SETTLEMENT AGREEMENT AND MUTUAL RELEASE

Exhibit 10.1

SETTLEMENT AGREEMENT AND MUTUAL RELEASE

This Settlement Agreement and Mutual Release (“Settlement Agreement”) is entered into this 28 ^th day of January 2008, among Barrett Evans, eFund Small-Cap Fund, L.P. and eFund Capital Partners, L.L.C. (collectively “Evans”) on the one hand, and Challenger Powerboats, Inc. f/k/a Xtreme Companies, Inc. and Marine Holdings, Inc. d/b/a Challenger Offshore (collectively “Challenger”), on the other hand.

1.

Background . Various disputes have arisen between Challenger on the one hand and Evans on the other. These disputes include those matters alleged and set forth in the claims and counterclaims contained in that certain suit entitled Challenger Powerboat, Inc., f/k/a Xtreme Companies, Inc., et al. v. Barrett Evans , United States District Court for the Eastern District of Missouri, Cause No. 07CV-0085-TIA (the “Missouri Suit”). The matters in dispute among the parties also include those matters alleged and set forth in the claims contained in that certain suit entitled eFund Small-Cap Fund, L.P., et al. v. Challenger Powerboats, Inc. f/k/a Xtreme Companies, Inc. , United States District Court for the District of Nevada, Cause No. 3:07-CV-00550-LRH-RAM (the “Nevada Suite”).

2.

Purpose. In consideration of the mutual promises and covenants contained herein, and in full settlement and discharge of all claims and Obligations between and among the parties, Evans and Challenger now desire to compromise and settle all disputes between them, including all disputes and claims and counterclaims alleged in the Missouri Suit and all disputes and claims alleged in the Nevada Suit.

3.

Definitions . As used in this Settlement Agreement, the following terms shall have the meanings indicated:

(a)

“Claims” refers to and includes all claims, demands, rights, causes of action, rights of action, rights of subrogation, rights of indemnity, rights to reimbursement, rights to payments, liens and remedies of each and every kind or nature whatsoever, whether cognizable at law, in equity, or otherwise, and whether known or unknown to any party at the time of its execution of this Settlement Agreement, except as may arise from or relate to any act or omission of any party to any occurrence occurring after the effective date hereof. Without limiting the generality of the prior statement, “Claims” specifically includes, but is not limited to, all claims or counterclaims for relief or recovery, whether for declaration, injunction or damages arising from or relating to the operative facts alleged in the Missouri Suit and the Nevada Suit, and which was or could have been made in either or both of the Missouri Suit or the Nevada Suit.

(b)

“Obligations” refers to and includes all obligations, duties, covenants, liabilities, damages, costs, fees (including, without limitation, all attorneys’ fees), expenses and debts of each and every kind or nature whatsoever, whether known or unknown to any party at the time of its execution of the Settlement Agreement.

(c)

“On account of” means directly or indirectly arising out of, resulting from, connected with, based upon or in any manner related to, in the past, or at present, the subject to which that phrase refers.

(d)

“Debentures” means the following described seven (7) debenture agreements entered into between Challenger and eFund Small-Cap Fund, L.P. and/or eFund Capital Partners, L.L.C., which represent any and all indebtedness owed by Challenger to Evans:

(i)

Convertible Debenture dated October 1, 2003, with a principal amount of Fifty Thousand Dollars ($50,000.00), and accruing interest at a rate of six percent (6%) per annum, held by eFund Small-Cap Fund, L.P.;

(ii)

Convertible Debenture dated February 18, 2004, with a principal amount of Twenty-Eight Thousand Dollars ($28,000.00), and accruing interest at a rate of six percent (6%) per annum, held by eFund Capital Partners, L.L.C.;

(iii)

Convertible Debenture dated October 18, 2004, with a principal amount of Eighteen Thousand Dollars ($18,000.00), and accruing interest at a rate of eight percent (8%) per annum, held by eFund Capital Partners, L.L.C.;

(iv)

Convertible Debenture dated March 10, 2005, with a principal amount of Sixty Thousand Dollars ($60,000.00), and accruing interest at a rate of eight percent (8%) per annum, held by eFund Capital Partners, L.L.C.;

(v)

Convertible Debenture dated March 18, 2005, with a principal amount of Sixty Thousand Dollars ($60,000.00), and accruing interest at a rate of eight percent (8%) per annum, held by eFund Capital Partners, L.L.C.;

(vi)

Convertible Debenture dated May 20, 2005, with a principal amount of One Hundred Twenty Thousand Dollars ($120,000.00), and accruing interest at a rate of eight percent (8%) per annum, held by eFund Capital Partners, L.L.C.; and

(vii)

Convertible Debenture dated July 7, 2005, with a principal amount of Seventy-Two Thousand Dollars ($72,000.00), and accruing interest at a rate of eight percent (8%) per annum, held by eFund Capital Partners, L.L.C.;

(c)

“Warrants” means those common stock warrants which, in connection with Evans, from time to time, making certain investments in Challenger and/or providing financing to Challenger, Challenger has, at various times, issued to Evans to purchase shares of Challenger’s common stock, par value $0.001 per share, at various exercise prices and with various expiration dates, but only insofar as the warrants were issued pursuant to or in conjunction with, any of the Debentures.

4.

Releases. The parties release the following upon the execution of this Settlement Agreement and the Intercreditor Agreement discussed below:

(a)

The parties mutually and reciprocally release each other from all Claims, from all other known and unknown Obligations arising out of the Debentures and Warrants, and from any other Claims or Obligations from the beginning of time to the effective date of this Settlement Agreement, whether known or unknown, arising out of the relationships between the parties. Both parties agree that there will be no further litigation pertaining to any issues that are, were or could have been brought in the Missouri Suit or the Nevada Suit.

(b)

The parties mutually agree that all Obligations on account of the Debentures shall be deemed fully satisfied in all respects.

(c)

The parties mutually agree that all Warrants issued by Challenger to Evans, pursuant to or in conjunction with any of the Debentures, which are outstanding on the date hereof, are hereby cancelled.

(d)

The parties do not release one another from the duties and obligations set forth in this Settlement Agreement.

(e)

The parties do not release one another from their respective duties and obligations set forth in the Intercreditor Agreement that is Exhibit A to this Settlement Agreement.

5.

Covenant Not to Sue. The mutual releases in paragraph 4 do not release and discharge Evans’ rights, claims, demands, damages, actions, or causes of action that Evans may have in a derivative capacity as a shareholder or former shareholder of Challenger.

(a)

In lieu of releasing any claims Evans may have in such a derivative capacity, Evans, for himself, his officers, directors, agents, employees, successors and assigns, now and forever covenants and agrees not to sue Challenger, its officers, directors, agents, employees, successors and assigns, and further now and forever covenants and agrees to refrain forever from instituting, pressing, collecting or in any way aiding or proceeding (whether in a court or other administrative or adjudicative body, tribunal or forum, by arbitration, by set-off, recoupment or otherwise) upon any and all claims, counterclaims, demands, causes of action, suits, debts, judgments, decrees, rights or remedies of any kind whether afforded by statute, at law, in equity or otherwise, which Evans has ever had, now has, or may ever have in a derivative capacity against Challenger. It is expressly understood and agreed that this is not intended as a release or discharge of, nor as an accord or satisfaction with, any party whomsoever, but only as a covenant not to sue or otherwise pursue such claims as provided herein, and with the effect that Challenger and Evans hereby purchase peace (including without limitation, freedom from prosecution and collection) and are hereby given peace (including without limitation, freedom from prosecution and collection) with respect to all claims that Evans may have in a derivative capacity;

(b)

PROVIDED, HOWEVER, in the event that Challenger, including its successors or assigns, breach this Settlement Agreement, or Challenger, including its successors or assigns, breaches or otherwise defaults in its obligations under the Intercreditor Agreement that is Exhibit A herein, then this covenant not to sue shall thereafter automatically terminate and be void. The parties further agree that any and all statutes of limitations otherwise applicable to any such claims that Evans my have are tolled (meaning that the running of same are considered stopped) from January 28, 2008 to the date of said breach or default, and that, in the event Evans initiates such an action after the date of said breach or default, neither Challenger, nor its successors or assigns, will object to or otherwise interpose any defenses thereto based upon laches, estoppel, statutes of limitation or any defense based upon the passage of time between January 28, 2008 and the date of said breach or default.

6.

Payment Terms. Challenger agrees to pay Evans a total of FOUR HUNDRED EIGHTY-FIVE THOUSAND DOLLARS AND ZERO CENTS ($485,000.00) on the following schedule and terms:

(a)

Challenger shall make the following payments to Evans:

(b)

The above payment dates that fall on a Saturday, or Sunday or banking holiday can be made the succeeding business day.

(c)

Payment Instructions:

All payments listed in Paragraph 5(a) herein shall be according to the following wire instructions:

EFund Capital Partners, LLC

211 E. Ocean Blvd., Suite 218

Long  Beach, CA 90802

BANK OF AMERICA

South Coast Center Branch #2443

3730 South Bristol Street

Santa Ana, CA 92704

(d)

Evans acknowledges that the $485,000 settlement amount in this Settlement Agreement bears no interest and provides no rights for Evans to convert any amount due and owing hereunder into Challenger stock.

(e)

Should Challenger breach any of these payment provisions, such breach shall trigger a default of this Settlement Agreement.

7.

Intercreditor Agreement. As a material term of this Settlement Agreement, Evans, Challenger and Dutchess Capital Management, L.L.C., Dutchess Private Equities Fund, L.P., Dutchess Private Equities Fund II,  L.P., and Dutchess Private Equities Fund, Ltd., and any affiliates, successors or predecessors thereof (collectively “Dutchess” or “the Dutchess Entities”) will enter into an Intercreditor Agreement which is attached hereto as Exhibit A. Challenger recognizes and agrees if there is a breach of Exhibit A., subject to applicable notice and cure periods, that breach will and does constitute a default of this Settlement Agreement, and will entitle Evans to pursue all of the rights and remedies available to Evans. Should, pursuant to Exhibit A, Challenger pay to Evans an amount greater than the monthly payment Challenger is obligated to make to Evans, that additional amount shall be subtracted from the last (i.e., last in time) remaining payment due and unpaid such payments are reflected in the payment schedule in Paragraph 6(a) above.

8.

Share Sales. The parties agree that Evans is free to sell or otherwise dispose of any shares of Challenger stock and/or any other Challenger securities now owned by Evans, directly or indirectly, or acquired by Evans in the future, where directly or indirectly.

9.

Rights and Remedies; Consent Judgment. To secure payment of Challenger’s obligations herein, the parties shall instruct their attorneys to execute the Consent Judgment marked Exhibit B attached hereto and incorporated herein by reference.

(a)

If Challenger defaults on its obligations outlined herein, or if there is a breach of Exhibit A, subject to applicable notice and cure periods, Evans and/or counsel for Evans shall notify Challenger and its counsel in writing of such default by sending written notice, which shall be deemed served if sent by overnight mail and/or electronic mail, at the address set out below, or the last address of such party as shall have been communicated to the other party. If a party changes its address, written notice thereof shall be given to the other party;

Challenger Powerboats, Inc.

300 Westlink Drive

Washington, MO 63090

Attn: CEO Laurie Phillips

lphillips@challengerpowerboats.com

with a copy to:

Carmody MacDonald P.C.

120 South Central Ave., Suite 1800

St. Louis, MO 63105

Attn: Kelley F. Farrell

kff@carmodymacdonald.com

(b)

Challenger shall have ten (10) calendar days to cure any such alleged default upon receipt of such notice. If such default is not cured within said ten (10) days, Evans may take any and all steps necessary to file the Consent Judgment and execute on the judgment balance due and owing after applying credit for all payment received.

10.

On or before January 28, 2008, Evans shall execute and cause to be filed a motion for dismissal of the claims in the Nevada Suit with prejudice with each party to bear its own attorneys’ fees, expenses and costs. The motion for dismissal of the Nevada Suit is attached hereto as Exhibit C.

11.

On or before January 28, 2008, Challenger and Evans shall execute and cause to be filed a joint motion for dismissal of the claims and counterclaims in the Missouri Suit with prejudice with each party to bear its own attorneys’ fees, expenses and costs. The motion for dismissal of the Missouri Suit is attached hereto as Exhibit D.

12.

No Admission of Liability. It is understood and agreed that this Settlement Agreement and this settlement is the compromise of disputed claims, and that the consideration given is not be construed as an admission of liability on the part of any party and that the parties hereto deny liability to each other and solely intend to avoid further litigation and further expense and uncertainty. Each party executing this Settlement Agreement further acknowledges and agrees that neither the execution of this Settlement Agreement, nor anything contained herein, in intended to be, nor shall be construed or deemed to be, for any purpose whatsoever, an admission by any party to any third person, whether or not a party hereto, of any liability of any kind or nature whatsoever. Each party executing this Settlement Agreement generally and specifically denies, disclaims, disavows, and rejects any such liability of any kind or nature whatsoever to any third person.

13.

Successors and Assigns. All of the provision in this Settlement Agreement apply to and bind each party executing this Settlement Agreement, its successors and assigns, and also apply to and bind all other persons, firms, corporations, associations, partnerships and entities in privity with or related to or affiliated with any party executing this Settlement Agreement, his or its successors or assigns.

14.

Non-Disparagement. Each of the parties hereto agrees that it shall not make any disparaging remarks regarding the other parties hereto.

15.

Confidentiality . The parties understand and agree that the terms and conditions of this Settlement Agreement are to be maintained by them in the strictest confidence. Except as required by law or necessary to enforce any rights or obligations hereunder, the parties agree not to disclose any of these matters to anyone other than their attorneys, accountants, the Internal Revenue Service, or state and federal agencies.

16.

Retention of other claims. It is expressly understood that the mutual releases contained in paragraph 4 hereof are solely and exclusively between Challenger and Evans and are not intended for the benefit of any other person or entity except as so stated therein.

17.

Acknowledgement. Each party executing this Settlement Agreement hereby acknowledges, declares, represents, warrants and agrees that:

(a)

He or it has had the benefit and advice of independent and competent legal counsel of his or its own selection in connection with this Settlement Agreement and that such legal counsel has fully explained to him or it the meaning of each and every paragraph, term and provision of this Settlement Agreement and the meaning and consequences of execution of this Settlement Agreement;

(b)

This Settlement Agreement is executed by each party without reliance upon any agreement, representation, promise, inducement or understanding of any kind or nature whatsoever, other than the promises and the performance of such promises described in this Settlement Agreement; and this Settlement Agreement sets forth the entire agreement and understanding, whether oral or written, between the parties; and

(c)

Each party executing this Settlement Agreement specifically acknowledges and agrees that this Settlement Agreement shall not be subject to any claim of mistake of fact; that it expresses a full and complete settlement; and that regardless of the adequacy or inadequacy of the consideration described herein, this Settlement Agreement is intended to avoid litigation and to be a final and complete settlement of Claims and Obligations for any and all purposes whatsoever, except for those expressly excluded in this Settlement Agreement.

18.

Signatures/Execution in Counterparts. This Settlement Agreement may be executed in multiple counterparts and, when taken together, shall constitute one and the same instrument. The facsimile signature of any party to this Settlement Agreement, is to be considered as an original signature, and the document transmitted is to be considered to have the same binding effect as an original signature on an original document. No party may raise the use of a facsimile machine or telecopier or the tact that any signature was transmitted through the use of a facsimile, telecopier machine, or electronic mail as a defense to the enforcement of this Agreement. However, each party will execute two originals to be exchanged with each other.

19.

Governing Law. This Settlement Agreement shall be governed by and interpreted under the internal laws of the State of Missouri and without regard to principles of conflicts of laws.

20.

Consent to Jurisdiction; Venue. Each party hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the Eastern District of Missouri, Eastern Division, or any court of the State of Missouri in St. Louis County, Missouri, in the sole instance where the Federal Court lacks subject matter jurisdiction, in any action, suit or proceeding arising out of or relating to this Settlement Agreement or any of the transactions contemplated hereby, and agrees that any such action, suit or proceeding shall be brought only in such court, provided, however, that such consent to jurisdiction is solely for the purpose referred to in this Section