Document:

exv10w1

 

Exhibit 10.1

EXTENSION AGREEMENT

     This EXTENSION AGREEMENT is made by and between The Fashion House, Inc. (the
“Company”), and The Elevation Fund, LLC (“Lender”) on July 18, 2005.

RECITALS

     WHEREAS, Lender loaned $625,000 (the “Loan”) to the Company pursuant to the Loan
Agreement dated as of April 1, 2005 between Lender and the Company (the “Loan Agreement”)
and the Notes delivered by the Company thereunder. Capitalized terms used but not defined herein
shall have the meanings assigned to such terms in the Loan Agreement;

     WHEREAS, Interest payments came due and payable under the Loan Agreement and the Notes on May
1, 2005, June 1, 2005 and June 30, 2005, and all principal came due and payable under the Loan
Agreement on June 30, 2005;

     WHEREAS, neither Interest nor principal was paid by the Company in accordance with the terms
of the Loan Agreement or the Notes, and Events of Default are therefore outstanding under the Loan
Agreement and the Notes;

     WHEREAS, Lender caused a written notice describing the Company’s uncured Events of Default to
be delivered to the Company on July 11, 2005 in accordance with the terms of the Loan Agreement and
the Notes (the “Notice of Default”);

     WHEREAS, the Company has not cured the Events of Default to date and now seeks the consent of
Lender to extend the Maturity Date of the Loan (including the Interest payments due thereunder);
and

     WHEREAS, the Company and Lender have agreed to extend the Maturity Date to August 15, 2005 and
Lender desires to withdraw the Notice of Default, each on the terms and subject to the conditions
set forth below.

     Now therefore, for good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and Lender agree as follows:

AGREEMENT

     1. Extension of Repayment. Lender hereby extends the Maturity Date pursuant to
Section 2.5 of the Loan Agreement and Section 1 of the Notes such that all principal and Interest
shall be due and payable upon the earlier to occur of August 15, 2005 or the closing date of the
Merger.

 

 

     2. Increase in Interest Rate. The Interest Rate shall be adjusted to 18% per annum
beginning July 1, 2005. Upon the occurrence of an Event of Default and for so long as such Event
of Default continues, Interest shall accrue on the outstanding principal and Interest due under the
Loan at the rate per annum equal to the lower of 25% or the maximum rate of interest permissible
under applicable law at any time (the “Default Interest Rate”).

     3. Increase in Warrants. The number of shares of common stock issuable to Lender upon
exercise of the Warrant attached as Exhibit D to the Loan Agreement shall be increased by
62,500 (the “Additional Warrants”). Accordingly, on the closing date of the Merger, Lender
shall receive warrants to purchase 687,500 shares of common stock of Public Company Parent. The
Additional Warrants shall posses the same terms and rights as the Warrants described in Article 7
of the Loan Agreement.

     4. Description of Other Debt. The Company represents and warrants to Lender that no
debt currently exists other than the Loan, current accounts payable, obligations disclosed in the
Confidential Private Placement Memorandum dated June 1, 2005, and a Convertible Promissory Note in
the amount of $325,000 convertible into common stock of the Company at $0.80 per share upon
the closing of the Merger. All outstanding debt is current and not in default.

     5. Satisfaction of Default. Lender hereby withdraws the Notice of Default and
considers the Loan in good standing and not subject to an Event of Default. This waiver of default
is conditioned upon timely performance by the Company of its obligations under this Agreement.
Notwithstanding the foregoing, in the event of any Event of Default under the Loan Agreement or the
Notes or any breach of this Agreement, all outstanding principal and Interest under the Loan shall
bear Interest at the Default Interest Rate commencing as of May 1, 2005 (the date of the original
Event of Default by the Company described in the Notice of Default).

     6. Reimbursement of Legal Fees. As a condition to the effectiveness of this
Agreement, the Company agrees to reimburse Lender for its reasonable legal fees incurred in
connection with the negotiation of this Agreement, in an amount estimated to be $5,000.

     7. Other Terms. Except as modified hereby, the other terms of the Loan Agreement, the
Notes and the related documents shall remain unchanged.

     IN WITNESS WHEREOF, the parties have executed this Extension Agreement as of July 18, 2005.

	 	 	 	 	 	 	 
	“THE COMPANY”	 	“LENDER”
	 
	 	 	 	 	 	 
	The Fashion House, Inc.	 	The Elevation Fund, LLC
	 
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 
	 

	 	John Hanna, CEO
	 	 	 	Lance Baller, Fund Managerexv10w2

 

Exhibit 10.2

LOAN AGREEMENT

     THIS LOAN AGREEMENT (this “Agreement”), is executed as of July 21, 2005, by and
between The Fashion House, Inc., a Delaware corporation (the “Company”), and American
Microcap Investment Fund 1, 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 $550,000 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:

     “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.

     “Common Stock” shall mean the common stock of the Company.

     “Equity Securities” shall mean the capital stock of such person or entity and/or any
Stock Equivalents of such person or entity.

     “Interest Rate” shall mean the higher of (a) 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, or (b) 10.75% per annum, in either
case compounded annually.

 

 

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

     “Stock Equivalents” of any person or entity shall mean options, warrants, calls,
rights, commitments, convertible securities and other securities pursuant to which the holder,
directly or indirectly, has the right to acquire (with or without additional consideration) capital
stock or equity of such person or entity.

ARTICLE 2

THE LOAN

     2.1 Loan. According to the terms and subject to the conditions of this Agreement, the
Lender shall make a loan to the Company on the Loan Closing Date in the amount of $550,000 (the
“Loan”). The 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 Loan
Closing Date.

     2.2 [This Section Intentionally Omitted.]

     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.

     2.5 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 date (the
“Maturity Date”) that is one hundred eighty (180) days following the Loan Closing Date; provided,
however, that once the Company has received an aggregate of $3 million from the sale(s) of its
Equity Securities, including, without limitation, the sale of its Equity Securities pursuant to the
offering set forth in its Confidential Private Offering Memorandum dated June 1, 2005, but not
including any conversion of up to $600,000 in bridge loans into Common Stock at $0.80 per share as
referenced in such Memorandum (excluding the Elevation Fund Loan, as defined below), the Company
shall pay to the Lender any and all proceeds in excess of such $3 million amount as a repayment of
the indebtedness then due hereunder. In the event that the Merger is not consummated within one
hundred eighty (180) days after the Loan Closing Date, the Lender may, at the Lender’s option and
acting in its sole and absolute discretion, extend the Maturity Date on such terms and conditions
as determined by the Lender in its sole and absolute discretion.

     2.6 Fees. The Company shall pay a fee (the “Commitment Fee”) to the Lender on
the Closing Date in the amount of $22,000. Such amount shall be fully earned by the Lender when
paid, and shall not be refundable to the Company under any circumstances.

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ARTICLE 3

CONDITIONS PRECEDENT TO THE LOAN

     3.1 Conditions on the Loan Closing Date. The obligation of the Lender to make the
Loan pursuant to Section 2.1 shall be subject to the satisfaction, on or before the 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 Loan Closing Date, the Lender shall have no obligation to make the Loan.

     (a) The Company shall have duly executed and delivered to the Lender the Note representing the
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 existing Consignment Agreement between the Company and Itochu International, Inc.
and the security interest granted to The Elevation Fund, LLC, a Delaware limited liability company,
under that certain Amended and Restated Security Agreement dated as of April 1, 2005, for so long
as such Consignment Agreement and Securities Interest are in effect.

     (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 Loan Closing Date an Officer’s Certificate
in the form attached hereto as Exhibit C, dated as of the 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

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Agreement. Concurrently with 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. Each of this Agreement, the Note and the Security 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 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 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, the Note and the Security Agreement, and the transactions contemplated hereby and
thereby, 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, except as
contemplated in Section 3.1(b) hereof.

     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 furnished or to be furnished by the Company, or in the
Company’s Confidential Private Placement Memorandum dated June 1, 2005, 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 herein have been

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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.

     4.10 Financial Statements. The financial statements of the Company included in
Exhibit A to its Confidential Private Offering Memorandum dated June 1, 2005 are complete and
correct, have been prepared from the books and records of the Company in accordance with generally
accepted accounting principles consistently applied throughout the periods involved, except for
changes specified therein and except that unaudited financial statements are not accompanied by
notes, and present fairly the financial condition, results of operations, shareholders’ equity and
changes in financial position of the Company and its consolidated Subsidiaries as of the dates
thereof and for the periods specified therein. Except as set forth in the balance sheet as of
March 31, 2005 included in such financial statements or incurred in the ordinary course of business
since March 31, 2005, and except for outstanding Convertible Promissory Notes aggregating $325,000
convertible into Common Stock at $0.80 per share upon the closing of the Merger, the Company has
any no indebtedness, obligation or liability, absolute, accrued, contingent or otherwise, and there
has been no material adverse change in the condition (financial or otherwise), results of
operations, assets, properties or prospects.

     4.11 Company Knowledge and Experience. The Company (together with its accountants,
legal counsel and other representatives with whom it has consulted in connection with this
Agreement) has such knowledge, experience and access to professional advice in financial and
business matters, including loans like the Loan, to be capable of evaluating the risks and merits
of receiving the Loan pursuant to this Agreement, and the Company has obtained such professional
third-party advice concerning the Loan and the transactions contemplated hereby as it has desired
and deemed prudent.

     4.12 The Elevation Fund Loan; CIT Security Interest. The total principal outstanding
under the secured loan from The Elevation Fund, LLC (the “Elevation Fund Loan”) does not exceed
$625,000, and the Elevation Fund Loan is not in default, and no fact or circumstance exists that
with notice, passage of time or both would constitute such a default. The CIT Group does not hold
any security interest in any Company assets, and any and all UCC financing statements suggesting
otherwise have been, or will be, terminated.

     4.13 Lender Security Interest. Assuming the filing of the Lender’s Form UCC-1
Financing Statement with the Delaware Secretary of State’s Office on or prior to the date hereof,
the Lender holds a perfected security interest in the Collateral (as defined in the Security
Agreement) that is junior only to the security interests of Itochu International, Inc. and The
Elevation Fund, LLC referenced in Section 3.1(b) above (assuming the prior filings of Form UCC-1
Financing Statements by such other secured parties covering such Collateral).

ARTICLE 5

COVENANTS

     5.1 Negative Covenants of the Company. The Company covenants and agrees that, from
the Loan Closing Date until the Maturity Date (and, in any event, during such time as any

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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, without the Lender’s prior written consent,
which consent the Lender may withhold in its sole and absolute discretion, any secured indebtedness
(other than that existing on the Loan Closing Date) or any other indebtedness that (i) is in any
way senior or superior to this Agreement or the indebtedness represented hereby; or (ii) (other
than indebtedness arising in the Company’s ordinary course of business) exceeds $400,000 or
requires or allows payments of principal or interest prior to the repayment of the Note in full;

          (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
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 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;

          (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; or

          (h) increase the principal amount of the Elevation Fund Loan; or

          (i) voluntarily prepay in whole or in part, or modify, any indebtedness outstanding on the
Loan Closing Date, including, without limitation, any indebtedness under the Convertible Promissory
Notes referenced in Section 4.5 hereof, prior to the repayment of the Note in full.

     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 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:

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          (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, (i) 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; (ii) a statement of any litigation or legal action pending or
threatened against the Company certified as true and correct by the Company’s Chief Executive
Officer; and (iii) such other reports as the Lender may reasonably request.

          (e) deliver to the Lender within five days after they are available (but in any event within
ninety days after the end of each of its fiscal years) 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;

          (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 to 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; and

          (g) use any and all proceeds received from any sale(s) or other dispositions of its Equity
Securities, including any such sale(s) pursuant to the offering set forth in its Confidential
Private Placement Memorandum dated June 1, 2005, to repay any and all indebtedness that may then be
senior to the Loan and/or the Lender’s security interest under the Security Agreement, including,
without limitation, any indebtedness that the Company may then owe to The Elevation Fund, LLC.

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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, the Note or the
Security Agreement, whether on or after the Maturity Date, by acceleration or otherwise;

          (c) the failure of the Public Company Parent to issue the Warrant to the Lender at the closing
of the Merger or thereafter to comply with the terms thereof; or

          (d) (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
the Note or the Security Agreement 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. The Company shall cause the merger agreement for the Merger
between the Company and Public Company Parent to include a covenant of the Parent Company Parent
that it will issue to the Lender at the closing of the Merger a Common Stock Purchase Warrant (the
“Warrant”) in the form attached hereto as Exhibit D, appropriately completed as
follows:

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          (a) The number of shares for which the Warrant shall be exercisable shall be equal to: (i)
550,000, multiplied by (ii) a fraction, the numerator of which is $1.00 and the denominator or
which is the lesser of $1.00 and the Lowest Price (the “Sale Price”);

          (b) The Initial Exercise Price (as defined in the Warrant) shall be 80% of the Sale Price
(rounded down to the nearest cent);

          (c) The date shall be the closing date of the Merger.

     For purposes of this Agreement, the “Lowest Price” shall mean the lowest price per share at
which the Public Company Parent or the Company issues Equity Securities after the date hereof and
within 30 days following the close of the Merger, excluding (i) common stock issued upon conversion
of up to $600,000 of bridge loans at not less than $.80 per share obtained by the Company after
June 1, 2005; (ii) shares issued upon exercise of options or warrants outstanding as of June 1,
2005 or granted after June 1, 2005 at not less than $1.00 per share; (iii) shares issued to
consultants pursuant to obligations existing as of June 1, 2005; and (iv) shares issued as part of
the Merger. In determining the price at which the Company issues shares prior to or within 30 days
after the Merger, for purposes of determining the “Lowest Price,” the actual price at which the
Company issues shares shall be adjusted by dividing the actual price by the conversion ratio in the
Merger. Thus, if each share of Company Common Stock is converted into 100 shares of Parent Company
common stock in the Merger (a ratio of 100-to-1), a new price shall be determined by dividing the
actual price by 100. By means of example, if the Company issued Common Stock for $0.80 per share
and the conversion ratio were 100-to-1, the price at which the Company issued the Common Stock, for
purposes of determining the Lowest Price, would be deemed to be $0.80.

     If the Company completes the Merger and the Public Company Parent issues its common stock for
$1.00 per share as contemplated by the Confidential Private Offering Memorandum dated June 1, 2005,
and neither the Company nor the Public Company Parent issues any Equity Securities at a price (or
deemed price) of less than $1.00 per share within the time periods specified in the preceding
paragraph (other than excluded issuances in the preceding paragraph), the number of Warrants issued
would be 550,000 and the Initial Exercise Price (as defined in the Warrant) would be $0.80.

     7.2 Public Company Parent Issuance. The Company shall cause the Public Company Parent
to issue the Warrant to the Lender as the closing of the Merger.

     7.3 Warrant Obligations. The Company shall cause the Parent Company Parent to comply
on timely basis with each and every obligation under the Warrant and each Additional Warrant (as
defined in the Warrant).

     7.4 Failure to Complete Merger. If the Merger has not been completed by the Maturity
Date, upon the Maturity Date the Company shall issue to the Lender, without payment or further
consideration: (i) a number of shares of its Common Stock equal to 10% of the Fully Diluted Shares
Outstanding as of the Maturity Date plus (ii) for each series of preferred stock outstanding at the
Maturity Date, a number of shares of such series of preferred stock equal to 10% of the number of
the number of shares of such series of preferred stock outstanding at the

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Maturity Date. “Fully Diluted Shares Outstanding” shall mean the sum of the number of shares
of Common Stock outstanding plus the maximum number of shares of Common Stock that may be issued
upon exercise or conversion (with or without consideration) of outstanding options, warrants, and
convertible securities, and other rights to acquire Common Stock or securities convertible into
Common Stock, but excluding outstanding convertible preferred stock. Upon issuance of the stock,
the Lender shall no longer be entitled to a Warrant under Section 7.1 of this Agreement.

     7.5 Registration Rights. The Lender shall have piggyback registration rights
comparable to those set forth in the Warrant for: (a) any shares of Common Stock issued to the
Lender under Section 7.4 of this Agreement and (b) any shares of Common Stock into which preferred
stock issued to Lender under Section 7.4 may be converted. As promptly as practicable following
the issuance to the Lender of such shares, but in no event later than 30 days following the
Maturity Date, the Company and Lender shall enter into a registration rights agreement evidencing
such registration rights, which agreement shall be in form and substance satisfactory to the
Lender.

ARTICLE 8

MISCELLANEOUS

     8.1 Successors and Assigns; Participations. 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. Furthermore, although this
Agreement, the Note and the Security Agreement name the Lender as the holder thereof and/or the
lender thereunder, the Lender is authorized to sell participation interests in the Loan to one or
more other persons or entities. The Company agrees that: (a) each holder of a participation
interest will be entitled to rely on the terms of this Agreement, the Note and the Security
Agreement as if such holder had been named as an original party hereto and thereto; and (b) the
Lender is authorized to provide all information furnished to the Lender by the Company to each
holder of a participation interest.

     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:

- 10 -

 

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:

American Microcap Investment Fund 1, LLC

733 Park Avenue, 18th Floor

New York, New York 10021

Attn: Richard Kaufman, President

Fax: (646) 619-4599

with a copy to:

Troy & Gould P.C.

1801 Century Park East, 16th Floor

Los Angeles, California 90067-2367

Attn: Alan B. Spatz, Esq.

Fax: (310) 789-1431

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 California without giving effect to any choice of law or
conflict of law provision or rule (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.

- 11 -

 

     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.

     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 customary costs and expenses incurred by the
Lender in connection with the negotiation and preparation of the documents contemplated by this
Agreement and the Loan closing (including the Lender’s reasonable attorneys’ fees not to exceed,
however, $15,000).

     8.8 Integration. This Agreement, along with the Note and the Security Agreement,
constitutes the complete and exclusive agreement between the Company and the Lender with respect to
the subject-matter herein and replaces and supersedes any and all other prior written and oral
agreements or statements by such parties hereto relating to such subject-matter, including, without
limitation, that certain letter dated July 13, 2005 from Richard Kaufman, President of the Lender,
to John Hanna, the Chief Executive Officer of the Company.

     8.9 Prevailing Party. If either party hereto brings any legal suit, action or
proceeding against another party arising out of, relating to, or concerning the interpretation or
the enforcement of rights and duties hereunder or any transaction related hereto (collectively, an
“Action”), the losing party shall pay to the prevailing party a reasonable sum for attorneys’ fees
and shall reimburse all costs (whether or not such costs are otherwise recoverable under the
provisions of the California Code of Civil Procedure or other statutory law of California or any
other jurisdiction) incurred in connection with the prosecution or defense of such Action and/or
enforcement of any judgment, order, ruling or award granted therein, all of which shall be deemed
to have accrued on the commencement of such Action and shall be paid whether or not such Action is
prosecuted to a judgment, order, ruling or award. “Prevailing Party” within the meaning of this
Section includes, without limitation, a party which agrees to dismiss an Action on the other
party’s payment of some or all sums allegedly due or performance of some or all of the covenants
allegedly breached, or which obtains substantially the relief sought by it.

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

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	THE FASHION HOUSE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	John Hanna	 	 
	 

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

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Richard Kaufman	 	 
	 

	 	 	 	President	 	 

- 13 -

 

SCHEDULE A

	 	 	 	 	 	 	 	 	 
	The Fashion House, Inc.	 	 	 	 
	Capitalization	 	 	 	 
	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	 	 	 	 	 

Sch. A - 1

 

 

EXHIBIT A

PROMISSORY NOTE

See attached.

Exh A - 1

 

 

EXHIBIT B

SECURITY AGREEMENT

See attached.

Exh B - 2

 

 

EXHIBIT C

OFFICER’S CERTIFCATE

See attached.

Exh C - 3

 

 

EXHIBIT D

COMMON STOCK PURCHASE WARRANT

See attached.

Exh D - 1

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