exv10w3



 







Exhibit 10.3




AMENDMENT NO. 1 TO LOAN AGREEMENT




     THIS AMENDMENT NO. 1 TO LOAN AGREEMENT (this “Amendment”) is executed as of January
17, 2006, by and between The Fashion House, Inc., a Delaware corporation (the “Company”),
The Fashion House Holdings, Inc., a Colorado corporation (the “Parent,” and, together with
the Company and all direct and indirect subsidiaries of the Company and the Parent, the
“Company Group”), and American Microcap Investment Fund 1, LLC, a Delaware limited
liability company (the “Lender”).



     WHEREAS, the Company and Lender have previously entered into that certain Loan Agreement dated
as of July 21, 2005 (the “Loan Agreement”) and the related Note (the “Note”) and
Security Agreement (the “Security Agreement”) dated July 21, 2005;



     WHEREAS, as contemplated by the Loan Agreement, the Company completed the Merger with a
subsidiary of the Parent, and has become a wholly owned subsidiary of Parent;



     WHEREAS, the Loan is due and payable on January 17, 2006;




     WHEREAS, at the request of the Company, and upon the terms and conditions of this Amendment,
the Lender is willing to amend certain terms and conditions of the Loan Agreement as expressly
provided hereinbelow; and



     WHEREAS, the Parent acknowledges that it benefits from this Amendment.



     NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Lender, intending to be legally bound, agree as follows:



ARTICLE 1

DEFINITIONS




     1.1 Defined Terms. Unless otherwise defined herein, capitalized terms used in this
Amendment shall have the specific meanings set forth in the Loan Agreement, the Note and the
Security Agreement.



ARTICLE 2




THE LOAN AMENDMENTS




     2.1 Amendment of Section 2.5. Section 2.5 of the Loan Agreement is hereby amended in
full to read as follows:



          “2.5 Maturity Date.




 









 









     (a) Unless the Loan is earlier accelerated pursuant to the terms
hereof, the Loan and all accrued Interest thereon shall be due and payable
in full on the Maturity Date; provided, however, that the
Company shall pay to the Lender as a repayment of the indebtedness: (i) an
amount equal to 25% of the gross proceeds of the sale of Equity Securities
by any member of the Company Group on or after January 1, 2006 up to the
first $1,000,000 of such gross proceeds in the aggregate from sales by all
such members, and (ii) an amount equal to 50% of the gross proceeds from the
sale of Equity Securities by any member of the Company Group after the
threshold in (i) has been reached, until such time as all amounts owed under
the Loan Documents have been paid in full. Such payments shall be due
concurrently with receipt of proceeds by the Company; provided,
however, that if such proceeds are collected into an escrow or
similar account prior to delivery to the Company, the Company shall instruct
the escrow or account holder to pay directly to Lender the amount of such
proceeds to which Lender is entitled at such time as the funds are to be
distributed from Company.




     (b) “Maturity Date” shall mean January 27, 2006;
provided that the Maturity Date shall be extended to February 17,
2006 if: (a) the Company has received at least $500,000 from a Qualifying
Loan no later than January 27, 2006 and (b) no later that January 23, 2006,
the Company pays all accrued and unpaid Interest on the Loan; and (c) no
later than January 26, 2006, the Company makes an additional payment of not
less than $50,000 to repay the indebtedness on the Loan; provided
further, that the Maturity Date shall be further extended to March
17, 2006 if the Company makes a further payment of $25,000 to repay the
indebtedness on the Loan (or an aggregate of $75,000 excluding interest
payments) on or prior to February 16, 2006; and provided
further that the Maturity Date shall be further extended to April
17, 2006 if the Company makes a further payment of $25,000 to repay the
indebtedness on the Loan (or an aggregate of $100,000 excluding interest
payments) on or prior to March 16, 2006. Notwithstanding the foregoing, the
Maturity Date shall not be extended in any instance if an Event of Default
has occurred and is continuing. For this purpose, a “Qualifying
Loan” is a loan that is subordinate to the Loan, matures after April 17,
2006, and cannot be repaid in whole or in part prior to repayment in full of
the Loan.”



     2.2 Letter to Brookstreet. Concurrently with the Company’s execution and delivery of
this Amendment to the Lender, the Company and the Parent shall deliver to Brookstreet Securities
Corporation, the Company Group’s investment banking firm managing the Company’s offering of its
Common Stock (“Brookstreet”), a letter in the form and substance of the form attached
hereto as Exhibit A, and shall use its best efforts to get the letter acknowledged by Brookstreet
as promptly as possible. The Company shall not rescind or amend, or attempt to rescind or amend,
such letter without the Lender’s prior written consent, which consent the Lender may withhold or
delay in its complete and unfettered discretion. The failure to timely deliver such letter, or the
revocation or modification of such letter without Lender’s consent,



- 2 -









 




shall be a material default under the Loan. Lender will notify Brookstreet at such time as it
has been paid in full and instruct it that no further payments need to be made to Lender.




     2.3 Consideration to Lender. In consideration of Lender’s execution and delivery of
this Amendment to the Company, and in addition to the other covenants and agreements of the Parent
and the Company in this Amendment, upon execution and delivery of this Amendment: (a) the Parent
shall issue to the Lender a Warrant in the form and substance of the form attached hereto as
Exhibit B for Five Hundred Fifty Thousand (550,000) shares of the Parent’s common stock (the
“Second Warrant”), which Warrant is in addition to the Warrant previously issued by the
Parent to Lender; and (b) the Company shall pay to the Lender an amendment fee of Ten Thousand
Dollars ($10,000) and Seven Thousand Five Hundred Dollars ($7,500) for Lender’s legal fees.



     2.4 Trilogy. The Parent and the Company will negotiate in good faith with Trilogy
Capital Partners, Inc. (“Trilogy”) to engage Trilogy to perform investor relations for the
Company Group on Trilogy’s standard terms and conditions.



     2.5 Warrant Exercise Price. The Parent agrees that if it issues Common Stock for cash
at a price (the “Issue Price”) less than the then current Exercise Price, or issues
securities exercisable for or convertible into Common Stock for a price less than the then current
Exercise Price, the Exercise Price shall concurrently and without any action required of the Lender
(or other holder(s) of the Subject Warrants) or the Parent, be reduced to the Issue Price without
any change in the number of shares that may be acquired upon exercise of the Subject Warrants. The
Parent agrees to give prompt notice of any such issuance to Lender (or other holder(s) of the
Subject Warrants) and, at the request of such holder, shall issue to such holder a substitute
warrant with the then applicable Exercise Price upon delivery of the Subject Warrant). For
purposes of this Amendment, the “Subject Warrants” shall mean the Warrant and the Second
Warrant and the “Exercise Price” shall have the meaning set forth in the Subject Warrants.



     2.6 Covenants. The Parent agrees that all of the covenants of the Company under
Article 5 of the Loan Agreement shall be applicable to the Parent as if the word “Company” was
replaced by the word “Parent” until the Loan (including Interest), and all other amounts owed by
Parent or the Company to Lender under the Loan Documents, have been paid in full. The Parent
further agrees to cause the Company to comply with each and every covenant in Article 5 of the Loan
Agreement.



     2.7 Continuation of Loan Documents. Except as expressly amended herein, the terms and
conditions of the Loan Agreement, the Note, the Security Agreement, the Warrant and any other
documents executed by the Company or the Parent in connection with any of the same shall remain in
full force and effect. This Amendment shall not constitute a waiver of any rights of Lender or of
any Event of Default. For all purposes under the Loan Documents, references to the Loan Agreement
shall mean the Loan Agreement as from time to time amended, including this Amendment.



- 3 -









 





ARTICLE 3

REPRESENTATIONS AND WARRANTIES




     3.1 Renewal of Representations and Warranties. The Company hereby confirms that (a)
Sections 4.1 through 4.13 (inclusive) of the Loan Agreement are representations and warranties of
the Company, and (b) all its representations and warranties made in Sections 4.1 through 4.12
(inclusive) of the Loan Agreement are hereby renewed and remade at and as of the date hereof,
except that for purposes of this Section 3.1, “Agreement” as used in such Sections shall
mean and include both this Amendment and the Loan Agreement. The Parent hereby represents and
warrants that the representations and warranties under Sections 4.1 through 4.13 (inclusive) are
true and correct with respect to the Parent as if the word “Company” was replaced by the word
“Parent” and provided that the capitalization of the Parent is as attached on Schedule A to this
Amendment. The Parent and the Company represent and warrant that the Elevation Fund Loan has been
paid in full.



     3.2 Existing Loan. Each of the Company and the Parent hereby represents and warrants
that (a) the Company and the Parent have absolutely no, and has hereby waived and released the
Lender from any, claims, causes of action, defenses, counterclaims, setoffs or offsets with respect
to its indebtedness or other obligations under, or any other fact, matter or circumstance
pertaining to, the Loan, the Loan Agreement, the Warrant, the Note or the Security Agreement; (b)
the principal amount owed under the Note is Five Hundred Fifty Thousand Dollars ($550,000); and (c)
the Lender now holds a perfected first-priority security interest in the Collateral (as defined in
the Security Agreement). With regard to (a) above, the Company and the Parent expressly understand
and agree that this Amendment fully and finally releases and forever resolves the matters released
and discharged in (a), including those which may be unknown, unanticipated and/or unsuspected, and,
upon the advice of legal counsel, hereby expressly waives all benefits under California Civil Code
Section 1542, as well as under any other statutes or common law principles of similar effect, to
the extent that such benefits may contravene the release set forth in (a). Each of the Company and
the Parent hereby acknowledges that it has read and understood Section 1542, which provides as
follows:




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



     3.3 Warrants. The Initial Exercise Price under the Warrant was correctly determined
in accordance with the requirements of the Loan Agreement, including Section 7.1 thereof; and each
of the Warrant and the Second Warrant has been validly executed and delivered by the Parent and
constitutes the legal, valid and binding obligations of the Parent enforceable against it in
accordance with its respective terms, subject to applicable bankruptcy, insolvency, reorganization
or similar laws relating to or affecting the enforcement of creditors’ right and to the
availability of the remedy of specific performance.



- 4 -









 





ARTICLE 4

MISCELLANEOUS




     4.1 Incorporation of Provisions. Incorporated herein as if set forth in full herein
are Sections 8.1 through 8.6 (inclusive) and Section 8.9 of the Loan Agreement, except that
“Agreement” as used in such incorporated Sections shall, for purposes of this incorporation, mean
this Agreement.



     4.2 Integration. This Amendment, together with the Loan Agreement, Subject Warrants,
Note and Security Agreement constitute the complete and exclusive agreement between the Company,
the Parent and the Lender with respect to the subject matter herein and replaces and supersedes any
and all other prior written and oral agreements or statements by such parties hereto relating to
such subject matter, including, without limitation, that certain e-mail transmission of November
23, 2005 from Richard Kaufman, President of the Lender, to John Hanna, the Chief Executive Officer
of the Company, and that certain “Deal Memo re: Extension of Loan Agreement with AMI” executed by
the Parties.



     IN WITNESS WHEREOF, each Party has caused this Amendment to be signed in its name as of the
date first set forth above.



	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	THE FASHION HOUSE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Michael McHugh	 	 
	 

	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	THE FASHION HOUSE HOLDINGS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Michael McHugh	 	 
	 

	 	 	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	AMERICAN MICROCAP INVESTMENT FUND 1, LLC	 	 
	 
	 	 	 	 	 	 
	 	 	By: AMI Management LLC, Manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Richard Kaufman	 	 
	 

	 	 	 	President	 	 






- 5 -









 






EXHIBIT A




Brookstreet Securities Corporation

1478 Palisades Drive

Pacific Palisades, California 90272

Attention: Neil Dabney




Re: The Fashion House Holdings, Inc. (the “Company”)



Dear Sir:




     With respect to the current private placement of securities that you are conducting on behalf
of The Fashion House Holdings, Inc., we hereby authorize and instruct you to do as follows:



          (a) Wire transfer 25% of the gross proceeds from the sale of such securities on or after
January 1, 2006 to American Microcap Investment Fund 1, LLC (the “Lender”), in accordance
with the wire transfer instructions (the “Lender Account”) attached hereto, until the
aggregate gross proceeds from the sale of securities on or after January 1, 2006 is $1,000,000; and




          (b) Thereafter, wire transfer 50% of the gross proceeds from the sale of such securities to
the Lender Account.




     These payments are to be made at such time as the funds in the escrow account are to be
released to the Company.



     You are to disregard any and all instructions contrary to, or inconsistent with, the
foregoing, unless such instructions are in a writing executed by the Lender.



     Please indicate your agreement to comply with this letter by executing this letter where
indicated below, faxing such executed letter to Richard Kaufman, President of the Lender, at (646)
619-4599, and mailing such letter to him at American Microcap Investment Fund 1, LLC at 733 Park
Avenue, 18th Floor, New York, New York 10021. Thank you.



	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	The Fashion House Holdings, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Michael McHugh	 	 
	 	 	Title: Chief Financial Officer	 	 






Accepted and Agreed:

Brookstreet Securities Corporation




	 	 	 	 	 
	 

	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 	 





Exh A - 1




 









 








WIRING INSTRUCTIONS for

AMERICAN MICROCAP INVESTMENT FUND 1, LLC

First Regional Bank

Attn: Ventura County Regional Office # 10

1801 Century Park East

Century City, CA 90067




ROUTING (ABA) #:122037760

FOR CREDIT TO:




     ACCOUNT NAME: American Microcap Investment Fund 1, LLC



     ACCOUNT NUMBER: 780001623



Exh A - 2




 









 








EXHIBIT B



The securities represented by this Warrant have not been registered under the Securities Act of
1933, as amended (the “Act”), or under the provisions of any applicable state securities laws, but
have been acquired by the registered holder hereof for purposes of investment and in reliance upon
statutory exemptions under the Act, and under any applicable state securities laws. These
securities and the securities issued upon exercise hereof may not be sold, pledged, transferred or
assigned, nor may this Warrant be exercised, except in a transaction which is exempt under the
provisions of the Act and any applicable state securities laws or pursuant to an effective
registration statement.




COMMON STOCK PURCHASE WARRANT




			
	 	 	 
	Date of Issuance: January 17, 2006
	 	Certificate No. W-3






     For value received, The Fashion House Holdings, Inc., a Colorado corporation (the
“Company”), hereby grants to American Microcap Investment Fund 1, LLC, a Delaware limited
liability company (“AMIF”), or its permitted transferees and assigns, the right to purchase
from the Company a total of 550,000 shares of the Company’s common stock (“Common Stock”),
at a price per share equal to $1.00 (the “Initial Exercise Price”). The exercise price and
number of Warrant Shares (and the amount and kind of other securities) for which this Warrant is
exercisable shall be subject to adjustment as provided in Section 2 hereof. This Warrant is being
issued in connection with the Amendment No. 1 to Loan Agreement between AMIF and The Fashion House,
Inc. dated the Date of Issuance (the “Loan Agreement”). Certain capitalized terms used
herein are defined in Section 4 hereof.



     This Warrant is subject to the following provisions:



     SECTION 1. Exercise of Warrant.



     (a) Terms of Warrants; Exercise Period. Subject to the terms of this Warrant, the
Registered Holder shall have the right, commencing on the date hereof and expiring on the
three-year anniversary hereof (the “Expiration Date”), to exercise this Warrant, from time
to time and in whole or in part, and to receive from the Company the number of Warrant Shares which
the Registered Holder may at the time be entitled to receive upon exercise of this Warrant and
payment of the Exercise Price then in effect for the Warrant Shares. To the extent not exercised
prior to the Expiration Date, this Warrant shall become void and all rights thereunder and all
rights in respect thereof under this Warrant shall cease as of such time.



     (b) Exercise Procedure.



          (i) This Warrant shall be deemed to have been exercised on the date specified in a written
notice from the Registered Holder to the Company (the “Exercise Time”) and within three
business days following the Exercise Time, the Registered Holder shall deliver the following to the
Company:




Exh B - 1




 









 








               (A) a completed Exercise Agreement, as described in Section 1(c) below;



               (B) this Warrant; and



               (C) either (I) a check payable to the Company in an amount equal to the product of the
Exercise Price (as such term is defined in Section 2) multiplied by the number of Warrant Shares
being purchased upon such exercise (the “Aggregate Exercise Price”), (II) the surrender to
the Company of shares of Common Stock of the Company having a Fair Market Value equal to the
Aggregate Exercise Price, or (III) the delivery of a notice to the Company that the Registered
Holder is exercising the Warrant by authorizing the Company to reduce the number of Warrant Shares
subject to the Warrant by that number of shares having an aggregate Fair Market Value in excess of
the total Exercise Price for such shares equal to the Aggregate Exercise Price.



          (ii) Certificates for Warrant Shares purchased upon exercise of this Warrant shall be
delivered by the Company to the Registered Holder within five business days after the date of the
Exercise Time. Unless this Warrant has expired or all of the purchase rights represented hereby
have been exercised, the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant that have not expired or been
exercised and shall, within such five-day period, deliver such new Warrant to the Person designated
for delivery in the Exercise Agreement.




          (iii) The Warrant Shares issuable upon the exercise of this Warrant shall be deemed to have
been issued to the Registered Holder at the Exercise Time, and the Registered Holder shall be
deemed for all purposes to have become the record holder of such Warrant Shares at the Exercise
Time.




          (iv) The Company shall not close its books against the transfer of this Warrant or of any
Warrant Shares issued or issuable upon the exercise of this Warrant in any manner which interferes
with the timely exercise of this Warrant.




          (v) The Company shall make any governmental filings or obtain any governmental approvals
necessary in connection with the exercise of this Warrant by the Registered Holder.




          (vi) The Company shall at all times reserve and keep available out of its authorized but
unissued capital stock, solely for the purpose of issuance upon the exercise of this Warrant, the
maximum number of Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
that are so issuable shall, when issued and upon the payment of the Exercise Price therefor, be
duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all such Warrant Shares
may be so issued without violation by the Company of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which securities of the Company may be
listed (except for official notice of issuance which shall be immediately delivered by the Company
upon each such issuance).




Exh B - 2




 









 








     (c) Exercise Agreement. Upon any exercise of this Warrant, the Registered Holder
shall deliver an Exercise Agreement in the form set forth in Exhibit I hereto, except that
if the Warrant Shares are not to be issued in the name of the Person in whose name this Warrant is
registered, the Exercise Agreement shall also state the name of the Person to whom the certificates
for the Warrant Shares are to be issued, and if the number of Warrant Shares to be issued does not
include all the Warrant Shares purchasable hereunder, it shall also state the name of the Person to
whom a new Warrant for the unexercised portion of the rights hereunder is to be issued.



     SECTION 2. Adjustment of Exercise Price and Number of Shares. In order to prevent
dilution of the rights granted under this Warrant, the Initial Exercise Price shall be subject to
adjustment from time to time as provided in this Section 2 (such price or such price as last
adjusted pursuant to the terms hereof, as the case may be, is herein called the “Exercise
Price”), and the number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time as provided in this Section 2.



     (a) Reorganization, Reclassification, Consolidation, Merger or Sale. In case of any
reclassification, capital reorganization, consolidation, merger, sale of all or substantially all
of the Company’s assets to another Person or any other change in the Common Stock of the Company,
other than as a result of a subdivision, combination, or stock dividend provided for in Section
2(b) below (any of which, a “Change Event”), then, as a condition of such Change Event,
lawful provision shall be made, and duly executed documents evidencing the same from the Company or
its successor shall be delivered to the Registered Holder, so that the Registered Holder shall have
the right at any time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant (subject to adjustment of the Exercise Price as
provided in Section 2), the kind and amount of shares of stock and other securities and property
receivable in connection with such Change Event by a holder of the same number of shares of Common
Stock as were purchasable by the Registered Holder immediately prior to such Change Event. In any
such case appropriate provisions shall be made with respect to the rights and interest of the
Registered Holder so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise hereof, and appropriate
adjustments shall be made to the purchase price per share payable hereunder, provided the aggregate
purchase price shall remain the same.



     (b) Subdivisions, Combinations and Other Issuances. If the Company shall at any time
prior to the expiration of this Warrant (i) subdivide its Common Stock, by split-up or otherwise,
or combine its Common Stock, or (ii) issue additional shares of its Common Stock or other equity
securities as a dividend with respect to any shares of its Common Stock, the number of shares of
Common Stock issuable upon the exercise of this Warrant shall forthwith be proportionately
increased in the case of a subdivision or stock, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price payable per share,
but the aggregate purchase price payable for the total number of Warrant Shares purchasable under
this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 2(b) shall
become effective at the close of business on the date the subdivision or combination becomes
effective, or as of the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.



Exh B - 3




 









 








     (c) Issuance of New Warrant. Upon the occurrence of any of the events listed in this
Section 2 that results in an adjustment of the type, number or exercise price of the securities
underlying this Warrant, the Registered Holder shall have the right to receive a new warrant
reflecting such adjustment upon the Registered Holder tendering this Warrant in exchange. The new
warrant shall otherwise have terms identical to this Warrant.



     (d) Notices.



          (i) The Company shall give written notice to the Registered Holder of this Warrant at least 10
days prior to the date on which the Company closes its books or takes a record for determining
rights to vote with respect to any event described in this Section 2 or any dissolution or
liquidation.




          (ii) The Company shall also give written notice to the Registered Holder of this Warrant at
least 10 days prior to the date on which any event described in this Section 2 or any dissolution
or liquidation shall take place.




     SECTION 3. Registration Rights.



     (a) Demand Registration.



          (i) As soon as practicable, but in no event later than the Filing Deadline, the Company shall
file with the SEC a Registration Statement on Form SB-2 covering the resale of all the Registrable
Securities. If Form SB-2 is unavailable for such a Registration, the Company shall register the
resale of the Registrable Securities on another appropriate form reasonably acceptable to the
Holders of at least a majority of the Registrable Securities and undertake to register the
Registrable Securities on Form SB-2 as soon as such form is available, provided that the Company
shall maintain the effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form SB-2 covering the Registrable Securities has been declared effective
by the SEC. The Company shall use its reasonable best efforts to have such Registration Statement
declared effective by the SEC as soon as practicable, but in no event later than the Effectiveness
Deadline.




          (ii) The Company shall prepare and file with the SEC such amendments and supplements to the
Registration Statement filed under this Section 3(a)(ii) as may be reasonably necessary to keep
such Registration Statement effective until all Registrable Securities have been sold pursuant to
such Registration Statement or pursuant to Rule 144. The Company shall comply with the provisions
of the Act with respect to the disposition of all Registrable Securities covered by such
Registration Statement during such period in accordance with the intended methods of disposition by
the Holders as set forth in such Registration Statement




          (iii) In the event the Registration Statement required to be filed with the SEC pursuant to
Section 3(a)(i) is not filed with the SEC by the Filing Deadline, the Company shall issue to the
Registered Holder an additional warrant for each 30-day period (or a portion thereof) during which
time such Registration Statement has not been filed with the SEC, which additional warrants shall
be issued on the first day of each 30-day period commencing on the Filing Deadline. In addition,
if the Registration Statement required to be filed with the SEC pursuant to Section 3(a)(i) is not
declared effective by the SEC by the Effectiveness Deadline, the Company




Exh B - 4




 









 







shall issue to the Registered Holder an additional warrant for each 30-day period (or a
portion thereof) during which time such Registration Statement has not been declared effective by
the SEC, which additional warrants shall be issued on the first day of each 30-day period
commencing on the Effectiveness Deadline. Each such additional warrant (each, an “Additional
Warrant”) shall be identical to this Warrant, except that: (A) it shall be exercisable for a
number of shares equal to 10% of the number of shares into for which this Warrant may be exercised;
(B) the exercise price shall be 125% of the Exercise Price; and (C) it shall be dated the date the
Company is obligated to issue the Warrant under this Section 3(a)(iii).




     (b) Piggyback Registration.



          (i) If, at any time commencing on the date hereof and expiring on the Expiration Date, the
Company proposes to file a Registration Statement (other than under a Registration Statement
pursuant to Form S-8 or Form S-4) to register its securities, and all of the Registrable Securities
are not then covered by an effective Registration Statement, the Company shall: (A) give written
notice by registered mail, at least 20 days prior to the filing of such Registration Statement to
the Holders of its intention to do so; and (B) include all Registrable Securities in such
Registration Statement with respect to which the Company has received written requests for
inclusion therein within 15 days of actual receipt of the Company’s notice.




          (ii) The Company shall have the right at any time after it shall have given written notice
pursuant to this Section 3(b) (irrespective of whether a written request for inclusion of any
Registrable Securities shall have been made) to elect not to file any such Registration Statement,
or to withdraw the same after the filing but prior to the effective date thereof.




          (iii) If the Registration Statement pursuant to this Section 3(b) relates to a firmly
underwritten public offering and the managing underwriter(s) advise the Company in writing that in
their opinion the number of securities proposed to be included in the Registration Statement
(including the Registrable Securities) exceeds the number of securities which can be sold therein
without adversely affecting the marketability of the public offering, the Company will include in
such Registration Statement the number of securities requested to be included which in the opinion
of such underwriter(s) can be sold without adversely affecting the marketability of the offering,
pro rata among the respective holders of all securities proposed to be included in the Registration
Statement.




     (c) Covenants of the Company with Respect to Registration. In connection with each
Registration under this Section 3, the Company covenants and agrees as follows:



          (i) The Company shall use its best efforts to have any Registration Statement declared
effective at the earliest practicable time. The Company will promptly notify each Holder of
included Registrable Securities and confirm such advice in writing, (A) when such Registration
Statement becomes effective, (B) when any post-effective amendment to such Registration Statement
becomes effective and (C) of any request by the SEC for any amendment or supplement to such
Registration Statement or any prospectus relating thereto or for additional information.




Exh B - 5




 









 








          (ii) The Company shall furnish to each Holder of included Registrable Securities such number
of copies of such Registration Statement and of each such amendment and supplement thereto (in each
case including each preliminary prospectus and summary prospectus) in conformity with the
requirements of the Act, and such other documents as such Holders may reasonably request in order
to facilitate their disposition of the Registrable Securities.




          (iii) If the Company shall fail to comply with the provisions of Sections 3(a), 3(b) and/or
3(c) of this Warrant, the Company shall, in addition to any other equitable or other relief
available to the Holders, be liable for any or all special and consequential damages sustained by
the Holders requesting registration of their Registrable Securities.




          (iv) If at any time the SEC should institute or threaten to institute any proceedings for the
purpose of issuing a stop order suspending the effectiveness of any Registration Statement, the
Company will promptly notify each Registered Holder of Registrable Securities and will use all
reasonable efforts to prevent the issuance of any such stop order or to obtain the withdrawal
thereof as soon as possible.




          (v) The Company will use its good faith reasonable efforts and take all reasonably necessary
action which may be required in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky laws of such states
as reasonably are required by the Holders, provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a foreign corporation to
do business under the laws of any such jurisdiction.




          (vi) The Company shall use its good faith reasonable efforts to cause such Registrable
Securities covered by a Registration Statement to be registered with or approved by such other
governmental agencies or authorities of the United States or any State thereof as may be reasonably
necessary to enable the Holder(s) thereof to consummate the disposition of such Registrable
Securities.




          (vii) The Company shall furnish to each Holder that has included Registrable Securities in a
Registration Statement and to the managing underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date
of such Registration Statement (and, if such Registration Statement includes an underwritten public
offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a
“Cold Comfort” letter dated the effective date of such Registration Statement (and, if such
registration includes an underwritten public offering, a letter dated the date of the closing under
the underwriting agreement) signed by the independent public accountants who have issued a report
on the Company’s financial statements included in such Registration Statement, in each case
covering substantially the same matters with respect to such Registration Statement and, in the
case of such accountants’ letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters
delivered to underwriters in underwritten public offerings of securities.




Exh B - 6




 









 








          (viii) The Company shall deliver promptly to each Holder that has included Registrable
Securities in a Registration Statement and to the managing underwriter, if any, copies of all
correspondence between the SEC and the Company, its counsel or auditors and all non-privileged
memoranda relating to discussions with the SEC or its staff with respect to the Registration
Statement and permit each such Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the Registration Statement
as it deems reasonably necessary to comply with applicable securities laws or rules of the NASD.
Such investigation shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder shall reasonably
request.




          (ix) All expenses incident to the Company’s performance of or compliance with this Warrant,
including without limitation all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public accountants,
underwriters (excluding discounts and commissions) and other Persons retained by the Company will
be borne by the Company. In no event shall the Company be obligated to be pay any discounts or
commissions with respect to the Registrable Shares sold by any Holder. In connection with each
Registration Statement, the Company will reimburse the Holders of included Registrable Securities
for the reasonable fees and disbursements of one counsel chosen by the Holders of a majority of the
included Registrable Securities.




     (d) Indemnification and Contribution.



          (i) The Company shall indemnify each Holder of the Registrable Securities included in any
Registration Statement, each of its officers, directors and agents (including brokers and
underwriters selling Registrable Securities on behalf of the Holder), and each Person, if any, who
controls such Holder within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act against all losses, claims, damages, expenses and/or liabilities (including all expenses
reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act, any state securities laws or
otherwise, arising from such Registration Statement, including, without limitation, any and all
losses, claims, damages, expenses and liabilities caused by (A) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, or (B) any omission or
alleged omission to state in the Registration Statement a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of the circumstances
under which they were made, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Company by the Holder expressly for use therein.




          (ii) If requested by the Company prior to the filing of any Registration Statement covering
the Registrable Securities, each Holder of the Registrable Securities to be included in such
Registration Statement shall severally, and not jointly, indemnify the Company, its officers and
directors and each Person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all losses, claims,




Exh B - 7




 









 







damages, expenses and/or liabilities (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from written information furnished by
such Holder, or their successors or assigns, for specific inclusion in such Registration Statement,
except that the maximum amount which may be recovered from each Holder pursuant to this Section
3(d)(ii) or otherwise shall be limited to the amount of net proceeds received by the Holder from
the sale of the Registrable Securities under such Registration Statement.




          (iii) In case any proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to this Section 3(d),
such Person (an “Indemnified Party”) shall promptly notify the Person against whom such
indemnity may be sought (the “Indemnifying Party”) in writing and the Indemnifying Party
shall assume the defense thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Party, and shall assume the payment of all fees and expenses; provided that the
failure of any Indemnified Party so to notify the Indemnifying Party shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent (and only to the extent) that
the Indemnifying Party is materially prejudiced by such failure to notify. In any such proceeding,
any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party unless (A) the Indemnifying Party
and the Indemnified Party shall have mutually agreed to the retention of such counsel or (B) in the
reasonable judgment of such Indemnified Party representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between them. It is
understood that the Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties (including in the case of Holder, all of its officers, directors and
controlling persons) and that all such fees and expenses shall be reimbursed as they are incurred.
In the case of any such separate firm for the Indemnified Parties, the Indemnified Parties shall
designate such firm in writing to the Indemnifying Party. The Indemnifying Party shall not be
liable for any settlement of any proceeding effected without its written consent (which consent
shall not be unreasonably withheld or delayed), but if settled with such consent, or if there be a
final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any loss or liability (to the extent stated above) by reason
of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of
which any Indemnified Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such proceeding.




          (iv) To the extent any indemnification by an Indemnifying Party is prohibited or limited by
law, the Indemnifying Party agrees to make the maximum contribution with respect to any amounts for
which, he, she or it would otherwise be liable under this Section 3(d) to the fullest extent
permitted by law; provided, however, that (A) no contribution shall be made under circumstances
where a party would not have been liable for indemnification under this Section 3(d) and (B) no
seller of Registrable Securities guilty of fraudulent misrepresentation (within the




Exh B - 8




 









 







meaning used in the Securities Act) shall be entitled to contribution from any party who was
not guilty of such fraudulent misrepresentation.




     (e) Nothing contained in this Warrant shall be construed as requiring the Holders to exercise
their Warrants prior to the filing of any Registration Statement or the effectiveness thereof.



     (f) The Company shall not, directly or indirectly, enter into any merger, business combination
or consolidation in which (i) the Company shall not be the surviving corporation and (ii) the
shareholders of the Company are to receive, in whole or in part, capital stock or other securities
of the surviving corporation, unless the surviving corporation shall, prior to such merger,
business combination or consolidation, agree in writing to assume the obligations of the Company
under this Warrant, and for that purpose references hereunder to “Registrable Securities”
shall be deemed to include the securities which the Holders would be entitled to receive in
exchange for Registrable Securities under any such merger, business combination or consolidation,
provided that to the extent such securities to be received are convertible into shares of Common
Stock of the issuer thereof, then any such shares of Common Stock as are issued or issuable upon
conversion of said convertible securities shall also be included within the definition of
“Registrable Securities.”



     SECTION 4. Definitions. The following terms have the meanings set forth below:



     “Act” means the Securities Act of 1933, as amended.



     “Effectiveness Deadline” shall mean June 17, 2006.



     “Exchange Act” means the Securities Exchange Act of 1934, as amended.



     “Fair Market Value” shall be determined on a per-share basis as of the close of the
business day preceding the date of exercise, which determination shall be made as follows: (a) if
the Common Stock is listed on a national securities exchange or admitted to unlisted trading
privileges on such an exchange or quoted on either the National Market System or the Small Cap
Market of the automated quotation service operated by The Nasdaq Stock Market, Inc., the Fair
Market Value shall be the last reported sale price of that security on such exchange or system on
the day for which the current market price is to be determined or, if no such sale is made on such
day, the average of the highest closing bid and lowest asked price for such day on such exchange or
system; (b) if the Common Stock is not so listed or quoted or admitted to unlisted trading
privileges, the Fair Market Value shall be the average of the last reported highest bid and lowest
asked prices quoted on the Nasdaq Electronic Bulletin Board, or, if not so quoted, then by the
National Quotation Bureau, Inc. on the last business day prior to the day for which the Fair Market
Value is to be determined; or (c) if the Common Stock is not so listed or quoted or admitted to
unlisted trading privileges and bid and asked prices are not reported, the Fair Market Value shall
be determined by the Company’s Board of Directors in its reasonable, good faith judgment.



     “Filing Deadline” shall mean May 17, 2006.



Exh B - 9




 









 








     “Holders” means the Registered Holder, and the registered holders of all other
Warrants (including Additional Warrants) originally issued pursuant to the Loan Agreement, and the
registered holders of the Registrable Securities.



     “Person” means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization or a government or any department
or agency thereof.



     “Registered Holder” means the registered holder of this Warrant.



     “Registrable Securities” means the Warrant Shares and any securities issued with
respect to the Warrant Shares by virtue of a stock dividend, stock split, reclassification or
reorganization, provided that the Warrant Shares and such other securities shall no longer by
Registrable Securities once they have been sold or transferred pursuant to an effective
Registration Statement under the Act or pursuant to Rule 144.



     “Registration” shall mean a registration of Registrable Securities under the Act
pursuant to Section 3 of this Warrant.



     “Registration Statement” shall mean the Registration Statement, as amended from time
to time, filed with the SEC in connection with a Registration, and each prospectus that is used in
connection with such Registration Statement (including any preliminary prospectus).



     “Rule 144” means Rule 144 of the SEC under the Act.



     “SEC” means the United States Securities and Exchange Commission, or any successor
regulatory agency.



     “Warrant” means the right to purchase one or more Warrant Shares pursuant to the terms
of this Warrant, as the same may be transferred, divided or exchanged pursuant to the terms hereof.



     “Warrant Shares” means shares of the Common Stock issuable upon exercise of the
Warrant; provided, however, that if there is a change such that the securities issuable upon
exercise of the Warrant are issued by a Person other than the Company or there is a change in the
class of securities so issuable, then the term “Warrant Shares” shall mean shares of the
security issuable upon exercise of the Warrant if such security is issuable in shares, or shall
mean the equivalent units in which such security is issuable if such security is not issuable in
shares.



     SECTION 5. No Voting Rights; Limitations of Liability. This Warrant shall not entitle
the holder hereof to any voting rights or other rights as a stockholder of the Company. No
provision hereof, in the absence of affirmative action by the Registered Holder to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of the Registered Holder shall give
rise to any liability of such Registrable Holder for the Exercise Price or as a stockholder of the
Company.



     SECTION 6. Warrant Transferable. Subject to compliance with applicable securities
laws and the terms of this Section 6, this Warrant and all rights hereunder are transferable, in



Exh B - 10




 









 







whole or in part, without charge to the Registered Holder upon surrender of this Warrant with
a properly executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company.




     SECTION 7. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Registered Holder at the principal office of the
Company, for new Warrants of like tenor representing in the aggregate the purchase rights
hereunder, and each of such new Warrants shall represent such portion of such rights as is
designated by the Registered Holder at the time of such surrender. The date the Company initially
issues this Warrant shall be deemed to be the “Date of Issuance” hereof regardless of the number of
times new certificates representing the unexpired and unexercised rights formerly represented by
this Warrant shall be issued. All Warrants representing portions of the rights hereunder are
referred to herein as the “Warrants.”



     SECTION 8. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Company, or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at the expense of the Registered Holder) execute
and deliver in lieu of such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.



     SECTION 9. Notices. All notices, requests, deliveries, consents and other
communications provided for herein shall be in writing and shall be effective upon delivery in
person, faxed, or mailed by certified or registered mail, return receipt requested, postage
pre-paid, addressed as follows:



     If to the Company, to:


Attn: John Hanna, CEO

The Fashion House Holdings, Inc.

6210 San Vicente Blvd., #330

Los Angeles, CA 90048-5499



with a copy to:



Richardson & Patel LLP

10900 Wilshire Boulevard, Suite 500

Los Angeles, CA 90024

Attn: Michael D. Donahue

Fax: (310) 208-1154




Exh B - 11




 









 








     If to AMIF, to:


American Microcap Investment Fund 1, LLC

733 Park Avenue, No. 18

New York, New York 10021

Attn: Richard Kaufman

Fax: (646) 619-4599



with a copy to:



Troy & Gould PC

1801 Century Park East, Suite 1600

Los Angeles, CA 90067

Attn: Alan B. Spatz, Esq.

Fax: (310) 789-1431



or, in any case, at such other address or addresses as shall have been furnished in writing to the
Company (in the case of a Registered Holder of Warrants) or to the Registered Holders of Warrants
(in the case of the Company) in accordance with the provisions of this paragraph.




     SECTION 10. Amendment and Waiver. Except as otherwise provided herein, the provisions
of the Warrants may be amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has obtained the written
consent of the Holders representing a majority of the Warrant Shares obtainable upon exercise of
the then-outstanding Warrants; provided, however, that no such action may change the Exercise Price
of the Warrants or the number of shares or class of capital stock obtainable upon exercise of each
Warrant without the written consent of all Holders.



     SECTION 11. Descriptive Headings; Governing Law.



     (a) The descriptive headings of the several Sections of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant.



     (b) All issues and questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by, and construed in accordance with, the laws of
the State of California, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of California or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of California.



     SECTION 12. Warrant Register. The Company shall maintain at its principal executive
office books for the registration and the registration of transfer of this Warrant. The Company
may deem and treat the Registered Holder as the absolute owner hereof (notwithstanding any notation
of ownership or other writing thereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.



     SECTION 13. Fractions of Shares. The Company may, but shall not be required to, issue
a fraction of a Warrant Share upon the exercise of this Warrant in whole or in part. As to



Exh B - 12




 









 







any fraction of a share which the Company elects not to issue, the Company shall make a cash
payment in respect of such fraction in an amount equal to the same fraction of the market price of
a Warrant Share on the date of such exercise (as determined by the board of directors in its
reasonable discretion).




     SECTION 14. Attorneys’ Fees. If any action, suit, arbitration or other proceeding is
instituted to remedy, prevent or obtain relief from a default in the performance by any party to
this Warrant of its obligations under this Warrant, the prevailing party shall recover all of such
party’s attorneys’ fees incurred in each and every such action, suit, arbitration or other
proceeding, including any and all appeals or petitions therefrom. As used in this Section,
attorneys’ fees shall be deemed to mean the full and actual costs of any legal services actually
performed in connection with the matters involved calculated on the basis of the usual fee charged
by the attorney performing such services and shall not be limited to “reasonable attorneys’ fees”
as defined in any statute or rule of court.



     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duly
authorized officers and to be dated as of the Date of Issuance hereof.



	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	THE FASHION HOUSE HOLDINGS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Michael McHugh,	 	 
	 

	 	 	 	Chief Financial Officer	 	 






Exh B - 13




 









 








EXHIBIT I




EXERCISE AGREEMENT




			
	 	 	 
	To:
	 	Dated:






     The undersigned, pursuant to the provisions set forth in the attached Warrant (Certificate No.
W-___), hereby subscribes for the purchase of ___Warrant Shares covered by such Warrant and
makes payment herewith in full therefor at the price per share provided by such Warrant. Please
issue the Warrant Shares in the following names and amounts:



			
	 	 	 
	Name
	 	Number of Warrant Shares






	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Signature	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Address	 	 	 	 
	 

	 	 	 	 	 	 





Exh B - 14




 









 








EXHIBIT II




ASSIGNMENT




     FOR VALUE RECEIVED, ___hereby sells, assigns and transfers all of
the rights of the undersigned under the attached Warrant (Certificate No. W-___) with respect to
the number of the Warrant Shares covered thereby set forth below, unto:



	 	 	 	 	 
	Name of Assignee
	 	Address
	 	No. of Shares






	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Signature	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Witness	 	 	 	 
	 

	 	 	 	 	 	 





The Assignee agrees to be bound by the terms of the Warrant.



	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Signature	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Witness	 	 	 	 
	 

	 	 	 	 	 	 





Exh B - 15




 









 








SCHEDULE A



Capitalization of The Fashion House Holdings, Inc.


[must be provided no later than February 1, 2006]