Document:

exv4w11

 

Exhibit
4.11

Warrant

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 on
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: September 15
	 	Certificate No. A-1

     For value received, The Fashion House Holdings, Inc., a Colorado corporation (the
“Company”), hereby grants to Westrec Capital Partners, LLC, a Delaware limited liability
company (“Westrec”), or its permitted transferees and assigns, the right to purchase from
the Company a total of Five Million (5,000,000) shares of the Company’s common stock (“Common
Stock”), at a price per share equal to $0.65 (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 and Section
3(a)(iii) hereof. This Warrant is being issued in connection with that certain Credit Enhancement
Agreement between Westrec and the Company dated as of
September 15, 2006 (the
“Agreement”). Certain capitalized terms used herein are defined in Section 4 hereof;
capitalized terms used but not defined herein have the meanings ascribed to them in the Agreement.

     This Warrant is subject to the following provisions:

     SECTION 1. Exercise of Warrant.

          (a) Terms of Warrant; Exercise Period. Subject to the terms of this Agreement, the
Registered Holder shall have the right, commencing on the date hereof and expiring at 11:59 P.M.
PST on the seven-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 that the Registered Holder may at the time otherwise be entitled to receive on 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 as to any then
unexercised Warrant Shares, and all rights hereunder in respect of such then unexercised Warrant
Shares under this Warrant shall cease as of the Expiration Date.

          (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:

 

 

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

               (B) this Warrant; and

               (C) either (I) a wire transfer or 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
(a “Net Exercise”).

          (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).

     (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

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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) Vesting of Warrant Shares. This Warrant may be exercised from time to time only as
to Warrant Shares that have previously vested at the time this Warrant is exercised. The Warrant
Shares (as initially stated above to aggregate five million in number, the “Initial Number”) shall
vest hereunder in the following percentages on the following dates: 20% of the Initial Number
immediately on the date hereof; and an additional 20% of the Initial Number on each of the 60th day
after the date hereof, and on each succeeding 30th day thereafter, such that the entire Initial
Number of Warrant Shares shall vest on the 151st day after the date hereof Notwithstanding the
foregoing sentence, however, (i) no previously unvested Warrant Shares shall vest hereunder after
the Agreement Termination Date (as defined in the Agreement), and (ii) the maximum number of
Warrant Shares vested under this Section 2(a) shall not exceed (at any time such number is
calculated) the number equal to the product of (A) the highest amount of Aggregate Principal Owed
(as defined in the Agreement) previously outstanding (at the time such number is calculated) (the
“Highest Draw Amount”), times (B) the aggregate percentage of Warrant Shares vested under
the previous sentence, it being the intention of the Company and Westrec that the maximum number of
Warrant Shares that can possibly vest under this Section 2(a) shall be the lesser of Five Million
or the number equal to the number of dollars in the Highest Draw Amount. By way of illustration of
this Section 2(a), if the Agreement Termination Date occurs after the 90th day following the date
hereof but before the 121stth day following the date hereof and the Highest Draw Amount
prior to the Agreement Termination Date is $3,500,000, the maximum number of Warrant Shares that
would have vested under this Section 2(a) would be 2,100,000 (i.e., 60% of 3,500,000).

          (b) Conditional Increases in Vested Warrant Shares. The number of Warrant Shares
subject to this Warrant shall be increased by each of the following amounts: if the Agreement
Termination Date (as defined in the Agreement) has not occurred on the 180th day following the
Closing (as defined in the Agreement), an additional number of Warrant Shares equal to 3% of the
Warrant Shares vested under Section 2(a); plus if the Agreement Termination Date has not occurred
on the 210th day following the Closing, an additional number of Warrant Shares equal to 5% of the
Warrant Shares vested under Section 2(a); plus if the Agreement Termination Date has not occurred
on the 240th day following the Closing, an additional number of Warrant Shares equal to 8% of the
Warrant Shares vested under Section 2(a); plus if the Agreement Termination Date has not occurred
on the 270th day following the Closing, an additional number of Warrant Shares equal to 10% of the
Warrant Shares vested under Section 2(a) on each of the 271st day following the Closing plus on
each thirty (30) days thereafter until the Agreement Termination Date occurs. All Warrant Shares
arising under this Section 2(b) shall be immediately, automatically and fully vested, and shall be
in addition to any Warrant Shares

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that may have become, or may thereafter become, vested under Section 2(a) or elsewhere
hereunder.

          (c) 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(d) 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 Date to purchase, at a total price equal to that
payable upon the exercise of this Warrant (subject to adjustment of the then-applicable 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 then-applicable Exercise Price payable hereunder,
provided the aggregate purchase price shall remain the same.

          (d) Subdivisions, Combinations and Other Issuances. If the Company shall at any time
prior to the Expiration Date (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 on the exercise of this Warrant shall forthwith be proportionately increased in the case
of a subdivision or stock dividend, or proportionately decreased in the case of a combination.
Appropriate adjustments shall also be made to the then-applicable Exercise 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(d) shall
become effective at the close of business on the date that the subdivision, combination, issuance
or other event triggering such adjustment becomes effective, or in the case of dividends as of the
record date of such dividend, or in the event that no dividend record date is fixed, upon the
making of such dividend.

          (e) Additional Anti-Dilution Provision. This Section 2(e) shall apply and control
notwithstanding anything to the contrary expressed or implied herein. If the Company effects any
transaction that is not covered by Section 2(c) or Section 2(d) above and that includes (or has the
direct or indirect effect of) an issuance of Common Stock or warrants, options or other rights to
acquire Common Stock or other securities convertible into Common Stock (collectively, “Equity
Securities”) at a per share price that is less than the then-applicable Exercise Price
hereunder (a “Reduced Share Price”), the then-applicable Exercise Price hereunder shall
automatically then be such Reduced Share Price, and the then-applicable number of Warrant Shares
hereunder, including, without limitation, each of the then-applicable numbers of increased Warrant
Shares set forth in Section 2(b) and in Section 3(a)(iii)above, shall be increased in each case to
the number that results from dividing the number in question by a fraction, the numerator of which
is the Reduced Share Price and the denominator of which is the then-applicable Exercise Price. If
the Company effects any transaction that is covered by Section

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2(c) or Section 2(d) above and that includes (or has the direct or indirect effect of) an
issuance of Equity Securities at a Reduced Share Price, the number of Warrant Shares and the
then-current Exercise Price shall be adjusted as set forth in such Sections, unless the increase to
the number of Warrant Shares and the reduction of the then-current Exercise Price would be less
than would occur under the previous sentence, in which case, the previous sentence shall apply in
lieu of such increase and reduction determined under Section 2(c) or 2(d) as the case may be. This
Section 2(e) shall not apply, however, to the issuance or sale of Common Stock pursuant to options
or warrants therefor outstanding and disclosed to Westrec on or before the date hereof.

          (f) 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.

          (g) 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)(i) 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.

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               (iii) If 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, for each day after the Filing Deadline
until such registration statement is filed, the number of Warrant Shares shall be automatically
increased by the number equal to the result of (A) 3% of the Warrant Shares vested under Section
2(a), divided by (B) thirty (30) (the “Delay Warrant Share Number”). In addition, if the
SEC does not declare the Registration Statement required to be filed with the SEC pursuant to
Section 3(a)(i) effective by the Effectiveness Deadline, for each day after the Effectiveness
Deadline until the SEC declares such registration statement effective, the number of Warrant Shares
shall also be automatically increased by the Delay Warrant Share Number. All Warrant Shares arising
under this Section 3(a)(iii) shall be immediately, automatically and fully vested, and shall be in
addition to any Warrant Shares that may have become, or may thereafter become, vested under Section
2(a) or elsewhere hereunder.

     (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
Registration 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 underwriters) 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

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or supplement to such Registration Statement or any prospectus relating thereto or for
additional information.

               (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.

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               (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 Agreement,
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 (I) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, or (II) 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 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, 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

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

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          (e) Nothing contained in this Agreement 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 Agreement, 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 the 120th day following the filing of the
registration statement called for in Section 3(a)(i) hereof.

     “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 the The Nasdaq Stock Market, the Fair Market Value
shall be the last reported sale price of that security on such exchange or system on such day 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 such day; 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 mutual agreement of Registered
Holder and the Company; provided, however, that if they fail to reach such a mutual agreement
within fifteen (15) days, Registered Holder shall designate an independent third-party appraiser to
determine the Fair Market Value, the determination of which shall be conclusive and binding upon
Registered Holder and the Company, and the fees and expenses of which shall be borne by the
Company.

     “Filing Deadline” shall mean the 90th day following the earlier of (i) the Agreement
Termination Date (as defined in the Agreement) or (ii) the date that is 180 days following the
Closing (as defined in this Agreement).

10

 

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

     “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 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.

11

 

     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:

The Fashion House Holdings, Inc.

6310 San Vicente Boulevard, Suite 330

Los Angeles, CA 90048-5499

Attn: John Hanna, CEO

     If to Westrec, to:

Westrec Capital Partners, LLC

16633 Ventura Boulevard, Sixth Floor

Encino, CA 91436

Attn: Gregory C. McPherson Fax: (818) 907-1104

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.

12

 

     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 Agreement 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 any
fraction of a share that 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 Agreement of its obligations under this Agreement, 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:	 	/s/ Mike
McHugh 
	 	 
	 

	 	Name:
	 	Mike McHugh
	 	 
	 

	 	Title:	 	Chief Financial Officer	 	 

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

     The
undersigned elects to pay the exercise price by Net Exercise:
                     Yes                      No

	 	 	 	 	 	 	 
	 

	 	Signature	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	Address	 	 	 	 
	 

	 	 	 	 	 	 

 

 

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	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Witnessexv10w11

 

EXHIBIT 10.11

LOAN AGREEMENT

     THIS LOAN AGREEMENT (this “Agreement”), is executed as of April 1, 2005, by
and among The Fashion House, Inc., a Delaware corporation (the “Company”), and The
Elevation Fund, LLC, a Delaware limited liability company (the “Lender”).

     WHEREAS, the Company is preparing to conduct a private placement offering (the “Private
Placement”) simultaneously with a reverse triangular merger (the “Merger”)
with and into a wholly-owned subsidiary of a publicly traded company (the “Public Company
Parent”) whereby the Company will survive such Merger;

     WHEREAS, in order to fund the Company’s operations until such Offering and Merger are
completed, the Company wishes to borrow up to $625,000 from the Lender as a short term bridge
loan; and

     WHEREAS, the Lender is willing to provide such financing on terms and conditions as set forth
herein.

     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. Certain capitalized terms used in this Agreement shall
have the specific meanings defined below:

     “Additional Loan Closing Date” shall mean the date upon which the Additional
Loan is made to the Company.

     “Business Day” shall mean a day other than a Saturday, Sunday, or other day
on which commercial banks are authorized or required by law to close.

     “Excluded Securities” shall mean (i) securities issued in connection with the
Private Placement; (ii) securities issued upon conversion of any securities outstanding on the
closing date of the Merger; (iii) securities issued pursuant to the acquisition of another
business or business segment of any such entity by the Public Company Parent by merger, purchase
of substantially all the assets or other reorganization whereby the Public Company Parent will own
more than fifty percent (50%) of the voting power of such business entity or business segment of
any such entity; (iv) securities issued to employees, consultants, officers, directors or advisors
of the Public Company Parent pursuant to any stock option, stock purchase or stock bonus plan,
agreement or arrangement approved by the Board of Directors of the Public Company Parent; (v)
securities issued in connection with obtaining lease financing, whether issued to a lender,
lessor, guarantor or other person and approved by the Board of Directors of the Public Company
Parent; (vi) securities issued to leasing companies, landlords and other providers of goods and
services

 

 

to the Company and approved by the Board of Directors; (vii) securities issued in connection with
any stock split, stock dividend or recapitalization of the Public Company Parent; (viii) securities
issued in connection with strategic transactions involving the Public Company Parent and other
entities, including (A) joint ventures, manufacturing, marketing or distribution arrangements or
(B) technology license, transfer or development arrangements; provided that such strategic
transactions and the issuance of shares therein, have been approved by the Board of Directors of
the Public Company Parent; and (ix) any right, option or warrant to acquire any security
convertible into the securities pursuant to subsections (i) through (viii) above.

     “Initial Loan Closing Date” shall mean the date upon which the Initial Loan is
made to the Company.

     “Interest Rate” shall mean the highest prime rate of interest per annum
published in the Money Rate Table of the Western Edition of The Wall Street Journal, as adjusted on
a daily basis, plus five percent (5%) per annum, compounded annually.

ARTICLE 2

THE LOAN

     2.1 Initial Loan. According to the terms and subject to the conditions of this
Agreement, the Lender shall make a single-installment loan to the Company on the Initial Loan
Closing Date in the amount of $500,000 (the “Initial Loan”), any may advance
an additional
Loan, at the Lender’s option and accordance with the terms set forth in Section 2.2, in the amount
of $125,000 (the “Additional Loan”) (the Initial Loan and the Additional Loan, if
any, shall be referred to collectively as the “Loan”). The Initial Loan shall be
evidenced by a promissory note in the form attached hereto as Exhibit A
(“Note”), duly executed on behalf of the Company and dated as of the Initial
Loan Closing Date.

     2.2 Additional Loan. Provided there is no Event of Default under this
Agreement, the Company may notify the Lender in writing at any time after 30 days from the Initial
Loan Closing Date that the Company wishes to borrow the Additional Loan. The Lender shall have the
sole option of making the Additional Loan. The Additional Loan shall be evidenced by a Note, duly
executed on behalf of the Company and dated as of the Additional Loan Closing Date.

     2.3 Interest. The Loan shall bear interest (“Interest”) from
the date of payment by the Lender until the Maturity Date at the Interest Rate (calculated on the
basis of the actual number of days elapsed over a year of 360 days). Interest is payable by the
Company on a monthly basis in arrears on the first Business Day of the month. Notwithstanding
anything to the contrary, in no event shall the Interest Rate be less than 10.75% per annum, nor
shall the Interest Rate be adjusted to exceed the maximum amount permitted by applicable law.

     2.4 Prepayment of the Loan. The Company may from time to time prepay all or
any portion of the Loan without premium or penalty of any type. The Company shall give the Lender
at least three Business Day prior written notice of its intention to prepay the Loan, specifying
the date of payment and the total amount of the Loan to be paid on such date.

2

 

     2.5 Maturity Date. 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 earlier of (a) the date that is 90 days following the Initial Loan Closing Date or
(b) the closing date of the Merger. In the event that the Merger is not consummated within 90 days
after the Initial Loan Closing Date, the Lender may, at the Lender’s option, extend the Maturity
Date on such terms and conditions as determined by the Lender in its sole discretion.

     2.6 Fees. The Company shall pay a fee (the “Origination Fee”) to
the Lender on the Closing Date in the amount of $20,000. The Company agrees to pay an
additional Origination Fee to the Lender in the amount of $5,000 upon funding of the Additional
Loan, if any. Such amount shall be fully earned by the Lender when paid, and shall not be
refundable to the Company under any circumstances.

ARTICLE 3

CONDITIONS PRECEDENT TO THE LOAN

     3.1 Conditions on the Initial Loan Closing Date. The obligation of the Lender
to make the Initial Loan pursuant to Section 2.1 shall be subject to the satisfaction, on or
before the Initial Loan Closing Date, of the conditions set forth in this Section. If the
conditions set forth in this Section are not met on or prior to the Initial Loan Closing Date, the
Lender shall have no obligation to make the Initial Loan.

          (a) The Company shall have duly executed and delivered to the Lender the Note representing
the Initial Loan.

          (b) The Company shall have duly authorized, executed, and delivered to the Lender a security
agreement in the form attached hereto as Exhibit B (the “Security Agreement”)
to secure the repayment of the Loan and granting the Lender a continuing security interest in
all presently existing and hereafter acquired assets and property of the Company of whatever
nature and wherever located (except for any such assets for which, by the terms of any agreement
in existence on the date hereof, does not permit the granting of a security interest, in which
case the Company shall grant to the Lender in the Security Agreement a security interest in all
proceeds received by the Company generated by such assets), which such Security Interest shall be
senior to all other security interests or encumbrances against the assets and property of the
Company, with the exception of the Consignment Agreement between the Company and Itochu
International, Inc.

          (c) The Company shall have delivered to the Lender a duly executed opinion of counsel to the
Company in form and substance reasonably acceptable to the Lender.

          (d) The Lender shall have received on or before the Initial Loan Closing Date an Officer’s
Certificate in the form attached hereto as Exhibit C, dated as of the Initial Loan
Closing Date.

     3.2 Conditions on the Additional Loan Closina Date. The obligation of the
Lender to make the Additional Loan pursuant to Section 2.2 shall be subject to the satisfaction,
on or before the date on which such Loan is made, of the conditions set forth in this Section. If
the

3

 

conditions set forth in this Section are not met on or prior to such date, the Lender shall
have no obligation to make the Additional Loan.

          (a) The Company shall have duly executed and delivered to the Lender the Note representing
the Additional Loan.

          (b) The Company shall have delivered to the Lender a duly executed opinion of counsel to the
Company in form and substance reasonably acceptable to the Lender.

          (c) The Lender shall have received on or before the Additional Loan Closing
Date an Officer’s Certificate in the form attached hereto as Exhibit C, dated
as of the Additional
Loan Closing Date.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

     4.1 Due Incorporation and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of Delaware, with
full and adequate power to carry on and conduct its business as presently conducted, and is duly
licensed or qualified in all foreign jurisdictions wherein the failure to be so qualified or
licensed would reasonably be expected to have a material adverse effect on the business of the
Company.

     4.2 Due Authorization. The Company has full right, power and authority to
enter into this Agreement, to make the borrowings hereunder and execute and deliver the Note as
provided herein and to perform all of its duties and obligations under this Agreement and the
Note. The execution and delivery of this Agreement will not, nor will the observance or
performance of any of the matters and things herein or therein set forth, violate or contravene
any provision of law or the Company’s bylaws or certificate of incorporation. All necessary and
appropriate corporate action on the part of the Company has been taken to authorize the execution
and delivery of this Agreement. Within five days of the execution of this Agreement, the Company
will deliver to the Lender a copy of the minutes of the meeting of the Company’s Board of
Directors authorizing the Company to enter into this Agreement, to make the borrowings as provided
herein, and to perform all of its duties and obligations under this Agreement.

     4.3 Enforceability. This Agreement has been validly executed and delivered by
the Company and constitutes the legal, valid and binding obligations of the Company 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.

     4.4 Capitalization. All of the Company’s authorized and outstanding equity
securities (including securities convertible into equity securities) are identified on
Schedule A attached hereto. Other than as set forth on Schedule A, there
are no outstanding shares of capital stock or any options, warrants or other preemptive rights,
rights of first refusal or similar rights to purchase equity securities of the Company.

     4.5 Subsidiaries. The Company owns no securities of any other entity, and,
except as set forth in this Section 4.5, there are no outstanding shares of capital stock or any other

4

 

warrants or other preemptive rights, rights of first refusal or similar rights to purchase
equity securities of any other entity.

     4.6 Compliance with Laws. The nature and transaction of the Company’s
business and operations and the use of its properties and assets do not, and during the term of
this Agreement shall not, violate or conflict with in any material respect any applicable law,
statute, ordinance, rule, regulation or order of any kind or nature.

     4.7 Absence of Conflicts. The execution, delivery and performance by the
Company of this Agreement, and the transactions contemplated hereby, do not constitute a breach
or default, or require consents under, any agreement, permit, contract or other instrument to
which the Company is a party, or by which the Company is bound or to which any of the assets of
the Company is subject, or any judgment, order, writ, decree, authorization, license, rule,
regulation, or statute to which the Company is subject, and, except as set forth in the Security
Agreement, will not result in the creation of any lien upon any of the assets of the Company.

     4.8 Litigation and Taxes. There is no litigation or governmental proceeding
pending, or to the best knowledge of the Company after due inquiry, threatened, against the Company.
The Company has duly filed all applicable income or other tax returns and has paid all
material
income or other taxes when due. There is no controversy or objection pending, or to the best
knowledge of the Company after due inquiry, threatened in respect of any tax returns of the
Company.

     4.9 No Omissions or Misstatements. None of the information included in this
Agreement, other documents or information famished or to be furnished by the Company, or any of
its representations, contains any untrue statement of a material fact or is misleading in any
material respect or omits to state any material fact. Copies of all documents referred to in
herein have been delivered or made available to the Lender and constitute true and complete
copies thereof and include all amendments, schedules, appendices, supplements or modifications
thereto or waivers thereunder.

ARTICLE 5

COVENANTS

     5.1 Negative Covenants of the Company. The Company covenants and agrees
that, from the Initial Loan Closing Date until the Maturity Date (and, in any event, during such
time as any portion of the Loan or any Interest thereon is outstanding), without the consent of
the Lender, the Company will not:

          (a) create, incur, assume or suffer to exist any indebtedness that is in any way senior or
superior to this Agreement or the indebtedness represented hereby;

          (b) except for the Merger, merge or consolidate with or into any other corporation or sell
or otherwise convey 25% or more of its assets;

          (c) in a single transaction or series of related transactions, effect a significant
acquisition of any business or entity (for purposes hereof, a “significant” acquisition shall be?

5

 

determined in accordance with Instructions 2, 3 and 4 or Item 2 of Form 8-K of the Securities
and Exchange Commission);

          (d) engage in any business other than the business conducted by the Company on the Initial
Loan Closing Date;

          (e) declare, set aside or pay any dividend or other distribution on any of its
capital stock;

          (f) engage in any transaction with any Affiliate (as such term is defined in Rule 501(b) of the
Securities Act of 1933, as amended) on terms less favorable to the Company than could be obtained
from an unrelated party; or

          (g) amend its Certificate of Incorporation or Bylaws in any manner that adversely affects the
rights associated with this Agreement, the Common Stock or the Warrant.

          The Company will give notice to the Lender of any default under any provisions of this
Agreement within three business days after the discovery by the Company of such default.

     5.2 Affirmative Covenants of the Company. The Company covenants and agrees
that, from the Initial Loan Closing Date until the Maturity Date (and, in any event, during such
time as any portion of the Loan or any Interest thereon is outstanding), the Company shall:

          (a) operate its business only in the ordinary course and maintain its properties and assets
in good repair, working order and condition;

          (b) cause to be done all things reasonably necessary to maintain, preserve and renew its
corporate existence and all material licenses, authorizations and permits necessary to the conduct
of its businesses;

          (c) comply with all applicable laws, rules and regulations of all governmental authorities,
the violation of which could reasonably be expected to have a material adverse effect on its
business, properties or prospects;

          (d) deliver to the Lender within 10 days after the end of each fiscal month and within 30
days of the end of each fiscal quarter, unaudited consolidated financial statements (including
balance sheets, statements of income and loss, statements of cash flow and statements of
shareholders’ equity) all in reasonable detail, fairly presenting the financial position and the
results of operations of the Company as of the end of and through such periods, prepared in
accordance with generally accepted accounting principles, consistently applied in the United
States and consistent with past practice;

          (e) deliver to the Lender the Company’s audited annual financial statements
and the Company’s annual budget, and allow the Lender reasonable access during normal
business hours to visit the Company and inspect the financial records of the Company; and

          (f) provide the Lender with at least 10 days’ written notice of any meeting of the Board of
Directors of the Company and permit the
Lender to designate an individual

6

 

attend such meeting, including any adjournment thereof, as an observer. In addition, the
Lender’s designee shall receive all written material disseminated to the Board of Directors in
advance, during or following any meeting, whether or not the designee was in attendance. The
Lender’s designee shall receive the same compensation as is paid to the members of the Board of
Directors in connection with such designee’s attendance of meetings of the Board of Directors.

ARTICLE 6

DEFAULT

     6.1 Events of Default. The occurrence of any of the following events (each an
“Event of Default”), not cured in the applicable cure period, if any, shall
constitute and Event of Default of the Company:

          (a) a breach of any representation, warranty, covenant or other provision of this Agreement,
the Note, or the Security Agreement, which, if capable of being cured, is not cured within three
days following notice thereof to the Company;

          (b) the failure to make when due any payment described in this Agreement or the Note, whether
on or after the Maturity Date, by acceleration or otherwise; and

          (c) (i) the application for the appointment of a receiver or custodian for the Company or the
property of the Company, (ii) the entry of an order for relief or the filing of a petition by or
against the Company under the provisions of any bankruptcy or insolvency law, (iii) any assignment
for the benefit of creditors by or against the Company, or (iv) the Company becomes insolvent.

     6.2 Effect of Default. Upon the occurrence of any Event of Default that is
not cured within any applicable cure period, the Lender may elect, by written notice delivered to
the Company, to take any or all of the following actions: (i) declare this Agreement terminated
and the outstanding amounts under the Note to be forthwith due and payable, whereupon the entire
unpaid Loan, together with accrued and unpaid Interest thereon, and all other cash obligations
hereunder, shall become forthwith due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived by the Company, anything
contained herein or in any of the Note to the contrary notwithstanding, and (ii) exercise any and
all other remedies provided hereunder or available at law or in equity upon the occurrence and
continuation of an Event of Default. In addition, during the occurrence of any Event of Default,
the Company shall not pay make any payment on any other outstanding indebtedness of the Company
(other than indebtedness of the Company to which the Lender has agreed in writing to subordinate
this Agreement and the Note hereunder).

ARTICLE 7

WARRANT

     7.1 Issuance of Warrant. On the closing date of the Merger, the Company shall
cause the Public Company Parent, by including a condition to the closing of the Merger in the
merger agreement, to issue to the Lender a Common Stock Purchase Warrant (the
“Warrant”) in the form attached hereto as Exhibit D. The Warrant
shall be immediately convertible into commorn7stock of the Public Company Parent on a one-to-one
basis proportionate to the Loan amo

7

 

(e.g., if the Loan amount is $625,000, the Lender shall receive a Warrant to purchase
625,000 shares of common stock) and the exercise price of the Warrant shall be equal to a 20% discount
from the price per share of the securities sold in the Private Placement (e.g., if the price of
securities sold in the Private Placement is $1.25 per share, the exercise price of the
Warrant shall
be $1.00 per share).

     7.2 Registration of Shares Underlying Warrant.

          (a) The Company shall cause the Public Company Parent, by including a covenant in the merger
agreement for the Merger covering the obligations under this Section 7.2, to prepare and, as soon
as practicable, but in no event later than 75 days following the closing date of the Merger (the
“Filing Deadline”), file with the Securities and Exchange Commission (the
“SEC”) a registration statement on Form SB-2 covering the resale of all the shares
underlying the Warrant (the “Registrable Securities”). In the event that
Form SB-2 is unavailable for such a registration, the Public Company Parent 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 Public
Company Parent 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 Public Company Parent 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 date which is 180 days following closing date of the Merger (the
“Effectiveness Deadline”).

          (b) In the event the registration statement required to be filed with the SEC
pursuant to Section 7.2(a) is not filed with the SEC by the Filing Deadline, the Company shall
cause the Public Company Parent to issue to the Lender additional warrants
(“Additional Warrants”) in an amount equal to 10% of the number of Warrants to be issued to the
Lender pursuant to Section 7.1 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, in
the event the registration statement required to be filed with the SEC pursuant to Section 7.2(a)
is not declared effective by the SEC by the Effectiveness Deadline, the Company shall cause the
Public Company Parent to issue to the Lender Additional Warrants in an amount equal to 10% of the
number of Warrants to be issued to the Lender pursuant to Section 7.1 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 and commencing on the
Effectiveness Deadline. The Additional Warrants, if any, will be issued to the Lender pursuant to
a common stock purchase warrant in substantially the form as the Warrant, except that the exercise
price for such Additional Warrants shall be the price at which securities are sold in the Private
Placement.

          (c) All expenses incident to the filing of the registration statement required by Section 7.1,
including without limitation all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing
expenses, messenger and deliveryexpenses, and fees and disbursements of counsel for the Public
Company Parent and llindependent certified public accountants, underwriters (excluding discounts
and commissions

8

 

and other professionals retained by the Public Company Parent will be borne by the Public
Company Parent. In no event shall the Public Company Parent be obligated to be pay any discounts or
commissions with respect to the shares sold by any holder of Registrable Securities. In connection
with any registration statement, the Company shall cause the Public Company Parent to reimburse the
holders of Registrable Securities covered by such registration for the reasonable fees and
disbursements of one counsel chosen by the holders of a majority of the Registrable Securities
initially requesting such registration.

          (d) In the event of an underwritten registered offering the managing underwriter(s) advise the
Public Company Parent in writing that in their opinion the number of Registrable Securities exceeds
the number of Registrable Securities which can be sold therein without adversely affecting the
marketability of the offering, the Company will cause the Public Company Parent to include in such
registration the number of Registrable 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 thereof on the basis of the amount of Registrable Securities
owned by each such holder. In the event the number of shares available under a registration
statement filed pursuant to Section 7.1 is insufficient to cover 100% of the Registrable Securities
required to be covered by such registration statement, the Company shall cause the Public Company
Parent to amend the registration statement, or file a new registration statement (on the short form
available therefor, if applicable), or both, so as to cover 100% of the number of such Registrable
Securities as soon as practicable but in any event not later than 45 days after the necessity
therefor arises. The Company shall cause the Public Company Parent to use it reasonable best
efforts to cause such amendment or new registration statement to become effective as soon as
practicable following the filing thereof.

ARTICLE 8

MISCELLANEOUS

     8.1 Successors and Assigns. Subject to the exceptions specifically set
forth in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective executors, administrators, heirs, successors and assigns of the
parties. This Agreement may be assigned solely by the Lender.

     8.2 Titles and Subtitles. The titles and subtitles of the Sections of this
Agreement are used for convenience only and shall not be considered in construing or interpreting
this agreement.

     8.3 Notices. Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or by facsimile (receipt confirmed
electronically) or shall be sent by a reputable express delivery service or by certified mail,
postage prepaid with return receipt requested, addressed as follows:

9

 

if to the Company. to:

The Fashion House, Inc.

6310 San Vicente Blvd.

Suite 330

Los Angeles, CA 90048

Attn: John Hanna

Fax: (310) 939-3052

with a copy to:

Richardson & Patel LLP 10900

Wilshire Boulevard
Suite 500

Los Angeles, CA 90024 Attn:

Michael D. Donahue Fax: (310)

208-1154

if to the Lender, to:

The Elevation Fund, LLC 8400

East Prentice Avenue

Penthouse, Suite 1500

Greenwood Village, CO 80111

Attn: Lance J. Baller

Fax: (303) 265-9382

with a copy to:

Brownstein Hyatt & Farber, P.C. 410

Seventeenth Street, 22nd Floor

Denver, CO 80202

Attn: Adam J. Agron

Fax No.: (303) 223-1111

Either party hereto may change the above specified recipient or mailing address by notice to the
other party given in the manner herein prescribed. All notices shall be deemed given on the day
when actually delivered as provided above (if delivered personally or by facsimile, provided that
any such facsimile is received during regular business hours at the recipient’s location) or on
the day shown on the return receipt (if delivered by mail or delivery service).

     8.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Colorado without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Colorado or any other
jurisdiction) that would cause the application of the laws of any jurisdiction other than the
State of Colorado.

     8.5 Waiver and Amendment. Any term of this Agreement may be amended, waived or
modified with the written consent of the Company and the Lender.

10

 

     8.6 Remedies. No delay or omission by the Lender in exercising any of
its rights, remedies, powers or privileges hereunder or at law or in equity and no course of
dealing between the Lender and the undersigned or any other person shall be deemed a waiver by the
Lender of any such rights, remedies, powers or privileges, even if such delay or omission is
continuous or repeated, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise thereof by the Lender or the exercise of any
other right, remedy, power or privilege by the Lender. The rights and remedies of the Lender
described herein shall be cumulative and not restrictive of any other rights or remedies available
under any other instrument, at law or in equity.

     8.7 Expenses. The Company shall pay all costs and expenses incurred by the Lender
in connection with the negotiation and preparation of the documents contemplated by this
Agreement (including reasonable attorneys’ fees); provided, however, that the Company’s shall
not be required to reimburse the Lender for any amount in excess of 55,000 in the aggregate.

     8.8 Right of Participation. For a period of three years following the date
hereof, the Company shall cause the Public Company Parent, by including a covenant in the merger
agreement for the Merger, to provide the Lender with a first right to purchase up to 50% of any
equity or equity linked securities (including derivative and convertible securities) to be issued
by the Public Company Parent on the same terms as such securities are offered to all other parties
(related or otherwise) during such three year period. This right of participation shall not apply
to any
Excluded Securities.

11

 

     IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name on the date
first set forth above.

	 	 	 	 	 
	 	THE FASHION HOUSE, INC. 

 	 
	 	By:  	John Hanna
 	 
	 	 	Chief Executive Officer 	 
	 	 	 	 
	 
	 	THE ELEVATION FUND, LLC

 	 
	 	By:  	 	 
	 	 	Lance J. Baller 	 
	 	 	Fund Manager 	 

12

 

	 	 	 	 	 

     IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name on the date
first set forth above.

	 	 	 	 	 
	 	THE FASHION HOUSE, INC

 	 
	 	By:  	 	 
	 	 	John Hanna 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	                              /s/ Lance J. Baller
 	 
	 	 	Lance J. Baller 	 
	 	 	Fund Manager 	 
	 
	 	THE ELEVATION FUND, LLC

Chief Executive Officer

 	 
	 	 	 
	 	 	 
	 	 	 

13

 

	 	 	 	 	 

SCHEDULE A

CAPITALIZATION

14

 

The Fashion House, Inc.

Capitalization

15

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Shareholder Name	 	 	Shares	 	 	 	Percent	 	 
	 	John Hanna
	 	 	 	4,900	 	 	 	 	49.0	%	 
	 	Christopher Thomas Wyatt
	 	 	 	4,900	 	 	 	 	49.0	%	 
	 	Martin Simone and Leslie J. Frank
	 	 	 	200	 	 	 	 	2.0	%	 
	 	Total
	 	 	 	10,000	 	 	 	 	 	 	 
	 

16

 

EXHIBIT A

PROMISSORY NOTE

See attached.

17

 

EXHIBIT B

SECURITY AGREEMENT

See attached.

18

 

EXHIBIT C

OFFICER’S CERTIFCATE

See attached.

19

 

EXHIBIT D

COMMON STOCK PURCHASE WARRAINT

See attached.

20

 

The securities represented by this Warrant and issuable upon exercise hereof 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 on 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:
	 	, 2005 Certificate No. W-1
	 

     For value received,                      , a                      (the “Company”), hereby grants to
The Elevation Fund, LLC, a Delaware limited liability company or its permitted transferees
and assigns (“Elevation”), the right to purchase from the Company a total of                     shares of the
Company’s common stock, par value $                      per share (“Common Stock”), at a price per share of
equal to $                      (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 Loan Agreement between Elevation and The Fashion House, Inc. of even date
herewith (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
Agreement,
the Registered Holder shall have the right, commencing on the date hereof and expiring on the
10 year anniversary hereof (the “Expiration Date”), to exercise this Warrant, in
whole or in part, and receive from the Company the number of Warrant Shares which the Registered
Holder may at the time be entitled to receive on 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 Agreement 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:

 

 

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

               (B) this Warrant;

               (C) if this Warrant is not registered in the name of the Registered Holder, an Assignment or
Assignments in the form set forth in Exhibit II hereto evidencing the assignment of this
Warrant to the Registered Holder, in which case the Registered Holder shall have complied with the
provisions set forth in Section 6 hereof, and

               (D) either (x) 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”), (y) 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 (z). 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 assist and cooperate with the Registered Holder or any Registered
Holder required to make any governmental filings or obtain any governmental approvals prior to or
in connection with any exercise of this Warrant.

               (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

2

 

Warrant, the maximum number of Warrant Shares issuable upon the exercise of this Warrant. All
Warrant Shares which 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).

          (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. Such Exercise Agreement shall be dated the actual date of execution thereof.

     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

3

 

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 on 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.

          (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)
Piggyback Registration.

               (i) If, at any time commencing on the date hereof and expiring on the Expiration Date, the
Company prepares and files a Registration Statement under the Act or otherwise registers
securities under the Act as to any of its securities (other than under a Registration Statement
pursuant to Form S-8 or Form S-4) (each such filing, a “Registration Document”),
it will give written

4

 

notice by registered mail, at least 20 days prior to the filing of such Registration Document
to the Registered Holders of the Registrable Securities of its intention to do so. The Company
shall include all Registrable Securities in such Registration Documents with respect to which the
Company has received written requests for inclusion therein within 1 days of actual receipt of the
Company’s notice.

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

          (b) Covenants of the Company with Respect to Registration. In connection with
the filing of any Registration Document by the Company, 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 Registered
Holder of such Registrable Securities and confirm such advice in writing, (i) when such
registration statement becomes effective, (ii) when any post-effective amendment to such
registration statement becomes effective and (iii) of any request by the SEC for any amendment or
supplement to such registration statement or any prospectus relating thereto or for additional
information.

               (ii) The Company shall furnish to each Registered Holder of such 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 the Registered Holders may reasonably request
in order to facilitate the disposition of the Registrable Securities by such Registered Holders.

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

               (iv) The Company shall prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be reasonably
necessary to keep such registration statement effective for at least 12 months (or such longer
period as permitted by the Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Registered Holder or Registered

5

 

Holders of Registrable Securities set forth in such registration statement. 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 such 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. 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 Registered Holder(s), 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. The Company shall use its good faith
reasonable efforts to cause such Registrable Securities covered by such 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 Registered Holder(s)
thereof to consummate the disposition of such Registrable Securities.

               (v) The Company shall indemnify the Registered Holder(s) of the Registrable Securities to be
sold pursuant to any registration statement and each person, if any, who controls such Registered
Holders within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
all loss, claim, damage, expense or liability (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 or otherwise, arising from such registration statement.

               (vi) If requested by the Company prior to the filing of any registration statement covering
the Registrable Securities, each of the Registered Holder(s) of the Registrable
Securities to be sold pursuant to a registration statement, and their successors and assigns,
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 loss, claim, damage or expense or liability (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 Registered Holder, or their successors or assigns, for specific
inclusion in such registration statement, except that the maximum amount which may be recovered
from each Registered Holder pursuant to this paragraph or otherwise shall be limited to the amount
of net proceeds received by the Registered Holder from the sale of the Registrable Securities.

               (vii) Nothing contained in this Agreement shall be construed as requiring the Registered
Holder(s) to exercise their Warrants prior to the filing of any registration statement or the
effectiveness thereof.

6

 

               (viii) The Company shall furnish to each Registered Holder participating in an offering
and to the managing underwriter, if any, a signed counterpart, addressed to such Registered Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such
registration statement (and, if such registration 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 the prospectus included therein)
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.

               (ix) The Company shall deliver promptly to each Registered Holder participating in an offering
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 Registered 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 Registered Holder shall reasonably request.

               (x) 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 Agreement, and for that purpose references hereunder to “Registrable
Securities” shall be deemed to include the securities which the Registered 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.”

               (xi) In the event of an underwritten registered offering the managing underwriter(s) advise
the Company in writing that in their opinion the number of Registrable Securities exceeds the
number of Registrable Securities which can be sold therein without adversely

7

 

affecting the marketability of the offering, the Company will include in such registration the
number of Registrable 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 thereof on the basis of the amount of Registrable Securities owned by
each such holder. In the event the number of shares available under a registration statement filed
pursuant to Section 3 (a) is insufficient to cover 100% of the Registrable Securities required to
be covered by such Registration Statement, the Company shall amend the registration statement, or
file a new registration statement (on the short form available therefor, if applicable), or both,
so as to cover 100% of the number of such Registrable Securities as of the trading day immediately
preceding the date of the filing of such amendment or new registration statement, in each case, as
soon as practicable, but in any event not later than 45 days after the necessity therefor arises.
The Company shall use it reasonable best efforts to cause such amendment or new registration
statement to become effective as soon as practicable following the filing thereof.

               (xii) All expenses incident to the Company’s performance of or compliance with this Agreement,
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 shares sold by any holder of Registrable Securities. In connection
with each Registration Document, the Company will reimburse the holders of Registrable
Securities covered by such registration for the reasonable fees and disbursements of one
counsel
chosen by the holders of a majority of the Registrable Securities initially requesting such
registration.

     SECTION 4. Definitions. The following terms have the meanings set
forth below:“Act” means the Securities Act of 1933, as amended.

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

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

     “Convertible Securities” means any evidence of indebtedness, shares or other
securities convertible into or exchangeable for Common Stock.

     “Exchange ue 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

8

 

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.

     “Options” means rights, options, or warrants to subscribe for, purchase or
otherwise acquire either Common Stock or Convertible Securities.

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

     “Registered Holders” means, collectively, Elevation and each other holder of
a Warrant or Warrant Shares, if any, reflected as such on the books of the Company.

     “Registrable Securities” means the Warrant Shares.

     “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 an entity 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 holder for the Exercise Price of Warrant Shares
acquirable by exercise hereof 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 whole or in

9

 

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:

with a copy to:

Richardson & Patel LLP 10900

Wilshire Boulevard Suite 500

Los Angeles, CA 90024 Attn:

Michael D. Donahue Fax: (310)

208-1154

10

 

     If to Elevation, to:

The Elevation Fund, LLC 8400

East Prentice Avenue

Penthouse, Suite 1500

Greenwood Village, CO 80111

Attn: Lance J. Baller

Fax No.: (‘)03)265-9’)82

with a copy to:

Brownstein Hyatt & Farber, P.C. 410

Seventeenth Street, 22nd Floor

Denver, CO 80202

Attn: Adam J. Agron

Fax No.: (303) 223-1111

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 Registered Holders of Warrants 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 Registered 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 Agreement shall be governed by, and construed in accordance with, the laws
of the State of Colorado, without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of Colorado or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Colorado.

11

 

     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 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).

12

 

     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.

	 	 	 	 	 
	 	 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

13

 

	 	 	 	 	 

EXHIBIT I

EXERCISE AGREEMENT

	 	 	 	 	 	 
	 
	 

	 	To:	 	 
	 

	 	 	 	 
	 
	 

	 	Dated:	 	 
	 

	 	 	 	 
	 

     The undersigned, pursuant to the provisions set forth in the attached Warrant (Certificate No.
W-), hereby agrees to subscribe 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	 	 
	 

	 	 	 	 
	 

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-v) with respect to the number of the Warrant
Shares covered thereby set forth below, unto:

	 	 	 	 	 	 
	 

	 	Names of Assignee	 	 
	 

	 	 	 	 
	 
	 

	 	Address	 	 
	 

	 	 	 	 
	 
	 

	 	No. of Shares	 	 
	 

	 	 	 	 
	 
	 

	 	Dated:	 	 
	 

	 	 	 	 
	 
	 

	 	Signature	 	 
	 

	 	 	 	 
	 
	 

	 	Witness	 	 
	 

	 	 	 	 

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

	 	 	 	 	 	 
	 

	 	Signature	 	 
	 

	 	 	 	 
	 
	 

	 	Witness	 	 
	 

	 	 	 	 

15

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