intellectual Property Rights dated March 27, 1997 as amended effective June 9, 1997 and
April 23, 1998 (“Amended IP Agreement”) which provides that, among other things, upon the
conditions specified therein (I) Subsidiary was to cause to be paid to Lightrays certain royalties
in the total sum of $400,000 (“Royalty Payments”), and (ii) upon full payment of the Royalty
Payments, among other things, Subsidiary was to own, free and clear of all claims from Lightrays,
certain intellectual property, including U.S. Patent #5,036,444, as more specifically described in
article VI B.(d) of the Amended IP Agreement (collectively the “IP”).



b. A dispute has arisen between Lightrays and the Xenonics Parties concerning the respective
rights and obligations of Lightrays and Subsidiary under the Amended IP Agreement in that Lightrays
contends that it is entitled to receive the Royalty Payments, none of which have been paid to date,
and the Xenonics Parties contend that Subsidiary is entitled to rescind the Amended IP Agreement,
has no obligation to pay any of the Royalty payments to Lightrays, and is entitled to the IP free
and clear of any claims by Lightrays (collectively, “Disputes”).



c. The Parties now wish to settle and resolve the foregoing adversary Disputes and have
agreed, and do hereby mutually agree, to a settlement and compromise of all claims and causes of
action, relating in any way to the Amended IP Agreement, the IP and the Disputes or any other
possible actions which are based or could be based upon the facts, or any of them, contained in the
above-described recitals.



d. In entering into this Agreement none of the Parties concede the sufficiency or validity of
any actual or potential claim, cause of action, denial or defense of any of the other Parties, and
nothing contained herein shall be deemed an admission, express or implied, of any liability or
absence of a valid cause of action or defense by any of the Parties.



e. The Parties intend this Agreement to be a final settlement between the Parties of all
matters, which are or could be in controversy between them, and intend that it replace all previous
agreements or conversations, if any exist, between the Parties.



AGREEMENT




NOW, THEREFORE, in consideration of the foregoing facts and the mutual covenants and
agreements contained herein, the Parties, for good and valid consideration, agree as follows:



1. Immediately upon execution by all of the Parties of this Agreement, the following actions
shall be taken by the specified Parties:



A. Lightrays will cause to be transferred and assigned to Xenonics any and all of
Lightrays’ right, title or interest in and to the IP including, but not limited to, the Patent.
Such transfer and assignment shall be effected by the execution and delivery of the Assignment,
attached as Exhibit “A” hereto.



B. The Xenonics Parties will cause to be issued to Lightrays, 97,000 shares of authorized
but previously unissued shares of common stock of Xenonics (“the Shares”). In connection with the
issuance off the restricted Shares, Lightrays makes the following representations:




	 	I.	 	Lightrays has all requisite power and authority
to enter into this Agreement.






	 	II.	 	Lightrays is acquiring the Shares solely for
its own account, for investment purposes only and not with a view to,
or for resale in connection with, any distribution or public offering
of the Shares within the meaning of the Securities Act of 1933, as
amended (the “1933 Act”). Lightrays has no present intention to sell,
offer to sell, or otherwise dispose of or distribute any of the Shares,
except that it will distribute shares to its partners who will agree to
be bound by the provisions of this Agreement.






	 	III.	 	Lightrays understands that the Shares have not
been registered under the 1933 Act in reliance on an exemption from the
registration requirements, and that consequently the Shares cannot be
offered, sold or otherwise transferred, and must be held indefinitely
by Lightrays, unless and until they are registered with the U.S.
Securities and Exchange Commission under the 1933 Act or until an
exemption from such registration is available.






	 	IV.	 	Lightrays understands and agrees that all
certificates evidencing the Shares will be imprinted with a legend
restricting the sale of the Shares without registration.






	 	V.	 	Lightrays is an “accredited investor” as
defined in SEC Rule 501 and has: (a) a pre-existing business
relationship with Xenonics Holdings, Inc., or its officers or
directors, such that Lightrays is aware of the character, business
acumen and general business and financial circumstances or such
persons; and/or (b) such knowledge and experience in business and
financial matters that it is capable of evaluation the merits and risks
of this investment in the Shares and is capable of protecting its own
interests in connection with in the Shares.






	 	VI.	 	Lightrays has had full access to all the
information it considers necessary to make an informed investment
decision with respect to the Shares.





C. Subsidiary will assign to Lightrays all of Subsidiary’s interest in Lightrays, which
consists of the partnership and other rights assigned by F. Morton Cameron to Subsidiary pursuant
to the Assignment of Limited Partnership Interest of Lightrays, Ltd, a California Limited
Partnership dated November 23, 1998, accepted by Subsidiary on November 30, 1998, and consented to
by Lightrays on August 17, 1999.



2. Upon completion of the performance required by the Xenonics Parties pursuant to Sections 1B
and 1C, above, Lightrays hereby fully releases any and discharges the Xenonics Parties, and each of
them, and their respective agents, employees, officers, directors, shareholders, subsidiaries,
parents, affiliates, partners, members, attorneys, successors and assignees, from and against any
and all claims, liabilities, obligations, causes of action, attorneys fees and costs, known or
unknown, in law or in equity, arising from or in any way related to the Disputes, the Amended IP
Agreement, the Royalties or the IP, save and except the obligations created or preserved in this
Agreement.



3. Upon completion of the performance required by Lightrays pursuant to Section 1A, above, the
Xenonics parties, and each of them, hereby fully release any and discharge Lightrays and its
agents, employees, officers, directors, shareholders, subsidiaries, parents, affiliates, partners,
members, attorneys, successors and assignees, from and against any and all claims, liabilities,
obligations, causes of action, attorneys fees and costs, known or unknown, in law or in equity,
arising from or in any way related to the Disputes, the Amended IP Agreement, the Royalties or
the IP, save and except the obligations created or preserved in this Agreement.



4. The Parties hereby agree that the foregoing mutual covenants and agreements shall
constitute full and complete satisfaction of any and all claims relating to the Disputes, the
Amended IP Agreement, the Royalties and the IP, including those claims described in the recitals
above (collectively, “Released Claims”). It is the intention of the Parties that the releases set
forth in Sections 3 and 4 above shall be effective as a bar to all Released Claims, of whatsoever
character, nature and kind, known or unknown, suspected or unsuspected, specified to be so barred;
in furtherance of this intention, the Parties hereby expressly waive any and all rights and
benefits conferred upon them by the provisions of Section 1542 of the California Civil
Code, which reads as follows:



A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.



The Parties, and each of them, acknowledge that they are aware that they may hereafter discover
facts in addition to or different from those which they now know or believe to be true with respect
to the subject matter of this Agreement, but it is their intention hereby to fully and finally
forever settle and release any and all matters, disputes and differences, relating to the Released
Claims, known or unknown, between the Parties.



5. All of the Parties acknowledge and agree that nothing in Paragraphs 2, 3 and 4 hereof shall
release or discharge them from the obligations assumed under the terms of this Agreement.



6. The Parties, and each of them, represent and warrant to each other that they have not
heretofore assigned or transferred, or purported to transfer, to any person, firm or association,
corporation or other entity any claim or cause of action described in this Agreement, and that each
of the Parties has the authority to waive, release or compromise the claims as hereinabove set
forth.



7. This Agreement contains the entire understanding of the Parties and there are no
representations, covenants or understandings other than those expressed herein. Each of the
Parties acknowledges that none of the other Parties or any agent or attorney of any of the other
Parties has made any promise, representation or warranty whatsoever, express or implied or
statutory, not contained or expressly referred to herein, concerning the subject matter hereof, to
induce them to execute this Agreement, and they acknowledge that they have not executed this
Agreement in reliance upon any promise, representation or warranty not specifically contained
herein.



8. Each of the Parties agrees to execute any additional further documentation necessary or
appropriate to carry out the terms or intents expressed herein, including but not limited to the
provisions of Section 1, above.



9. Notwithstanding the provisions of Section 1281.2, et seq., of the
California Code of Civil Procedure, or any other applicable statutes, any controversy or
claim arising out of or relating to this Agreement, or any breach thereof, including the issues as
to whether the Agreement is voidable or other grounds for rescission of the Agreement exist, shall
be settled by arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment thereon may be rendered in any court having jurisdiction over
the subject matter.



10. Should any of the Parties reasonably retain counsel for the purpose of enforcing or
preventing the breach of any provision of this Agreement, including, but not limited to,
instituting any action or proceeding to enforce any provision of this Agreement for damages by
reason of breach of any provision hereof, or declaration of such party’s rights or obligations
hereunder or for any other judicial remedy, then, if said matter is settled by judicial
determination, including arbitration, the prevailing party shall be entitled, in addition to such
other relief as may be granted, to be reimbursed by the losing party for all costs and expenses
incurred thereby, including, but not limited to, as part of such costs, reasonable attorney’s fees
and costs for services rendered by such prevailing party.



11. This Agreement may be executed in two or more counterparts, each of which shall be an
original, but all of which shall constitute one and the same instrument.



12. This Agreement has been negotiated and entered into in the State of California, County of
San Diego, and shall be governed by, construed and enforced in accordance with the laws of the
State of California. Should any dispute arise as to the terms and provisions of this Agreement,
venue shall be in San Diego County, California.



13. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and
their respective heirs, representatives, successors and assigns.



14. No breach of any provision hereof can be waived unless in writing. Waiver of any one
breach of any provision hereof shall not be deemed to be a waiver of any other breach of the same
or any other provision hereof. This Agreement may be amended only by a written agreement executed
by the Parties in interest at the time of the modification.



15. Each of the Parties hereby warrants and represents to the other that it is duly authorized
and empowered to enter into this Agreement.



16. The Parties, and each of them, represent and declare in executing this Agreement that they
rely solely upon their own judgment, belief and knowledge, and the advice and recommendations of
their own independently selected counsel, if any, concerning the nature, extent and duration of
their rights and claims, and that they have not been influenced to any extent whatsoever in
executing the same by any representations or statements covering any matters made by any of the
parties hereto, or by any persons representing them.



IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year
first above written.




Lightrays, Ltd.:



	 	 	 	 	 
	Dated: 12/3/04

	 	By:
	 	/s/ Wynton G. Shaw
	 

	 	 	 	 
	
 
	 	 	 	Xyster, LLC, General Partner
	 
	 	 	 	 
	Dated: 11/08/04

	 	By:
	 	/s/Robert F. Buie   
	 

	 	 	 	 
	
 
	 	 	 	Robert F. Buie, Manager
	 
	 	 	 	 
	
 
	 	 	 	Xenonics Holdings, Inc.:
	 
	 	 	 	 
	Dated: 10/19/04

	 	By:
	 	/s/ Alan P. Magerman
	 

	 	 	 	 
	
 
	 	 	 	Alan P. Magerman







CONSENT




The undersigned limited partners of Lightrays, Ltd. hereby consent to the terms of this Agreement.



	 	 	 
	Dated: 11/8/04

	 	/s/ Robert F. Buie   
	 

	 	 
	
 
	 	Robert F. Buie
	 
	 	 
	Dated: 11/2/04

	 	/s/ Dr. Duane Buringrud
	 

	 	 
	
 
	 	Dr. Duane Buringrud
	 
	 	 
	Dated: 12/3/04

	 	/s/ Dr. Barry Mozlin
	 

	 	 
	
 
	 	Dr. Barry Mozlin
	 
	 	 
	Dated: 11/1/04

	 	/s/ Dr. Wynton G. Shaw
	 

	 	 
	
 
	 	Dr. Wynton G. Shaw