Document:

Exhibit 10.7

 

EXHIBIT 10.7

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS
SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

XENONICS HOLDINGS, INC.

B WARRANT

			
	Warrant No.: 0207-03-B
	 	Issue Date: February 2, 2007

          THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
Granite Financial Group, LLC (the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time on or after the date
on which the A Warrant issued to the Holder on or about the date hereof has been exercised in full
or otherwise terminated (the “Initial Exercise Date”) and on or prior to the close of
business on the 5 year anniversary of the Closing Date (the “Termination Date”) but not
thereafter, to subscribe for and purchase from Xenonics Holdings, Inc., a Nevada corporation (the
“Company”), up to 30,000 shares (the “Warrant Shares”) of common stock, par value
$0.001 per share, of the Company (the “Common Stock”). The purchase price of one share of
Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

     Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase Agreement (the
“Purchase Agreement”), dated February 2, 2007, among the Company and the purchasers
signatory thereto.

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Section 2. Exercise.

     a) Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company of a duly
executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office
or agency of the Company as it may designate by notice in writing to the registered Holder
at the address of such Holder appearing on the books of the Company); and, within 3 Trading
Days of the date said Notice of Exercise is delivered to the Company, the Company shall have
received payment of the aggregate Exercise Price of the shares thereby purchased by wire
transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein
to the contrary, the Holder shall not be required to physically surrender this Warrant to
the Company until the Holder has purchased all of the Warrant Shares available hereunder and
the Warrant has been exercised in full, in which case, the Holder shall surrender this
Warrant to the Company for cancellation within 7 Trading Days of the date the final Notice
of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in
purchases of a portion of the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased. The Holder and the
Company shall maintain records showing the number of Warrant Shares purchased and the date
of such purchases. The Company shall deliver any objection to any Notice of Exercise within
2 Business Days of receipt of such notice. The Holder and any assignee, by acceptance of
this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph,
following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the amount stated
on the face hereof.

     b) Exercise Price. The exercise price per share of the Common Stock under this
Warrant shall be $3.25, subject to adjustment hereunder (the “Exercise Price”).

     c) Cashless Exercise. If at any time after one year from the date of issuance
of this Warrant there is no effective Registration Statement registering, or no current
prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant
may also be exercised at such time by means of a “cashless exercise” in which the Holder
shall be entitled to receive a certificate for the number of Warrant Shares equal to the
quotient obtained by dividing [(A-B) (X)] by (A), where:

	 	(A)	 	= the VWAP on the Trading Day immediately preceding the date of
such election;
	 
	 	(B)	 	= the Exercise Price of this Warrant, as adjusted; and
	 
	 	(X)	 	= the number of Warrant Shares for which this Warrant is being
exercised.

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     d) Exercise Limitations. The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2(c) or otherwise, to the extent that after giving effect to such
issuance after exercise as set forth on the applicable Notice of Exercise, such Holder
(together with such Holder’s Affiliates, and any other person or entity acting as a group
together with such Holder or any of such Holder’s Affiliates), as set forth on the
applicable Notice of Exercise, would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). For purposes of the foregoing sentence, the number of shares
of Common Stock beneficially owned by such Holder and its Affiliates shall include the
number of shares of Common Stock issuable upon exercise of this Warrant with respect to
which such determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of
this Warrant beneficially owned by such Holder or any of its Affiliates and (B) exercise,
conversion or exchange of the unexercised, unconverted or non-exchanged portion of any
other securities of the Company (including without limitation any other Warrants) subject
to a limitation on conversion, exercise or exchange analogous to the limitation contained
herein beneficially owned by such Holder or any of its affiliates. Except as set forth in
the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. To the extent that the limitation contained in this
Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation
to other securities owned by such Holder together with any Affiliates) and of which a
portion of this Warrant is exercisable shall be in the sole discretion of a Holder, and the
submission of a Notice of Exercise shall be deemed to be each Holder’s determination of
whether this Warrant is exercisable (in relation to other securities owned by such Holder
together with any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. In addition, a
determination as to any group status as contemplated above shall be determined in accordance
with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 2(d), in determining the number of outstanding shares of
Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as
reflected in (x) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be,
(y) a more recent public announcement by the Company or (z) any other notice by the Company
or the Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company shall within one
Trading Day confirm orally and in writing to such Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of the
Company, including this Warrant, by such Holder or its Affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 9.9% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common Stock
issuable upon exercise of this Warrant. The Beneficial Ownership Limitation provisions of
this Section 2(d) may be waived by such Holder, at the election

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of such Holder, upon not less than 61 days’ prior notice to the Company to change the
Beneficial Ownership Limitation. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of this Section
2(d) to correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of this
Warrant.

     e) Mechanics of Exercise.

          i. Authorization of Warrant Shares. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the purchase
rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued,
fully paid and nonassessable and free from all taxes, liens and charges
created by the Company in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).

          ii. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the transfer agent of the
Company to the Holder by crediting the account of the Holder’s prime broker
with the Depository Trust Company through its Deposit/Withdrawal at
Custodian (“DWAC”) system if the Company is a participant in such
system, and otherwise by physical delivery to the address specified by the
Holder in the Notice of Exercise within 7 Trading Days from the delivery to
the Company of the Notice of Exercise Form, surrender of this Warrant (if
required) and payment of the aggregate Exercise Price as set forth above
(“Warrant Share Delivery Date”). This Warrant shall be deemed to
have been exercised on the date the Notice of Exercise Form is received by
the Company. The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed
to have become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised.

          iii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the request of a
Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase
the unpurchased Warrant Shares called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant.

          iv. Rescission Rights. If the Company fails to cause its
transfer agent to transmit to the Holder a certificate or certificates
representing the

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Warrant Shares pursuant to this Section 2(e)(iv) by the Warrant Share
Delivery Date, then the Holder will have the right to rescind such exercise.

          v. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall at its election,
either pay a cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Exercise Price or round up to the
next whole share.

          vi. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or in such
name or names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant Shares are to be
issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder; and the Company may require, as
a condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.

          vii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

f)       No Net Cash Settlement Upon Exercise. Notwithstanding
anything to the contrary in this Warrant or any other Transaction Document,
under no circumstances will the Company be required to net cash settle this
Warrant upon exercise (provided that nothing contained herein shall limit the
Holder’s right to seek and obtain any and all remedies in the event of a breach
of this Warrant, including without limitation specific performance and monetary
damages).

Section 3.
    Certain Adjustments.

     a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent securities payable in
 shares of Common Stock (which, for avoidance of doubt, shall not include any shares of
Common Stock issued by the Company upon exercise of this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each

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case the Exercise Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event and the number of shares issuable upon
exercise of this Warrant shall be inversely proportionately adjusted. Any adjustment made
pursuant to this Section 3(a) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

     b) [Intentionally Deleted].

     c) Subsequent Rights Offerings. If the Company, at any time while the Warrant
is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and
not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the VWAP at the record date mentioned below, then the Exercise
Price shall be multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock outstanding on
the date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming receipt by the
Company in full of all consideration payable upon exercise of such rights, options or
warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights
or warrants are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or warrants.

     d) Pro Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock evidences of its
indebtedness or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security other than the Common Stock (which shall be subject
to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying
the Exercise Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the denominator
shall be the VWAP determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then per share fair market value
at such record date of the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described in a statement
provided to the Holder of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of Common Stock. Such adjustment shall
be made whenever any such distribution is made and shall become effective immediately after
the record date mentioned above.

     e) Fundamental Transaction. If, at any time while this Warrant is outstanding,
(A) the Company effects any merger or consolidation of the Company with

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or into another Person, (B) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (C) any tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have
the right to receive, for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental Transaction, the number of
shares of Common Stock of the successor or acquiring corporation or of the Company, if it is
the surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable upon or as a result of such reorganization, reclassification,
merger, consolidation or disposition of assets by a Holder of the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such event. For purposes
of any such exercise, the determination of the Exercise Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any different
components of the Alternate Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a Fundamental Transaction, then the
Holder shall be given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or surviving entity in
such Fundamental Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder’s right to exercise such warrant into
Alternate Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or surviving entity
to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any
such replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the
event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934, as amended,
or (3) a Fundamental Transaction involving a person or entity not traded on a national
securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq
Capital Market, the Company or any successor entity shall pay at the Holder’s option,
exercisable at any time concurrently with or within 30 days after the consummation of the
Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined
in accordance with the Black-Scholes option pricing formula using an expected volatility
equal to the 100 day historical price volatility obtained from the HVT function on Bloomberg
Financial Markets as of the trading day immediately prior to the public announcement of the
Fundamental Transaction.

     f) Calculations. All calculations under this Section 3 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this

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Section 3, the number of shares of Common Stock deemed to be issued and outstanding as
of a given date shall be the sum of the number of shares of Common Stock (excluding treasury
shares, if any) issued and outstanding.

     g) Voluntary Adjustment By Company. The Company may at any time during the term
of this Warrant reduce the then current Exercise Price to any amount and for any period of
time deemed appropriate by the Board of Directors of the Company.

     h) Notice to Holder.

          i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company shall
promptly mail to the Holder a notice setting forth the Exercise Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment.

          ii. Notice to Allow Exercise by Holder. If (A) the Company
shall declare a dividend (or any other distribution in whatever form) on the
Common Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of
any rights; (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be mailed to the
Holder at its last address as it shall appear upon the Warrant Register of
the Company, at least 20 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date
as of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined
or (y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be
specified in such notice. The Holder is entitled to exercise this Warrant
during the 20-day period

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commencing on the date of such notice to the effective date of the
event triggering such notice.

Section 4. Transfer of Warrant.

     a) Transferability. Subject to compliance with any applicable securities laws
and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of
the Purchase Agreement, this Warrant and all rights hereunder (including, without
limitation, any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of Warrant Shares
without having a new Warrant issued.

     b) New Warrants. This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any
transfer which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.

     c) Warrant Register. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name
of the record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.

     d) Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall not be
registered pursuant to an effective registration statement under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as a condition
of allowing such transfer, that (i) the Holder or transferee of this Warrant, as the case
may be, furnish to the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities Act and
under applicable state securities or blue sky laws, and (ii) the Holder or transferee
execute and deliver to the Company an investment letter in form and substance acceptable to
the Company, and (iii) the transferee be an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the

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Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a)
promulgated under the Securities Act.

Section 5. Miscellaneous.

     a) No Rights as Shareholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof as set forth in Section 2(e)(ii).

     b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant or any stock certificate relating to the
Warrant Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.

     c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein shall not be
a Business Day, then such action may be taken or such right may be exercised on the next
succeeding Business Day.

     d) Authorized Shares.

          The Company covenants that during the period the Warrant is outstanding, it
will reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant. The Company further covenants that its issuance
of this Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights under
this Warrant. The Company will take all such reasonable action as may be necessary
to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the Trading
Market upon which the Common Stock may be listed.

          Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or appropriate to
protect the rights of Holder as set forth in this Warrant against

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impairment. Without limiting the generality of the foregoing, the Company will
(a) not increase the par value of any Warrant Shares above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (b)
take all such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

          Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

     e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

     f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, will have restrictions upon resale imposed
by state and federal securities laws.

     g) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of such right
or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that
all rights hereunder terminate on the Termination Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

     h) Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance with the
notice provisions of the Purchase Agreement.

     i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the Company.

     j) Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific performance

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of its rights under this Warrant. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of the provisions
of this Warrant and hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.

     k) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders from time to
time of this Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.

     l) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.

     m) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of this Warrant.

     n) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

(Signature Page Follows)

12

 

          IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer
thereunto duly authorized as of the date first above indicated.

	 	 	 
	 

	 	XENONICS HOLDINGS, INC.
	 
	 	 
	 

	 	By: /s/ Donna G. Lee
	 

	 	Print Name: Donna G. Lee
	 

	 	Print Title: Chief Financial Officer

13

 

 

NOTICE OF EXERCISE

TO: XENONICS HOLDINGS, INC.

     (1) The
undersigned hereby elects to purchase                      Warrant Shares of the Company pursuant
to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.

     (2) Payment shall take the form of (check applicable box):

          [ ] in lawful money of the United States; or

          [ ] [if permitted] the cancellation of such number of Warrant Shares as is
applicable to exercise this Warrant pursuant to the “cashless exercise”
procedure set forth in subsection 2(c).

     (3) Please issue a certificate or certificates representing said Warrant Shares in the name of
the undersigned or in such other name as is specified below:

   
               
               
                
               
               
               
               
              
       

The Warrant Shares shall be delivered to the following DWAC/DTC Account Number or by physical
delivery of a certificate to:

	 	 	 
	 

	 	                                                                         
                                            
	 
	 	 
	 

	 	                                                                         
                                            
	 
	 	 
	 

	 	                                                                         
                                            

     (4) Accredited Investor. The undersigned is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

	 	 	 	 	 	 	 	 	 	 	 
	Name of Investing Entity:	 	 	 	 	 	 	 
	 	 	 	 
	Signature of Authorized Signatory of Investing Entity:	 	 	 	 
	 	 	 	 	 	 	 	 
	Name of Authorized Signatory:	 	 	 	 	 	 	 
	 	 	 	 	 
	Title of Authorized Signatory:	 	 	 	 	 	 	 
	 	 	 	 	 
	Date:
	 	 	 	 	 	 	 	 	 	 
	 	 

 

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

     FOR
VALUE RECEIVED, [all the] [                    ] shares of the foregoing Warrant and all rights
evidenced thereby are hereby assigned to

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	whose address is	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	.	 	 	 
	 .	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Dated:	 	____________
, ______	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Holder’s Signature:	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Holder’s Address:EX-10.9

 

Exhibit 10.9

SETTLEMENT AGREEMENT

     SETTLEMENT AGREEMENT, dated as of February 6, 2007 (“Agreement”), by and among Glenn Nussdorf
(“Nussdorf”), Parlux Fragrances, Inc., a Delaware corporation (the “Company”), and Ilia Lekach
(“Lekach”).

     WHEREAS, Nussdorf has commenced a consent solicitation (the “Consent Solicitation”) to remove,
without cause, all existing members of the Company’s Board of Directors (the “Board”) and to elect
his nominees to the Board; and

     WHEREAS, the Company has filed a lawsuit in the United States District Court for the Southern
District of New York against Quality King Distributors, Inc., Model Reorg, Inc., Nussdorf, Michael
Katz, Joshua Angel, Anthony D’Agostino, Neil Katz and Robert Mitzman (each a “Defendant” and
collectively, the “Defendants”), alleging violations of antitrust and securities laws in connection
with the Consent Solicitation (the “Litigation”); and

     WHEREAS, Lekach is ceasing to serve as the Company’s Chief Executive Officer and is agreeing
to serve as a consultant to the Company; and

     WHEREAS, each of the parties hereto has determined that its or their respective best
interests, and in the case of the Company, the best interest of its stockholders, would be served
by entering into this Agreement.

     NOW, THEREFORE, in consideration of the foregoing, and the mutual agreements and
representations set forth herein, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, the parties hereto hereby agree as follows:

     1. Certain Definitions.

     For purposes of this Agreement, the following terms shall have the following meanings:

     “2007 Meeting” shall have the meaning set forth in paragraph 6(d).

     “2008 Meeting” shall have the meaning set forth in paragraph 6(a).

     “Agreement” shall have the meaning set forth in the preamble.

     “Acquisition Proposal” means any bona fide proposal, whether or not in writing, for the (i)
direct or indirect acquisition or purchase of a business or assets that constitutes 20% or more of
the net revenues, net income or the assets (based on the fair market value thereof) of the Company
and its subsidiaries, taken as a whole, (ii) direct or indirect acquisition or purchase of 20% or
more of any class of equity securities or capital stock of the Company or any of its subsidiaries
whose business constitutes 20% or more of the net revenues, net income or assets of the Company and
its subsidiaries, taken as a

 

 

whole, (iii) merger, consolidation, restructuring, transfer of assets or other business
combination, sale of shares of capital stock, tender offer, exchange offer, recapitalization, stock
repurchase program or other similar transaction that if consummated would result in any Person or
Persons beneficially owning 20% or more of any class of equity securities of the Company or any of
its subsidiaries or such Person or Persons owning 20% or more of the net revenues, net income or
assets of the Company and its subsidiaries, taken as a whole.

     “Affiliates” and “Associates” have the meanings set forth in Rule 12b-2 under the Exchange
Act, and includes Persons who become Affiliates or Associates of another Person after the date of
this Agreement, provided, however, with respect to Nussdorf, the parties agree that the term
Affiliate shall include Quality King Distributors, Inc. and Model Reorg, Inc. For purposes of this
Agreement, the term Affiliate shall not include ECMV unless and until Nussdorf and his Affiliates
and Associates beneficially own in excess of 50% of the equity securities entitled to vote in the
election of directors of ECMV.

     “Board” shall have the meaning set forth in the recitals.

     “Buttacavoli” shall have the meaning set forth in paragraph 6(b).

     “Company” shall have the meaning set forth in the preamble.

     “Company Releasees” shall have the meaning set forth in paragraph 10(a).

     “Consent Solicitation” shall have the meaning set forth in the recitals.

     “Consulting Term” shall have the meaning set forth in paragraph 5(a).

     “Covered Person” shall have the meaning set forth in paragraph 6(e).

     “Defendant” and “Defendants” shall have the meaning set forth in the recitals.

     “ECMV” means E Com Ventures, Inc.

     “Employment Agreement” shall have the meaning set forth in paragraph 4(b).

     “Exchange Act” shall have the meaning set forth in paragraph 8(a).

     “Exchange Act Filings” refers to those filings required of a company with a class of equity
securities registered under the Exchange Act.

     “Guaranty” shall have the meaning set forth in paragraph 12(b).

     “Incumbent Director” and “Incumbent Directors” shall have the meaning set forth in paragraph
6(b).

2

 

     “Lekach” shall have the meaning set forth in the preamble.

     “Lekach Releasees” shall have the meaning set forth in paragraph 10(a).

     “Lekach Warrants” shall have the meaning set forth in paragraph 4(c).

     “Litigation” shall have the meaning set forth in the recitals.

     “Moving Party” shall have the meaning set forth in paragraph 14.

     “Note” shall have the meaning set forth in paragraph 12(b).

     “Nussdorf” shall have the meaning set forth in the preamble.

     “Nussdorf Designee” and “Nussdorf Designees” shall have the meaning set forth in paragraph
6(b).

     “Nussdorf Releasees” shall have the meaning set forth in paragraph 10(a).

     “Person” means any individual, partnership, corporation, limited liability company, group,
syndicate, trust, government or agency thereof, or any other association or entity.

     “Restricted Business” shall have the meaning set forth in paragraph 5(b).

     “Search Committee” shall have the meaning set forth in paragraph 7(b).

     “SEC” shall have the meaning set forth in paragraph 8(a).

     “Specified Date” shall have the meaning set forth in paragraph 6(c).

     “Stephen Nussdorf Lawsuit” shall have the meaning set forth in paragraph 12(b).

     “Voting Securities” means the Company’s common stock, any preferred stock issued by the
Company, and any other securities entitled to vote in the election of directors, or any securities
convertible into, or exercisable or exchangeable for, the Company’s common stock or other
securities, whether or not subject to the passage of time or other contingencies.

     “Zebede” shall have the meaning set forth in paragraph 6(b).

     2. Dismissal of Litigation. As promptly as practicable following the execution of
this Agreement, the Company shall take all measures necessary to dismiss, as to all Defendants, the
Litigation with prejudice and without costs or expenses to any party.

3

 

     3. Termination of Consent Solicitation. Nussdorf hereby terminates the Consent
Solicitation and agrees not to submit written consents to the Company in connection with the
Consent Solicitation.

     4. Resignation of Lekach.

     (a) By his execution of this Agreement, Lekach hereby resigns, effective immediately, (i) as a
director of the Company and as Chairman of the Board, (ii) as a member of all committees of the
Board on which he serves, (iii) if applicable, as a director of any direct or indirect subsidiary
and other Affiliates of the Company on whose board of directors he serves and as a member of all
committees of any such board of directors on which he serves, and (iv) if applicable, as a trustee
of (or any similar position with) any benefit plans maintained by, or for the benefit of employees
of, the Company or any such subsidiary. Upon execution of this Agreement, Lekach shall cease to be
the Chief Executive Officer or an employee of the Company, its direct and indirect subsidiaries and
other Affiliates.

     (b) The Company and Lekach agree that within two (2) business days following the execution of
this Agreement, subject to paragraph 4(d) below, the Company shall pay to Lekach the sum of
$1,200,000 in cash by wire transfer of immediately available funds to an account specified in
writing by Lekach, in full and final satisfaction, settlement and discharge of any and all
payments, perquisites, benefits and services to which Lekach is entitled under the employment
agreement between Lekach and the Company, dated as of June 1, 2005 (the “Employment Agreement”) or
any previous employment or similar agreement between Lekach and the Company. Other than as
specifically set forth in this Agreement, neither the Company nor Lekach have any further rights or
obligations under the Employment Agreement.

     (c) The Company and Lekach agree that upon the execution of this Agreement, and subject to
paragraph 4(d) below, the Company shall grant to Lekach warrants to purchase 500,000 shares of the
Company’s common stock at a price per share of $1.1654 (the “Lekach Warrants”). In consideration
of the foregoing and the other agreements set forth herein, all warrants to purchase shares of the
Company’s common stock previously granted to Lekach shall not be subject to Section 7(d)(iv) of the
Employment Agreement and no “doubling” or adjustment of such warrants shall occur, either as a
result of this Agreement or otherwise and all of Lekach’s outstanding warrants for the purchase of
the Company’s common stock shall be amended to eliminate any provisions that allows for “doubling”
of such warrants upon a change of control (as defined on the face of such warrants).

     (d) The Company shall deduct and withhold from the payments made by the Company to Lekach
under this Agreement all amounts as may be required to be deducted and withheld with respect to the
making of such payments and issuance of the Lekach Warrants pursuant to the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated thereunder or under any provision of
state or local tax law, and the withheld amounts shall be treated for all purposes of this
Agreement as having been paid to Lekach.

4

 

     (e) The Company agrees that, as soon as it becomes “current” with respect to its Exchange Act
Filings, the Company shall request in writing that, with respect to the Company’s registration
statement on Form S-3 (File No. 333-132288), the Staff of the SEC waive the requirements of
paragraph 1.A.3 of the Registrant Requirements of the General Instructions regarding the use of
Form S-3 to allow the Company to continue to use such registration statement for the sale of the
securities contemplated thereby immediately thereafter.

     5. Lekach Consulting Agreement; Non-Compete

     (a) The Company and Lekach hereby agree that during the period commencing on the date hereof
and ending on the fourth anniversary of the date hereof (the “Consulting Term”), the Company shall
engage Lekach as a consultant and Lekach hereby agrees to provide consulting services to the
Company. Lekach shall devote his business time, attention, skill and efforts to the business and
affairs of the Company and its subsidiaries and Affiliates when requested to do so by the Board or
the Chief Executive Officer of the Company, including by assisting the Company with fragrance brand
licenses and international distribution of the Company’s products, provided that the foregoing
shall not prevent Lekach from accepting other employment and Lekach shall not be required to spend
more than 20% of his working time on such consulting services. During the Consulting Term, Lekach
shall not be required to travel outside of the Fort Lauderdale/Miami metropolitan area except with
his consent, not to be unreasonably withheld. During the Consulting Term, the Company shall not be
required to provide Lekach with office space or secretarial or other support services or office
assistance, nor shall the Company be required to reimburse Lekach for any such or similar
expenditures he may incur in connection with maintaining an office. In addition, the Company shall
not be required to provide Mr. Lekach with any perquisites or benefits during the Consulting Term,
except that the Company shall reimburse Lekach for all reasonable out-of-pocket business and travel
expenses incurred with prior Company approval which approval shall not be unreasonably withheld
relating to his consultancy hereunder, upon Lekach presenting appropriate receipts therefor.

     (b) For a period of four (4) years from the date of this Agreement, Lekach agrees neither he
nor any of his Affiliates shall, directly or indirectly, engage in any business or business venture
that is either directly or indirectly involved in the manufacture, marketing, distribution,
licensing or sale of fragrances (the “Restricted Business”) whether as a director, officer,
employee, agent, stockholder or investor; provided, however, that Lekach and his
Affiliates may own, in the aggregate, directly or indirectly, (i) less than 3% of any class of
equity securities of any entity that is publicly traded and engaged in the Restricted Businesses;
(ii) any interest in any entity that derives less than 5% of its revenue from the Restricted
Businesses; and (iii) any instrument of indebtedness (that is not convertible or exchangeable for
equity securities, except as may be permitted by clauses (i) or (ii) above) of any person or entity
engaged in the Restricted Businesses.

     (c) The Company and Lekach agree that within two (2) business days following the execution of
this Agreement, subject to paragraph 4(d) hereof, the

5

 

Company shall pay to Lekach the sum of $1,200,000, by wire transfer of immediately available
funds to an account specified in writing by Lekach, in full and final consideration for the
agreements of Lekach set forth under this paragraph 5.

     6. Board Composition; Related Matters.

     (a) The parties agree that effective upon execution of this Agreement the bylaws of the
Company shall be amended to provide that the number of directors of the Company shall be fixed at
six (6), and prior to the day following the certification of the vote in connection with the 2008
Annual Meeting of Stockholders (the “2008 Meeting”), the size of the Board shall not be increased
or decreased without the approval of three-fourths of the directors then in office.

     (b) The parties agree that effective upon the execution of this Agreement, the Board shall
consist of Glenn H. Gopman, Esther Egozi Choukroun and David Stone (each an “Incumbent Director”
and collectively, the “Incumbent Directors”), and Anthony D’Agostino, Neil Katz and Robert Mitzman
(each a “Nussdorf Designee” and collectively, the “Nussdorf Designees”). By his execution of this
Agreement, because the parties’ settlement calls for equal representation on the Parlux Board by
the current independent directors, and in order to facilitate such transition, Frank A. Buttacavoli
(“Buttacavoli”) hereby resigns, effective immediately, (i) as a director of the Company, (ii) as a
member of all committees of the Board on which he serves, and (iii) if applicable, as a director of
any direct or indirect subsidiary and other Affiliates of the Company on whose board of directors
he serves and as a member of all committees of any such board of directors on which he serves. By
her execution of this Agreement, because the parties’ settlement calls for equal representation on
the Parlux Board by the current independent directors, and in order to facilitate such transition,
Jaya Kader Zebede (“Zebede”) hereby resigns, effective immediately, (i) as a director of the
Company, (ii) as a member of all committees of the Board on which she serves, (iii) if applicable,
as a director of any direct or indirect subsidiary and other Affiliates of the Company on whose
board of directors she serves and as a member of all committees of any such board of directors on
which she serves, and (iv) if applicable, as a trustee of (or any similar position with) any
benefit plans maintained by, or for the benefit of employees of, the Company or any such
subsidiary.

     (c) The Company agrees that during the period commencing on the date of the first Board
meeting following the date hereof, which Board meeting shall be held not later than five (5)
business days following the date hereof, and continuing until the earlier of (i) the day following
the certification of the vote in connection with the election of directors at the 2008 Meeting or
(ii) eighteen (18) months from the date hereof (such earlier date being referred to as the
“Specified Date”), and subject to the listing requirements of the Nasdaq Global Market, each of the
Board’s Audit Committee, Compensation Committee, Nominating Committee, Special Committee of
Independent Directors and the Search Committee shall consist of four (4) directors, two (2) of whom
shall be Incumbent Directors, as designated by the Incumbent Directors, and two (2) of whom shall
be Nussdorf Designees, as designated by the Nussdorf Designees.

6

 

     (d) If, prior to the Specified Date, a Nussdorf Designee shall cease to be a director for any
reason whatsoever, or, if unable or unwilling to stand for election as a director at the 2007
Annual Meeting (the “2007 Meeting”) or any other election of directors prior to the 2008 Meeting,
then the Nussdorf Designees shall be entitled to designate another person reasonably acceptable to
a majority of the members of the entire Board, and any such person shall become a “Nussdorf
Designee” for all purposes under this Agreement. If, prior to the Specified Date, an Incumbent
Director shall cease to be a director for any reason whatsoever, or, if unable or unwilling to
stand for election as a director at the 2007 Meeting or any other election of directors prior to
the 2008 Meeting, then the Incumbent Directors shall be entitled to designate another person
reasonably acceptable to a majority of the members of the entire Board as a replacement for such
Incumbent Director, and any such person so designated shall become an “Incumbent Director” for all
purposes under this Agreement.

     (e) For a period of six (6) years following the execution of this Agreement, the Company
agrees that it will continue to indemnify and hold harmless Lekach, Buttacavoli and Zebede (each a
“Covered Person”) against any costs or expenses (including reasonable attorneys’ fees), judgments,
fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or investigative, arising out
of or pertaining to matters existing or occurring while such Covered Persons served as officers or
directors of the Company to the fullest extent permitted under the Delaware General Corporation Law
(including the advancing of such costs and expenses as incurred to the fullest extent permitted
under applicable law); provided, however, that such Covered Person must provide an
undertaking to the Company to repay such advances if it is ultimately determined by a court of
competent jurisdiction (which determination shall have become final) that such Covered Person is
not entitled to indemnification; and provided further, however, that, to
the fullest extent permitted by law: (i) the Company shall have the right to assume the defense
thereof, and the Company shall not be liable to any such Covered Person for any legal expenses of
other counsel or any other expenses subsequently incurred by such Covered Person in connection with
the defense thereof, except that if the Company elects not to assume such defense, such Covered
Person may retain counsel satisfactory to it, and the Company shall pay all reasonable fees and
expenses of such counsel for such Covered Person promptly as statements therefor are received;
provided, however, that whether or not the Company assumes the defense of a Covered
Person, the Company shall not admit any liability with respect to, or settle, compromise or
discharge, or offer to settle, compromise or discharge, such claim without such Covered Person’s
prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed,
unless such settlement or compromise includes as one of its terms the complete release of the
Covered Person without any admission of guilt; and provided further,
however, that the Company shall be obligated pursuant to this paragraph 6(e) to pay for
only one firm or counsel for all Covered Persons and all other current or former directors or
officers of the Company in any jurisdiction; (ii) such Covered Persons will reasonably cooperate in
the defense of any such matter; and (iii) the Company shall not be liable for any settlement
effected without the prior written consent of the Company.

7

 

     (f) The Company shall maintain a policy of directors’ and officers’ liability insurance for
six (6) years following the execution of this Agreement with respect to claims arising from facts
or events that occurred on or before the execution of this Agreement, and which policy shall
contain substantially the same coverage and amounts as, and contain terms and conditions no less
advantageous than, in the aggregate, the coverage currently provided by such current policy;
provided, however, that in no event shall the Company be required to expend for all
directors’ and officers’ liability insurance coverage more than it currently pays for such coverage
and, provided further, however, that, if the premiums of such insurance
coverage exceeds such amount, the Company shall be obligated to obtain such policies with the
greatest coverage available for a cost not exceeding such amount.

     7. Interim Chief Executive Officer.

     (a) The parties agree that effective upon the execution of this Agreement, Neil Katz shall be
the interim Chief Executive Officer of the Company. Neil Katz shall continue as the interim Chief
Executive Officer, unless he is removed by the vote of two-thirds of the full membership of the
Board, or until a permanent Chief Executive Officer is designated by the Board in accordance with
paragraph 7(b). The compensation and benefit package for Mr. Katz will be determined by the newly
constituted Compensation Committee as promptly as practicable following the execution of this
Agreement and shall be effective as of the date of this Agreement.

     (b) The parties agree that as soon as practicable after the execution of this Agreement, the
Board shall form a search committee (the “Search Committee”) to conduct a search for a permanent
Chief Executive Officer of the Company, and will consider Neil Katz for such position along with
other candidates. The vote of two-thirds of the full membership of the Board shall be required to
designate a person as the permanent Chief Executive Officer of the Company.

     8. Lekach Covenants. Lekach agrees that during the period commencing on the date
hereof and ending on the fourth anniversary of the date hereof (but subject to the provisions of
paragraph 9(c)), without the prior written consent of the Company’s Board as specifically expressed
in a resolution adopted by a majority of the entire membership of the Board, neither he, nor his
Affiliates or Associates or any Person acting at his or their direction, will, directly or
indirectly:

     (a) make, engage or in any way participate in, directly or indirectly, any “solicitation” (as
such term is used in the proxy rules of the Securities and Exchange Commission (the “SEC”)) of
proxies or consents (whether or not relating to the election or removal of directors); seek to
advise, encourage or influence any Person with respect to the voting of any Voting Securities;
initiate, propose or otherwise “solicit” (as such term is used in the proxy rules of the SEC)
shareholders of the Company for the approval of shareholder proposals whether made pursuant to Rule
14a-8 or Rule 14a-4 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or
otherwise, or cause or encourage or attempt to cause or encourage any other Person to initiate any
such shareholder proposal; otherwise communicate with the Company’s shareholders or others

8

 

pursuant to Rule 14a-1(l)(2)(iv) under the Exchange Act; or participate in, or take any action
pursuant to, any “shareholder access” proposal which may be adopted by the SEC, whether in
accordance with proposed Rule 14a-11 or otherwise;

     (b) seek, propose, or make any statement with respect to, any merger, consolidation, business
combination, tender or exchange offer, sale or purchase of assets, sale or purchase of securities,
dissolution, liquidation, restructuring, recapitalization or similar transactions of or involving
the Company or any of its Affiliates;

     (c) acquire, offer or propose to acquire, or agree to acquire (except by way of stock
dividends, stock splits, reverse stock splits or other distributions or offerings made available to
holders of any Voting Securities generally), directly or indirectly, whether by purchase, tender or
exchange offer, through the acquisition of control of another Person, by joining a partnership,
limited partnership, syndicate or other “group” (within the meaning of Section 13(d)(3) of the
Exchange Act) or otherwise, any Voting Securities; provided, however, Lekach may
acquire Voting Securities upon the exercise of stock options held by him as of January 1, 2007 and
upon the exercise of the Lekach Warrants;

     (d) form, join or in any way participate in a “group” (within the meaning of Section 13(d)(3)
of the Exchange Act) with respect to any Voting Securities, other than a currently disclosed
“group” of which Lekach is a member as set forth in a Schedule 13D with respect to the Company
filed by Lekach and other members of such “group” with the SEC;

     (e) act, alone or in concert with others, to control or seek to control, or influence or seek
to influence, the management, Board or policies of the Company;

     (f) seek, alone or in concert with others, election or appointment to or representation on, or
nominate or propose the nomination of any candidate to, the Board, or seek the removal of any
member of the Board;

     (g) make any publicly disclosed proposal or enter into any discussion regarding any of the
foregoing;

     (h) make any proposal, statement or inquiry, or disclose any intention, plan or arrangement
(whether written or oral) inconsistent with the foregoing, or make or disclose any request to
amend, waive or terminate any provision of paragraph 8 of this Agreement;

     (i) have any discussions or communications, or enter into any arrangements, understanding or
agreements (whether written or oral) with, or advise, finance, assist or encourage, any other
Person in connection with any of the foregoing, or make any investment in or enter into any
arrangement with, any other Person that engages, or offers or proposes to engage, in any of the
foregoing; or

     (j) otherwise take, or solicit, cause or encourage others to take, any action inconsistent
with any of the foregoing.

9

 

Notwithstanding anything to the contrary in this paragraph 8, Lekach shall not, directly or
indirectly, be restricted in any manner in his ability to sell, transfer or vote any Voting
Securities beneficially owned by him in his sole discretion.

     9. Nussdorf Covenants.

     (a) Nussdorf agrees that during the period commencing on the date hereof and ending on the
second anniversary of the date hereof, neither he, nor his Affiliates or any Person acting at his
or their direction, will, directly or indirectly, make an Acquisition Proposal, unless (i) invited
by a majority of the full membership of the Board to make such an Acquisition Proposal, or (ii)
such Acquisition Proposal is for all shares of common stock of the Company, for a price valued at
not less than $11 per share in cash or the equivalent value of a publicly-traded equity security,
or a combination thereof. Notwithstanding anything to the contrary in paragraph 9(a), Nussdorf
shall not, directly or indirectly, be prohibited from taking any of the actions described in, or be
subject to the limitations set forth in, the foregoing provisions of this paragraph, and the
restrictions of the first sentence of paragraph 9(a) shall terminate and be of no further force and
effect, if (i) the Board receives an Acquisition Proposal from a third party or the Company
publicly announces that it is pursuing strategic alternatives which may include seeking an
Acquisition Proposal, (ii) the Company furnishes any Person, other than Nussdorf or his Affiliates,
with non-public information with the view toward receiving from such Person an Acquisition
Proposal, (iii) the Board approves a transaction (or enters into an agreement relating thereto)
with any person or group that would result in such person or group beneficially owning more than
20% of the outstanding Voting Securities of the Company (or a successor to the Company in a merger
or consolidation transaction) or all or a substantial portion of its assets, (iv) the Board
approves a transaction with any Person or group involving a merger, consolidation, tender or
exchange offer, recapitalization or other business combination or similar transaction involving the
Company or its subsidiaries or that would result in any Person or group having the right to
nominate, elect or appoint members of the Board, or (v) any Person, other than Nussdorf, becomes
the beneficial owner of 20% or more of the outstanding Voting Securities of the Company or has
commenced or publicly announced its intention to commence a tender or exchange offer for more than
20% of the outstanding Voting Securities of the Company.

     (b) Nussdorf agrees that until the earlier of (i) the date which is eighteen (18) months from
the date hereof or (ii) sixty (60) days prior to the date of the 2008 Meeting, neither he or his
Affiliates nor any Person acting at his or their direction, will, directly or indirectly, solicit
proxies or written consents from stockholders of the Company for election of directors. The
Incumbent Directors agree that they will nominate the Nussdorf Designees for election at the 2007
Meeting or at any other election of directors held prior to the 2008 Meeting. The Company agrees
to provide Nussdorf written notice of the date of the 2008 Meeting not less than seventy (70) days
prior to the date of the 2008 Meeting.

     (c) Notwithstanding any provision contained herein to the contrary, in the event that ECMV
shall make an Acquisition Proposal which, if made by Nussdorf

10

 

would not be permitted under paragraph 9(a), then, Lekach’s obligations under paragraph 8
shall expire at such time as such Acquisition Proposal is made by ECMV. Nussdorf agrees that until
the second anniversary of the date hereof, he will not vote any shares of ECMV which he
beneficially owns and is entitled to vote in favor of any Acquisition Proposal made by ECMV, which
if made by Nussdorf would not be permitted under paragraph 9(a).

     10. Mutual Releases; Non-Disparagement.

     (a) Each of the Company, on behalf of itself and its directors and executive officers, in each
case as in office immediately prior to the execution of this Agreement, and the Company’s agents,
proxy solicitors, public relations firms, lawyers, and other representatives (the “Company
Releasees”), and Lekach, on behalf of himself, his Affiliates and Associates and his agents,
lawyers, and other representatives (the “Lekach Releasees”), hereby irrevocably releases, acquits
and fully and forever discharges each of Nussdorf, the Defendants, Alfred Paliani, Stephen
Nussdorf, Arlene Nussdorf-Mark, Lillian Ruth Nussdorf, their respective Affiliates and Associates
and their respective agents, proxy solicitors, public relations firms, lawyers, and other
representatives (collectively, the “Nussdorf Releasees”), from and with respect to any and all
disputes, complaints, claims, counter-claims, actions, causes of action, liabilities, suits or
damages, whether at law or in equity, statutory or otherwise, whether known or unknown, asserted or
unasserted, or every kind and matter whatsoever (collectively, “Claims”), that any Company Releasee
or Lekach Releasee ever had, now has, or hereafter can, shall or may have against any Nussdorf
Releasee for, upon, or by reason of any matter, cause of action or thing, whatsoever from the
beginning of the world to the date hereof, arising out of or in connection with the Consent
Solicitation or the Litigation, including, without limitation, any and all Claims made in the
Litigation, but expressly excluding, or any Claims for breach of or to enforce this Agreement.

     (b) Nussdorf, on behalf of himself and the Nussdorf Releasees, hereby irrevocably releases,
acquits and fully and forever discharges each of the Company Releasees and the Lekach Releasees,
from and with respect to any and all Claims that any Nussdorf Releasee ever had, now has, or
hereafter can, shall or may have against any Company Releasee or Lekach Releasee for, upon or by
reason of any matter, cause of action or thing, whatsoever from the beginning of the world to the
date hereof, arising out of or in connection with the Consent Solicitation or the Litigation, but
expressly excluding, or any Claims for breach of or to enforce this Agreement.

     (c) For the period commencing on the date hereof and ending on the second anniversary of the
date hereof, the Company shall not, and shall not permit any of the Company Releasees and any of
the then current members of its Board or executive officers to, disparage or make or solicit any
comments, statements or the like to or from any Person that are derogatory or detrimental to any of
the Nussdorf Releasees or any of the Lekach Releasees.

     (d) For the period commencing on the date hereof and ending on the second anniversary of the
date hereof, Nussdorf shall not, and shall not permit any of the

11

 

Nussdorf Releasees to, disparage or make or solicit any comments, statements or the like to or
from any Person that are derogatory or detrimental to any of the Company Releasees or Lekach
Releasees.

     (e) For the period commencing on the date hereof and ending on the second anniversary of the
date hereof, Lekach shall not, and shall not permit any of the Lekach Releasees to, disparage or
make or solicit any comments, statements or the like to or from any Person that are derogatory or
detrimental to any of the Nussdorf Releasees or Company Releasees.

     11. Expenses. Within two (2) business days following the execution of this Agreement,
the Company shall pay Nussdorf the sum of One Million ($1,000,000) Dollars by wire transfer of
immediately available funds to an account specified in writing by Nussdorf in reimbursement for
expenses incurred by Nussdorf in connection with the Consent Solicitation, the Litigation and the
negotiation and execution of this Agreement. Nussdorf represents that the expenses incurred by him
in connection with the Consent Solicitation, the Litigation and the negotiation and execution of
this Agreement are in excess of $1,000,000. As soon as practicable after receiving statements
evidencing at least $1,000,000 in expenses, Nussdorf will furnish the Company with appropriate
documentation confirming such expenses.

     12. Representations and Warranties.

     (a) The Company hereby represents and warrants to the other parties hereto as follows:

	 	(i)	 	The Company has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Agreement and to
consummate the transactions contemplated hereby, and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby.
	 
	 	(ii)	 	This Agreement has been duly and validly authorized, executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company, enforceable in accordance with its terms.
	 
	 	(iii)	 	The payments being made by the Company pursuant to the terms
of this Agreement will not have an adverse effect on the Company’s operating
and capital plans or budgets and will not constrain or have a material adverse
effect on the Company’s liquidity.

     (b) Lekach hereby represents and warrants to the Company that, except for the letter agreement
between Stephen Nussdorf and Lekach and Deborah Lekach amending the terms of that certain
promissory note, dated July 14, 2003 (the “Note”), the related guaranty, dated July 14, 2003 (the
“Guaranty”), and agreeing to

12

 

dismiss the lawsuit filed by Stephen Nussdorf in the United States District Court for the
Southern District of New York, entitled Stephen Nussdorf v. Ilia Lekach and Deborah Lekach, Docket
No. 06 CV 14284 (DAB), to enforce the Note and Guaranty (the “Stephen Nussdorf Lawsuit”), neither
Lekach, his Affiliates nor any Person acting at his or their direction has entered into any other
side or collateral contracts, agreements, arrangements, or understandings with Nussdorf or his
Affiliates or any Person acting at his or their direction with respect to the Company or any equity
security of the Company, other than as provided pursuant to this Agreement.

     (c) Nussdorf hereby represents and warrants to the Company that, except for the letter
agreement referenced in paragraph 12(b) concerning the Note, Guaranty and the Stephen Nussdorf
Lawsuit, neither Nussdorf, his Affiliates nor any Person acting at his or their direction has
entered into any side or collateral contracts, agreements, arrangements, or understandings with
Lekach or his Affiliates or any Person acting at his or their direction with respect to the Company
or any equity security of the Company, other than as provided pursuant to this Agreement.

     (d) The Company and Lekach each hereby represents and warrants to Nussdorf that there are no
side or collateral contracts, agreements, arrangements, or understandings between the Company, its
Affiliates and any Person acting at its or their direction, on the one hand, and Lekach, his
Affiliates or any Person acting at his or their direction, on the other hand, other than as
provided pursuant to this Agreement.

     13. Press Release. Upon execution of this Agreement, the Company and Nussdorf will
issue a joint press release in the form attached hereto as Exhibit A.

     14. Specific Performance. Each of the parties hereto acknowledges and agrees that
irreparable harm to the others would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were otherwise breached and
that such injury would not be compensable in damages. It is accordingly agreed that each party
hereto (the “Moving Party”) will be entitled to specific performance of, and injunctive relief to
prevent any violation of, the terms hereof and the other parties hereto will not take action,
directly or indirectly, in opposition to the Moving Party seeking such relief on the grounds that
any other remedy or relief is available at law or in equity.

     15. No Waiver. Any waiver by any party of a breach of any provision of this Agreement
will not operate as or be construed to be a waiver of any other breach of such provision or of any
breach of any other provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions will not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement.

     16. Successors and Assigns. All the terms and provisions of this Agreement will inure
to the benefit of and will be enforceable by the successors and assigns of the parties hereto.

13

 

     17. Entire Agreement; Amendments. This Agreement (and the Exhibits hereto) contain
the entire understanding of the parties with respect to its subject matter and merges and
supersedes all prior discussions, agreements (whether written or oral) and understandings of every
kind and nature between them in respect of this Agreement’s subject matter, including, but not
limited to, the Employment Agreement and any and all other employment and/or severance agreements
between Lekach and the Company. Except as described herein, there are no restrictions, agreements,
promises, representations, warranties, covenants or undertakings whether oral or written other than
those expressly set forth herein. This Agreement may be amended only by a written instrument duly
executed by the parties or their respective successors or assigns.

     18. Headings. The paragraph headings contained in this Agreement are for reference
purposes only and will not affect in any way the meaning or interpretation of this Agreement.

     19. Notices. All notices and other communications hereunder will be in writing and
will be given by hand delivery (including by overnight courier service) or by facsimile, receipt
confirmed, to the respective parties as follows:

     If to the Company:

Board of Directors of Parlux Fragrances, Inc.

3725 S.W. 30th Avenue

Fort Lauderdale, Florida 33312

     with a copy to:

Gibson, Dunn & Crutcher LLP

200 Park Avenue

New York, New York 10166

Attention: Scott Kislin, Esq. and Adam Offenhartz, Esq.

14

 

          If to Nussdorf:

Glenn Nussdorf

2060 Ninth Avenue

Ronkonkoma, New York 11779

with copies to:

Alfred R. Paliani, Esq.

c/o Quality King Distributors, Inc.

2060 Ninth Avenue

Ronkonkoma, NY 11779

and

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036

Fax: (212) 735-2000

Attention: Daniel E. Stoller, Esq. and Richard J. Grossman, Esq.

          If to Lekach:

Ilia Lekach

c/o Seth P. Joseph, Esq.

Carlton Fields, P.A.

4000 Bank of America Tower

at International Place

100 S.E. Second Street

Miami, Florida 33131

Fax: (305) 530-0055

with copies to:

Carlton Fields, P.A.

4000 Bank of America Tower

at International Place

100 S.E. Second Street

Miami, Florida 33131

Fax: (305) 530-0055

Attention: Seth P. Joseph, Esq.

or to such other address or fax number as the person to whom notice is given may have previously
furnished to the others in writing in the manner set forth above.

          20. Governing Law. This Agreement will be governed by and construed and enforced in
accordance with the laws of the State of Delaware, without reference to the conflict of laws
principles thereof. The parties hereto agree and consent

15

 

to personal jurisdiction and venue in any action brought to enforce this Agreement in the
Court of Chancery of the State of Delaware or any other appropriate court in the State of Delaware.

          21. Counterparts. This Agreement may be executed in counterparts, each of which will
be an original, but each of which together will constitute one and the same Agreement.

          22. No Admission of Liability. This Agreement shall not be construed as an admission
of liability of any party or any admission that any party has acted in any way wrongfully toward
the other.

          23. Rule of Construction. This Agreement has been negotiated by all parties, and all
parties have participated in the drafting of the language of this Agreement. No rule of
construction of contracts requiring that provisions be construed against the drafter of an
agreement shall be applied to this Agreement.

          24. Severability. In the event any portion or clause of this Agreement is deemed
invalid or unenforceable in a court of law, the remainder of this Agreement shall be severed from
the invalid or unenforceable portion.

16

 

          IN WITNESS WHEREOF, and intending to be legally bound hereby, each of the undersigned parties
has executed or caused this Agreement to be executed on the date first above written.

	 	 	 	 	 	 	 
	 	 	PARLUX FRAGRANCES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Glenn H. Gopman
 

	 	 
	 	 	Name: Glenn H. Gopman	 	 
	 	 	Title: Director	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Ilia Lekach	 	 
	 	 	 	 	 
	 	 	ILIA LEKACH	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Glenn Nussdorf	 	 
	 	 	 	 	 
	 	 	GLENN NUSSDORF	 	 

	 	 	 	 	 
	Solely with Respect to the Provisions	 	 
	of paragraphs 6(b), 6(e) and 6(f):	 	 
	 
	 	 	 	 
	/s/ Frank A. Buttacavoli	 	 
	 	 	 
	Frank A. Buttacavoli
	 	 
	 
	 	 	 	 
	/s/ Jaya Kader Zebede	 	 
	 	 	 
	Jaya Kader Zebede
	 	 
	 
	 	 	 	 
	Solely with Respect to the Provisions	 	 
	of paragraphs 9(a), 9(b) and 10:	 	 
	 
	 	 	 	 
	QUALITY KING DISTRIBUTORS, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Michael W. Katz	 	 
	 

	 	 

	 	 
	Name: Michael W. Katz	 	 
	Title: Executive Vice President	 	 
	 
	 	 	 	 
	MODEL REORG, INC.	 	 
	 
	 	 	 	 
	By:/s/

	 	Donna Dellomo	 	 
	 

	 	 

	 	 
	Name: Donna Dellomo	 	 
	Title: Chief Financial Officer

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