Exhibit 10.7





Exhibit 10.7




SETTLEMENT AGREEMENT AND RELEASE




THIS SETTLEMENT AGREEMENT AND RELEASE (“Agreement”) is executed as of the dates set forth
below, by and between FirstMark III, L.P., a Delaware limited partnership located at 120 W. 45th
St., 19th Floor, NY, NY 10036 (“FM 3”); FirstMark III Offshore Partners, L.P., a Cayman Islands
entity, with a mailing address of 120 W. 45th St., 19th Floor, NY, NY 10036 (“FM 3O”) (collectively
“FirstMark” or “Plaintiffs”); and Irvine Sensors Corporation, a Delaware corporation located at
3001 Red Hill Avenue, Costa Mesa, California 92526 (“Irvine”) (All three parties to this Agreement
may be referred to collectively as the “Parties” and each of them as a “Party”).



RECITALS




WHEREAS, FirstMark commenced an action against Irvine that is currently pending in the Supreme
Court of the State of New York, County of New York, entitled FirstMark III, L.P. and FirstMark III
Offshore Partners, L.P. v. Irvine Sensors Corporation (Index No. 103687/09) (hereinafter the
(“Action”)); and



WHEREAS, the Parties desire to adjust and settle all claims between them, including those
claims asserted in the Action.



NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the
Parties do hereby agree as follows:



1. (a) Irvine shall pay to FirstMark the total sum of $1,235,000 (the “Settlement Amount”).
The Settlement Amount shall be paid in monthly installments as follows: (1) $80,000 (including
$15,000 in attorney’s fees) by January 15, 2011; (2) $80,000 (including $15,000 in attorney’s fees)
by February 15, 2011; (3) $70,000 (including $5,000 in attorney’s fees) by March 15, 2011; (4)
fourteen payments of $65,000 by the 15th day of each month commencing April 15, 2011; and (3) a
final payment of $95,000.


 


 









 





(b) Each installment of the Settlement Amount shall be paid in the amounts set forth below by
wire transfer of immediately available funds to the following accounts, unless a different account
or manner of payment is requested by FirstMark:



	 	 	 
	Branch: Citibank New York

	 	Branch: Citibank New York
	 
	 	 
	SWIFT: CITIUS33

	 	SWIFT: CITIUS33
	 
	 	 
	ABA: 021000089

	 	ABA: 021000089
	 
	 	 
	Account Number: 30769072

	 	Account Number: 30769005
	 
	 	 
	Account Name: FirstMark III LP

	 	Account Name: FirstMark III Offshore Partners LP







(c) The above payments will be made as follows:



	 	 	 	 	 	 	 	 	 	 	 	 	 
	Date	 	Payment	 	 	FM 3	 	 	FM 3O	 
	1/15/11
	 	 	80,000	 	 	 	70,115.93	 	 	 	9,884.07	 
	2/15/11
	 	 	80,000	 	 	 	70,115.93	 	 	 	9,884.07	 
	3/15/11
	 	 	70,000	 	 	 	61,351.44	 	 	 	8,648.56	 
	4/15/11
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	5/15/11
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	6/15/11
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	7/15/11
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	8/15/11
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	9/15/11
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	10/15/11
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	11/15/11
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	12/15/11
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	1/15/12
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	2/15/12
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	3/15/12
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	4/15/12
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	5/15/12
	 	 	65,000	 	 	 	56,969.19	 	 	 	8,030.81	 
	6/15/12
	 	 	95,000	 	 	 	83,262.66	 	 	 	11,737.34	 
	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	1,235,000	 	 	 	1,082,414.62	 	 	 	152,585.38	 






 


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2. In the event a monthly installment payment is not paid by Irvine within thirty (30) days
of the date it is due (the “Default”), FirstMark may enter a Confession of Judgment in the form
attached hereto as Exhibit A, in the full Settlement Amount less any payment made by Irvine to FM
3/FM 3O pursuant to this Settlement Agreement prior to the Default.



3. It is understood and agreed that this Agreement does not constitute an admission by any
Party of any wrongful action or violation of any federal or state statute, local ordinance or
common law rights or of any other possible or claimed violation of law or rights, contractual or
otherwise.



4. Each of the Parties agrees not to, directly or indirectly, make any disparaging statements
regarding any other Party, any of such other Party’s affiliated companies, or any of their
respective successors, officers, directors, shareholders (for shareholders, solely with respect to
the Action), members or employees.



5. Each Party, including each employee, agent, general partner and/or representative of each
Party (including its outside counsel), agrees that this Agreement is confidential and further
agrees that it shall keep the contents of this Agreement, and of any negotiation or communication
related thereto (whether written or preserved in any other form) in strict confidence and shall
not disclose, summarize or characterize any of the contents of this Agreement to any other person,
without the prior written consent of the adverse Party, except (a) as required by law; (b) to any
regulatory body with jurisdiction over such Party, including disclosure and filing of this
Agreement with the SEC; (c) to such Party’s auditors, tax preparers, financial advisors and
current and prospective investors in the Party or its affiliated funds, provided such third
parties agree to maintain the confidentiality of the contents except as required by law.
Notwithstanding anything herein to the contrary, a Party may disclose to any person or entity that
“The Action has been dismissed by agreement of the Parties, and the terms of that agreement are
confidential” or words substantially to that effect which do not disclose any of the other terms
of this Agreement. Each of the Parties acknowledges that the agreement to the
terms set forth in this paragraph is a material inducement to each of the Parties in entering
into this Agreement and that none of the Parties would enter into this Agreement if not for the
inclusion of this paragraph.


 


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6. The Parties agree that any violation of paragraph 4 or 5 of this Agreement by a Party to
this Agreement cannot be adequately compensated solely by monetary damages, and the non-violating
Party may seek injunctive relief as well as monetary damages in court.



7. FirstMark agrees to execute and thereafter deliver to counsel for Irvine a Stipulation of
Discontinuance in the form attached hereto as Exhibit B, which counsel for Irvine shall file with
the Court in which the Action is pending. This Agreement shall not be filed with the Court in
which the Action is pending or any other court, tribunal, organization or government entity.



8. FirstMark III, L.P. and FirstMark III Offshore Partners, L.P., on behalf of themselves,
their officers, general partners and their respective representatives, successors and/or assigns
(collectively the “FirstMark Releasing Parties”), hereby irrevocably and fully release and forever
discharge Irvine Sensors Corporation, its past and present officers, directors, managers,
employees, representatives, shareholders (for shareholders, solely with respect to the Action),
subsidiaries, affiliates, attorneys, successors and assigns, in any and all capacities
(collectively the “Irvine Released Parties”) from any and all actions, causes of action, suits,
charges, complaints, claims, liabilities, obligations, promises, contracts, agreements,
controversies, damages, demands, costs, losses, debts and expenses (including attorney’s fees and
costs actually incurred) of any nature whatsoever, known or unknown, suspected or unsuspected,
fixed or contingent, that any of the FirstMark Releasing Parties may have, or may have had,
against any of the Irvine Released Parties by reason of any matter whatsoever from the beginning
of time to the date of this Agreement, including, without limitation, any claims related to the
subject matter of the Action.


 


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9. Irvine, on behalf of itself, its officers, directors, and their respective
representatives, successors and/or assigns (collectively the “Irvine Releasing Parties”), hereby
irrevocably and fully
releases and forever discharges FirstMark III, L.P. and FirstMark III Offshore Partners,
L.P., their past and present officers, general partners, employees, representatives, subsidiaries,
affiliates, attorneys, successors and assigns, in any and all capacities (collectively the
“FirstMark Released Parties”) from any and all actions, causes of action, suits, charges,
complaints, claims, liabilities, obligations, promises, contracts, agreements, controversies,
damages, demands, costs, losses, debts and expenses (including attorney’s fees and costs actually
incurred) of any nature whatsoever, known or unknown, suspected or unsuspected, fixed or
contingent, that any of the Irvine Releasing Parties may have, or may have had, against any of the
FirstMark Released Parties by reason of any matter whatsoever from the beginning of time to the
date of this Agreement, including, without limitation, any claims related to the subject matter of
the Action.



10. The FirstMark Releasing Parties and the Irvine Releasing Parties expressly waive any and
all rights and benefits conferred upon them by Section 1542 of the California Civil Code, which
states as follows:




A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR.



Accordingly, the FirstMark Releasing Parties and the Irvine Releasing Parties knowingly,
voluntarily and expressly waives any rights and benefits arising under Section 1542 of the
California Civil Code and any other statute or principle of similar effect.



11. FirstMark and Irvine represent that, other than the Action, they are not aware of any
proceedings, investigations or actions that are threatened, currently pending or ongoing that
relate in any way to (a) claims by FirstMark or any of the FirstMark Releasing Parties against any
of the Irvine Released Parties, or (b) claims by Irvine or any of the Irvine Releasing Parties
against any of the FirstMark Released Parties.


 


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12. Each of the Parties represents and warrants to the other Parties as follows:



(a) Each Party is duly established, validly existing and in good standing under the laws of
the jurisdiction in which it was established, with the requisite corporate power and authority to
enter into this Agreement and perform its obligations hereunder.



(b) The execution, delivery and performance of this Agreement by each Party and the
consummation of the transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action, and no other corporate proceedings on its part are necessary to
authorize the execution, delivery or performance of this Agreement. This Agreement has been duly
executed and delivered by such Party and constitutes the valid and binding obligation of such
Party, enforceable in accordance with its terms.



(c) Each individual Party has read this Agreement, understands its contents, and agrees to
its terms and conditions.




(d) Each Party’s execution of this Agreement has not been obtained by duress.



(e) Each Party has consulted with legal counsel of its choice prior to executing this
Agreement, the terms of this Agreement and the consequences of this Agreement have been completely
explained by their attorneys, and those terms are fully understood and voluntarily accepted.



(f) Each Party has conducted an independent investigation of the facts and does not rely upon
any statement or representation of another Party or representatives of another Party in entering
into this Agreement, other than as expressly provided for in this Agreement.



(g) Each Party has accepted the terms of this Agreement as a complete compromise of matters
involving disputed issues of law and fact.


 


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13. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, and
any of their respective subsidiaries, affiliates, insurers, predecessors, successors, officers,
directors, managers, employees, stockholders, members, agents, attorneys or assigns.



14. This Agreement constitutes the entire agreement among the Parties with respect to the
subject matter hereof and the disposition of all claims between the Parties, including without
limitation the claims asserted in the Action.



15. This Agreement and any questions concerning its validity, construction or performance
shall be governed by the laws of the State of New York without regard to choice of law.



16. This Agreement may be signed in counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same agreement.



	 	 	 	 	 
	 	FIRSTMARK III, L.P.

 	 
	Dated: December 20, 2010 	By:  	/s/ Brian Kempner
 	 
	 	 	Name:  	Brian Kempner 	 
	 	 	Title:  	Chief Operating Officer 	 
	 
	 	FIRSTMARK III OFFSHORE PARTNERS, L.P.

 	 
	Dated: December 20, 2010 	By:  	/s/ Brian Kempner
 	 
	 	 	Name:  	Brian Kempner 	 
	 	 	Title:  	Chief Operating Officer 	 
	 
	 	IRVINE SENSORS CORPORATION

 	 
	Dated: December 20, 2010 	By:  	/s/ John Stuart
 	 
	 	 	Name:  	John Stuart 	 
	 	 	Title:  	Senior Vice President and

Chief Financial Officer 	 
	 



 


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Exhibit A




FORM OF CONFESSION OF JUDGMENT




AFFIDAVIT OF CONFESSION OF JUDGMENT




	 	 	 	 	 
	STATE OF CALIFORNIA

	 	)	 
	 

	 	) ss.:

	COUNTY OF ORANGE

	 	)	 






JOHN J. STUART, being duly sworn, deposes and says:



1. I am an individual and a resident of the State of California. I make this affidavit in my
capacity as Senior Vice President and Chief Financial Officer of Irvine Sensors Corporation, a
Delaware corporation located at 3001 Red Hill Avenue, Costa Mesa, California 92526, and with the
authorization of said corporation.



2. I make this affidavit in order to confess judgment, pursuant to CPLR § 3218, against
Irvine Sensors Corporation and in favor of FirstMark III, L.P. and FirstMark III Offshore Partners,
L.P. for $1,235,000.00 (One Million Two Hundred Thirty-Five Thousand and 00/100 Dollars); and
hereby authorize FirstMark III, L.P. and FirstMark III Offshore Partners, L.P. (or its successors
and assigns) to enter judgment therefore against Irvine Sensors Corporation in New York County.



3. This confession of judgment is for an existing debt justly due to FirstMark III, L.P. and
FirstMark III Offshore Partners, L.P.



4. Through a settlement agreement, Irvine Sensors Corporation became indebted to FirstMark
III, L.P. and FirstMark III Offshore Partners, L.P. in the amount of $1,235,000.00 (One Million Two
Hundred Thirty-Five Thousand and 00/100 Dollars). In addition to any of FirstMark III, L.P. and
FirstMark III Offshore Partners, L.P.’s other rights and remedies, upon an affidavit or an
affirmation of FirstMark III, L.P. and FirstMark III Offshore Partners, L.P.’s attorney that the
debt or any part of the debt owed by Irvine Sensors Corporation to FirstMark III, L.P. and
FirstMark III Offshore Partners, L.P. remains unpaid, which affidavit or affirmation shall also set
forth the amount that remains unpaid,
FirstMark III, L.P. and FirstMark III Offshore Partners, L.P. are authorized to enter judgment
against Irvine Sensors Corporation, pursuant to this Affidavit of Confession of Judgment, for the
amount that remains unpaid. Once entered, the judgment may be docketed in any other county in the
State of New York. Any judgment entered in this matter shall be subordinate to all then existing
secured obligations of Irvine Sensors Corporation.


 


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5. The undersigned, therefore, is justly indebted to FirstMark III, L.P. and FirstMark III
Offshore Partners, L.P. in the sum of $1,235,000.00 (One Million Two Hundred Thirty-Five Thousand
and 00/100 Dollars).



6. This Confession of Judgment is not for the purpose of securing FirstMark III, L.P. and
FirstMark III Offshore Partners, L.P. against a contingent liability and is not an installment loan
within the prohibition of CPLR §3201.



	 	 	 	 	 
	 

	 	 

JOHN J. STUART, in his capacity as 

Senior Vice President and 

Chief Financial Officer of 

Irvine Sensors Corporation
	 	 






Sworn to before me this

20th day of December, 2010.



	 	 	 
	 

Notary Public

	 	 






 


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Exhibit B




FORM OF STIPULATION OF DISCONTINUANCE




	 	 	 
	SUPREME COURT OF THE STATE OF NEW YORK
	 	 
	COUNTY OF NEW YORK 
	 	 
	 


	X	 
	FIRSTMARK III, L.P. and
	 	 
	FIRSTMARK III OFFSHORE PARTNERS, L.P.,
	 	 
	 

	 	STIPULATION OF
	Plaintiffs

	 	DISCONTINUANCE
	 

	 	WITH PREJUDICE
	 

	 	 
	-against-

	 	Index No. 103687/09
	 
	 	 
	IRVINE SENSORS CORPORATION,
	 	 
	 
	 	 
	Defendant.
	 	 
	 


	X	 






IT IS HEREBY STIPULATED AND AGREED, by and between the undersigned attorneys of record, that,
whereas no party hereto is an infant or incompetent person for whom a committee has been appointed
and no person not a party has an interest in the subject matter of the action, the above entitled
action be, and the same hereby is, discontinued, with prejudice, without costs to either party as
against the other.



IT IS FURTHER STIPULATED AND AGREED that a facsimile, photocopied, or electronic copy of this
Stipulation may be treated as an original for filing purposes and that either party may file this
Stipulation with the Court without further notice to the other.



	 	 	 	 	 	 	 	 	 	 	 
	Dated: December __, 2010	 	 	 	Dated: December __, 2010	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	CULLEN AND DYKMAN LLP	 	 	 	DORSEY & WHITNEY LLP	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 

Thomas S. Baylis
	 	 	 	 	 	 

David C. Singer
	 	 
	 

	 	Attorneys for Plaintiffs
	 	 	 	 	 	Attorneys for Defendant	 	 
	 

	 	100 Quentin Roosevelt Boulevard
	 	 	 	 	 	250 Park Avenue	 	 
	 

	 	Garden City, New York 11530
	 	 	 	 	 	New York, NY 10177-1500	 	 
	 

	 	(516) 357-3700
	 	 	 	 	 	(212) 415-9200	 	 







 


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