Document:

Ex-4.26

 

EXHIBIT 4.26

[FORM OF REGISTERED 6.500 % SENIOR SECURED NOTES DUE 2007, 7.875 % SENIOR SECURED NOTES DUE 2009,
6.500 % SENIOR SECURED NOTES DUE 2010, 7.250 % SENIOR SECURED NOTES DUE 2012 AND 7.300 % SENIOR
SECURED NOTES DUE 2015]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION (“DTC”), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENTS ARE MADE TO
CEDE & CO. OR TO SUCH ANY OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

REYNOLDS AMERICAN INC.

[6.500 % Senior Secured Notes due 2007]

[7.875 % Senior Secured Notes due 2009]

[6.500 % Senior Secured Notes due 2010]

[7.250 % Senior Secured Notes due 2012]

[7.300 % Senior Secured Notes due 2015]

	 	 	 
	Certificate No.      

	 	$                    
	 

	 	CUSIP No.                     

     Reynolds American Inc., a North Carolina corporation (the “Company,” which term includes any
successor corporation under the Indenture hereinafter referred to), for value received, promises to
pay to Cede & Co., or its registered assigns, the principal sum
of                                          ($                    )
on [2007 Notes: June 1, 2007][2009 Notes: May 15, 2009][2010 Notes: July 15,
2010][2012 Notes: June 1, 2012][2015 Notes: July 15, 2015].

	 	 	 	 	 
	 

	 	Interest Payment Dates:
	 	[2007 and 2012 Notes: June 1 and December 1]
	 

	 	 	 	[2009 Notes: May 15 and November 15]
	 

	 	 	 	[2010 and 2015 Notes: January 15 and July 15]
	 

	 	 	 	, commencing          .
	 
	 	 	 	 
	 

	 	Record Dates:
	 	[2007 and 2012 Notes: May 15 and November 15]
	 

	 	 	 	[2009 Notes: May 1 and November 1]
	 

	 	 	 	[2010 and 2015 Notes: January 1 and July 1].

 

 

     Reference is hereby made to the further provisions of this Note set forth on the reverse
hereof, which further provisions shall have the same effect for all purposes as if set forth at
this place.

     Unless the certificate of authentication hereof has been executed by the Trustee referred to
on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.

2

 

     IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its
corporate seal.

Dated:           , 200    

	 	 	 	 	 
	 	REYNOLDS AMERICAN INC.,

as Issuer

 	 
	 	By:  	 	 
	 	 	 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	
 	 
	 	 	 	 
	 	 	 	 
	 

     Each of the undersigned hereby acknowledges its obligation as a Guarantor under the Indenture.

	 	 	 	 	 
	SANTA FE NATURAL TOBACCO COMPANY, INC., as Guarantor  
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	LANE, LIMITED, as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 

[2007][2009][2010][2012][2015] Note Signature Page

 

	 	 	 	 	 
	R.J. REYNOLDS TOBACCO HOLDINGS, INC., as Guarantor  
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	R. J. REYNOLDS GLOBAL PRODUCTS, INC., as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	RJR PACKAGING, LLC, as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	R. J. REYNOLDS TOBACCO COMPANY, as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	RJR ACQUISITION CORP., as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 

[2007][2009][2010][2012][2015] Note Signature Page

 

	 	 	 	 	 
	R. J. REYNOLDS TOBACCO CO., as Guarantor  
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	FHS, INC., as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	GMB, INC., as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	CONWOOD HOLDINGS, INC., as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	CONWOOD COMPANY, LLC, as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 

[2007][2009][2010][2012][2015] Note Signature Page

 

	 	 	 	 	 
	CONWOOD SALES CO., LLC, as Guarantor  
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	ROSSWIL LLC, as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	SCOTT TOBACCO LLC, as Guarantor
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 
	 	 

[2007][2009][2010][2012][2015] Note Signature Page

 

(Trustee’s Certificate of Authentication)

     This is one of the Notes of the series designated herein referred to in the within-mentioned
Indenture.

Dated:          , 200  

	 	 	 	 	 
	THE BANK OF NEW YORK
TRUST COMPANY, N.A.,

as Trustee
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:	 	 
	 

	 	Title:	 	 

[2007][2009][2010][2012][2015] Note Signature Page

 

[REVERSE OF EXCHANGE NOTE]

[6.500 % Senior Secured Notes due 2007]

[7.875 % Senior Secured Notes due 2009]

[6.500 % Senior Secured Notes due 2010]

[7.250 % Senior Secured Notes due 2012]

[7.300 % Senior Secured Notes due 2015]

     References herein to the “Notes” mean the [6.500 % Senior Secured Notes due 2007][7.875 %
Senior Secured Notes due 2009][6.500 % Senior Secured Notes due 2010][7.250 % Senior Secured Notes
due 2012][7.300 % Senior Secured Notes due 2015]. Other capitalized terms used herein shall have
the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

     1. Interest. Reynolds American Inc., a North Carolina corporation (the “Company”),
promises to pay interest on the principal amount of this Note at [6.500%][7.875%][7.250%][7.300%]
per annum from the date provided below until maturity. The Company shall pay interest
semi-annually on [2007 and 2012 Notes: June 1 and December 1][2009 Notes: May 15 and November
15][2010 and 2015 Notes: January 15 and July 15] of each year, or if any such day is not a Business
Day, on the next succeeding Business Day (each an “Interest Payment Date”). The first Interest
Payment Date shall be           , 200  . This Note has been issued in exchange for a
like aggregate principal amount of the [6.500 % Notes due 2007][7.875 % Notes due 2009][6.500 %
Secured Notes due 2010][7.250 % Notes due 2012][7.300 % Secured Notes due 2015] issued by R.J.
Reynolds Tobacco Holdings, Inc., a Delaware corporation (the “RJR Notes”). Interest on the Notes
shall accrue from the most recent date on which interest has been paid on the RJR Notes; or, if no
interest has been paid on the RJR Notes, from the date of issuance of the RJR Notes; provided that
if there is no existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date. Interest shall be computed
on the basis of a 360-day year of twelve 30-day months.

     2. Method of Payment. The Company shall pay interest on the Notes (except defaulted
interest) to the Persons who are registered Holders of Notes at the close of business on the [2007
and 2012 Notes: May 15 and November 15][2009 Notes: May 1 and November 1][2010 and 2015 Notes:
January 1 and July 1] immediately preceding the Interest Payment Date, even if such Notes are
canceled after such record date and on or before such Interest Payment Date, except as provided in
Section 2.13 of the Indenture with respect to defaulted interest. The Notes shall be payable as to
principal, premium and interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the Company, payment of
interest may be made by check mailed to the Holders at their addresses set forth in the register of
Holders, and provided that payment by wire transfer of immediately available funds shall be
required with respect to principal of and interest and premium on, all Global Notes and all other
Notes the Holders of which shall have provided wire transfer instructions to the Company or the
Paying Agent. Such payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.

1

 

     3. Paying Agent and Registrar. Initially, The Bank of New York Trust Company, N.A.,
the Trustee under the Indenture, shall act as Paying Agent and Registrar. The Company may change
any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries
may act in any such capacity.

     4. Indenture. The Company issued the Notes under an Indenture dated as of May 31,
2006, as supplemented, among the Company, as issuer, certain direct and indirect subsidiaries of
the Company, as guarantors, and The Bank of New York Trust Company, N.A., as trustee (the
“Indenture”). The terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended. The Notes are subject
to all such terms, and Holders are referred to the Indenture and such Act for a statement of such
terms. To the extent any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling.

     5. Optional Redemption. The Company may redeem all or a part of the Notes from time
to time in accordance with Article 5 of the Indenture at a redemption price equal to the greater of
(a) 100% of the principal amount of the Notes and (b) the sum of the present values of the
remaining scheduled payments of principal and interest on the Notes, discounted to the redemption
date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the
applicable Treasury Rate plus [2007 Notes: 25][2009 Notes: 37.5][2010 and 2015 Notes: 50][2012
Notes: 30] basis points plus with respect to each of the Notes, accrued and unpaid interest on the
principal amount being redeemed to the date of redemption.

     “Treasury
Rate” means, with respect to any redemption date, (1) the yield, under the heading
which represents the average for the immediate preceding week, appearing in the most recently
published statistical release designated “H.15(519)” or any successor publication which is
published weekly by the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded U.S. Treasury securities adjusted to constant maturity under the caption
“Treasury Constant Maturities,” for the maturity corresponding to the Comparable Treasury Issue
(if no maturity is within three months before or after the Remaining Life, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue will be determined
and the Treasury Rate will be interpolated or extrapolated from such yields on a straight line
basis, rounding to the nearest month) or (2) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain such yields, the rate
per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Price for such redemption date. The Treasury
Rate will be calculated on the third business day preceding the redemption date.

     “Comparable
Treasury Issue” means the U.S. Treasury security selected by an Independent
Investment Banker as having a maturity comparable to the remaining
term (“Remaining Life”) of the
notes to be redeemed that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such notes.

     “Independent
Investment Banker” means any of Lehman Brothers Securities Inc., J.P. Morgan
Securities Inc. or Citigroup Global Markets Inc. or, if all such firms are unwilling or

2

 

unable to select the Comparable Treasury Issue, an independent investment banking institution
of national standing appointed by the trustee after consultation with the Company.

     “Comparable
Treasury Price” means (1) the average of five Reference Treasury Dealer
Quotations for such redemption date, after excluding the highest and lowest Reference Treasury
Dealer Quotations, or (2) if the Independent Investment Banker obtains fewer than five such
Reference Treasury Dealer Quotations, the average of all such quotations.

     “Reference
Treasury Dealer” means (1) Lehman Brothers Securities Inc., J.P. Morgan
Securities Inc. and Citigroup Global Markets Inc. and their respective successors; provided,
however, that if either of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a “Primary Treasury Dealer”), the Company will substitute for such firm
another Primary Treasury Dealer and (2) any other Primary Treasury Dealer selected by the
Independent Investment Banker after consultation with the Company.

     “Reference
Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any redemption date, the average, as determined by the Independent Investment Banker, of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Independent Investment Banker at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.

     6. No Sinking Fund. The Company shall not be required to make sinking fund payments
with respect to the Notes.

     7. Notice of Redemption. Notice of redemption shall be mailed at least 30 days but
not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at
its registered address. Notes in denominations equal to or larger than $2,000 may be redeemed in
part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.

     8. Denominations, Transfer, Exchange. The Notes are in registered form without
coupons in minimum denominations of $2,000 and integral multiples of $1,000. The transfer of Notes
may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the transfer of any Note or
portion of a Note selected for redemption, except for the unredeemed portion of any Note being
redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.

     9. Persons Deemed Owners. The registered Holder of a Note may be treated as its
owner for all purposes.

3

 

     10. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture
or the Notes may be amended or supplemented with the consent of the Holders of at least a majority
in aggregate principal amount of the Securities at the time outstanding of all series affected by
such amendment or supplement, voting as a single class, and any existing Default or compliance with
any provision of the Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time outstanding of all series
affected by such Default, voting as a single class. Without the consent of any Holder of a Note,
the Indenture or the Notes may be amended or supplemented to convey, transfer, assign, mortgage or
pledge to the Trustee as security for the Notes any property or assets; to evidence the succession
of another corporation to the Company, or successive successions, and the assumption by the
successor corporation of the covenants, agreements and obligations of the Company; to add to the
covenants of the Company such further covenants, restrictions, conditions or provisions as its
Board of Directors and the Trustee shall consider to be for the protection or benefit of the
Holders of the Notes, and to make the occurrence, or the occurrence and continuance, of a Default
in any such additional covenants, restrictions, conditions or provisions an Event of Default
permitting the enforcement of all or any of the several remedies provided in the Indenture as
therein set forth; provided, that in respect of any such additional covenant, restriction,
condition or provision such amendment or supplement may provide for a particular period of grace
after Default (which period may be shorter or longer than that allowed in the case of other
Defaults) or may provide for an immediate enforcement upon such an Event of Default or may limit
the remedies available to the Trustee upon such an Event of Default or may limit the right of the
Holders of a majority in aggregate principal amount of the Notes to waive such an Event of Default;
to cure any ambiguity or to correct or supplement any provision contained in the Indenture or in
any indenture supplemental thereto which may be defective or inconsistent with any other provision
contained in the Indenture or in any indenture supplemental thereto; or to make such other
provisions in regard to matters or questions arising under the Indenture or under any indenture
supplemental thereto as the Board of Directors may deem necessary or desirable and which shall not
adversely affect the interests of the Holders of the Notes in any material respect; to evidence and
provide for the acceptance of appointment under the Indenture by a successor trustee with respect
to the Notes and to add to or change any of the provisions of the Indenture as shall be necessary
to provide for or facilitate the administration of the trusts thereunder by more than one trustee;
to comply with the requirements of the Trust Indenture Act of 1939, as amended; and to add
additional Guarantors with respect to the Notes.

     11. Defaults and Remedies. Any of the following events constitutes an “Event of
Default” under the Indenture: (a) default in the payment of any installment of interest upon
Securities of any series as and when the same shall become due and payable, and continuance of such
default for a period of 30 days; or (b) default in the payment of all or any part of the principal
on Securities of any series as and when the same shall become due and payable either at maturity,
upon any redemption, by declaration or otherwise; or (c) default in the payment of any sinking fund
installment as and when the same shall become due and payable by the terms of Securities of any
series; or (d) default in the performance, or breach, of any covenant or agreement of the Company
or the Guarantors in respect of Securities of any series (other than a covenant or agreement in
respect of such Securities a default in whose performance or whose breach is elsewhere in this
Section specifically dealt with), and continuance of such default or breach for a period of 90 days
after there has been given to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the outstanding

4

 

Securities of all series affected thereby, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or (e)
a court having jurisdiction in the premises shall enter a decree or order for relief in respect of
the Company or the Guarantors in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee or sequestrator (or similar official) of the Company or for any substantial part
of its property or ordering the winding up or liquidation of its affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (f) the Company or any
Restricted Subsidiary shall commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar official) of the
Company or for any substantial part of its property, or make any general assignment for the benefit
of creditors; or (g) any Guarantee ceases to be in full force and effect (except as contemplated by
the terms of the Indenture), or any Guarantee is declared in a judicial proceeding to be null and
void, or any Guarantor denies or disaffirms in writing its obligations under the terms of the
Indenture or its Guarantee; or (h) at any time as such security is required by the terms of the
Indenture, any Security Document shall cease to be in full force and effect or shall cease to give
the Collateral Agent the liens or any of the material rights, powers and privileges purported to be
created thereby in favor of the Collateral Agent and such default shall continue unremedied for a
period of at least 30 days after written notice to the Company by the Collateral Agent; or (i) any
other Event of Default provided in the supplemental indenture or Board Resolution under which
Securities of any series are issued or in this Note.

     If an Event of Default described in clauses (a), (b), (c), (d) or (i) above (if the Event of
Default under clause (d) or (i) is with respect to less than all series of Securities then
outstanding) occurs and is continuing, then, and in each and every such case, except for any series
of Securities the principal of which shall have already become due and payable, either the Trustee
or the Holders of not less than 25% in aggregate principal amount of the Securities of each such
affected series then outstanding under the Indenture (voting as a single class) by notice in
writing to the Company (and to the Trustee if given by Securityholders), may declare the entire
principal of all Securities of all such affected series, and the interest accrued thereon, if any,
to be due and payable immediately, and upon any such declaration the same shall become immediately
due and payable. If an Event of Default described in clause (d) or (i) (if the Event of Default
under clauses (d) or (i), as the case may be, is with respect to all series of Securities then
outstanding), (e), (f) or (g) occurs and is continuing, then and in each and every such case,
unless the principal of all the Securities shall have already become due and payable, either the
Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities
then outstanding hereunder (treated as one class), by notice in writing to the Company (and to the
Trustee if given by Securityholders), may declare the entire principal of all the Securities then
outstanding and interest accrued thereon, if any, to be due and payable immediately, and upon any
such declaration the same shall become immediately due and payable.

     12. Trustee Dealings with Company. The Trustee, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the
Trustee.

5

 

     13. No Recourse Against Others. No director, officer, employee, incorporator or
shareholder of the Company or the Trustee, as such, shall have any liability for any obligations of
the Company or the Trustee, respectively, under the Notes or the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such a waiver is against
public policy.

     14. Authentication. This Note shall not be valid until authenticated by the manual
signature of the Trustee or an authenticating agent.

     15. Guarantees. This Note will be entitled to the benefits of certain Guarantees
made for the benefit of the Holders. Subject to the terms of the Indenture, each Guarantor of the
Indenture fully, unconditionally and irrevocably guarantees, as primary obligor and not merely as
surety, jointly and severally, to each Holder of the Notes and the Trustee the full and punctual
payment when due, whether at maturity, by acceleration, by redemption, by repurchase, or otherwise,
of the principal of, premium, if any, and interest on the Notes and all other obligations of the
Company under the Indenture, as provided in the Indenture. Reference is made to the Indenture for
a statement of the respective rights, limitations of rights, duties and obligations thereunder of
the Guarantors, the Trustee and the Holders.

     16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (=
joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (=Uniform Gifts to Minors Act).

     17. CUSIP and ISIN Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused CUSIP or ISIN
numbers or both numbers to be printed on the Notes and the Trustee may use CUSIP or ISIN numbers or
both numbers in notices to the Holders of the Notes as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as contained in any
notice to the Holders of the Notes and reliance may be placed only on the other identification
numbers placed thereon.

     18. Governing Law. This Note shall be governed by and construed in accordance with
the laws of the State of New York.

     The Company shall furnish to any Holder upon written request and without charge a copy of the
Indenture. Requests may be made to:

Reynolds American Inc.

401 North Main Street

Winston-Salem, North Carolina 27101-3818

Facsimile: 336-741-2998

Attention: Treasurer

6exv10w1

 

Exhibit 10.1

CONSULTING AND PRODUCT SALES AGREEMENT

     This Product Sales Agreement (this “Agreement”) is entered into as of this 19th day
of October, 2006 (the “Effective Date”), by and among USN CORPORATION (hereinafter referred to as
“Parent”), a Colorado corporation, USN TELEVISION GROUP, INC., a Delaware corporation and a wholly
owned subsidiary of Parent (hereinafter referred to as “USN Television” and together with Parent,
“USN”) and AANSHI GEMS INC., a New York, corporation (hereinafter referred to as “Aanshi”).

     WHEREAS, USN is a retailer of consumer products selling product through, among other things,
TV programming transmitted by satellite to cable television systems, direct broadcast satellite
systems and television broadcasting stations across the United States;

     WHEREAS, Aanshi is a supplier of Jewelry Product (as hereinafter defined) to USN and others;

     WHEREAS, the parties desire, for the Term (as hereinafter defined) and on the terms and
conditions hereof, for Aanshi to provide Jewelry Product for 24 hours per day of TV programming
availability from USN Television and for Aanshi to administer and manage USN’s jewelry sales via TV
programming during a period of 20 hours per day;

     WHEREAS, USN has made sales to various customers and there remains outstanding an obligation
to such customers (“Outstanding Order Customers”);

     WHEREAS, Aanshi has assisted and will continue to assist USN in exchanging credits to
Outstanding Order Customers in exchange for the approximate dollar amount of their order (the
“Credit Amounts”) which can be used by such Outstanding Order Customers (the “Converting
Customers”) for future purchases from USN; and

     WHEREAS, Aanshi hereby agrees to provide Jewelry Products to USN at discounted prices and has
agreed to pay selling, marketing and general and administrative expenses of initially approximately
$1,650,000 per month, or $55,000 per day (as amended from time to time in accordance herewith, the
“SG&A Budget”), subject to the satisfaction of conditions set forth herein.

     NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, the
parties hereto agree as follows:

ARTICLE I.

PRODUCT SALES AGREEMENT

     1.1. Programming Time. Subject to the terms and conditions hereof and during the
Term, USN agrees to provide Aanshi with access and full utilization rights to USN Television’s
studios, broadcast time, facilities and sales, administrative, telephone order and media personnel
during the hours between 8 a.m. (Los Angeles time) and 4 a.m. (Los Angeles Time) the next day,
which equals 20 hours per day of TV programming (the “Programming Time”) on USN Television’s TV
Channels (the “Channel”). USN shall retain access to, and full utilization

 

 

rights, USN Television’s studios, facilities and sales, administrative, telephone order and
media personnel during the hours between 4 a.m. and 8 a.m. (Los Angeles Time) (the “USN Programming
Time”). During the Programming Time, Aanshi will produce, subject to the SG&A Budget contemplated
herein, jewelry sales programming and will market and sell jewelry products on the Channel using
studios, facilities and personnel provided by USN as described above (“Aanshi Services”). In
exchange therefore, USN shall (a) purchase the Jewelry Products and any other products sold by USN
and purchased through Aanshi as set forth in Section 1.2 below, at the price set forth in Section
1.3, (b) compensate Aanshi for all Converting Customers by granting of options to purchase common
stock of the Parent and, (c) provide all studio, facilities, personnel, selling and administrative
staff to Aanshi and to provide vault and other storage space to Aanshi (the “Aanshi Vault”). Aanshi
shall also have the right to create promotions, designate all payment terms and other payment
provisions of credit to be offered to customers.

     1.2. Goods Supplied by Aanshi to USN, SG&A Budget, Options Vesting for Converting
Customers.

          (a) USN shall purchase, and Aanshi shall provide, all of its requirements for jewelry,
gemstone, synthetic or costume jewelry, precious metal and similar goods (“Jewelry Products”)
during the USN Programming Time or otherwise exclusively from Aanshi or suppliers introduced by
Aanshi. Similarly, USN shall purchase, and Aanshi shall provide, all Jewelry Products sold during
the Programming Time exclusively from Aanshi or suppliers introduced by Aanshi. USN may acquire
items other than Jewelry Products from any source, and sell such items in any manner during
Programming Time, during the USN Programming Time or otherwise. The obligation of Aanshi to
provide Jewelry Products is dependent upon, among other things, satisfaction by USN Television and
Parent of their obligations, covenants and warranties under this agreement.

          (b) During the first one month period ending October 18, 2006, Aanshi shall be required to pay
to USN the SG&A Budget of $55,000 per day. Thereafter, Aanshi shall pay to USN 110% of the amount
of the SG&A Budget. The foregoing amounts shall be paid on a daily basis as set forth in section
1.4 below and amortized over a month. USN will provide such necessary programming, administrative,
call-in, order taking sales and other personnel as determined necessary by Aanshi from time to
time, provided, however, that any increases or decreases in such personnel or other resultant costs
and expenses (or reductions therefrom) shall be reflected in an increase or a decrease in SG&A
Budget as defined in this Agreement. Notwithstanding the foregoing, Aanshi shall not be
responsible for any liabilities above the SG&A Budget or for any other liabilities of USN whether
the same relate to or accrue from SG&A or otherwise, except as set forth herein, including, without
limitation, in Section 1.3(e) hereof. No amounts paid by Aanshi to USN pursuant to this Agreement,
including the cost of goods actually sold, shall be deemed a capital contribution.

          (c) The term “SG&A Budget,” and therefore the amount of SG&A expenses of USN that must be paid
by Aanshi to USN hereunder, may be amended from time to time by the parties’ reasonable mutual
agreement. USN may, however, incur additional expenses which would otherwise be considered SG&A
expenses, provided that such expenses shall not constitute part of the SG&A Budget and shall not
otherwise violate the provisions of this Agreement or

2

 

 result in any kind of additional liability to Aanshi’ obligation to pay the SG&A Budget or
otherwise alter or endanger the rights of Aanshi.

          (d) USN acknowledges that Aanshi has assisted with the conversion of Outstanding Order
Customers into Converting Customers and issuance of approximately $525,000 of Credit Amounts to
such Converting Customers. USN hereby further understands that Aanshi may, at its sole and
absolute discretion and to the extent that it deems the same feasible in its sole discretion,
continue (on a non-exclusive basis) to contact or oversee the solicitation of Outstanding Order
Customers and conversion of such persons into Converting Customers. Parent hereby agrees to issue,
as of the date hereof, options to purchase 2,916,667 shares of its common stock at an exercise
price of $0.18 per share, a third of which options shall be exercisable immediately, with the
remaining options to become exercisable in accordance with the milestone schedule set forth on
Schedule 1.2(d) annexed hereto. All shares underlying the options shall be registered
under the same registration rights agreement (the “Registration Rights Agreement” as the
convertible note issued to Aanshi on the date hereof (the “Convertible Note”).

     1.3. Prices.

          (a) USN shall pay the full purchase price and delivery costs and all related costs of Jewelry
Products and any other goods sold to or on behalf of USN and USN shall cover all costs of storing
and insuring the goods both during transit to USN and thereafter (the “Purchase Price”). Prior to
paying the Purchase Price, USN shall provide ample storage space for the Jewelry Product. The
parties hereto agree and acknowledge that as of the date hereof, there exists one Aanshi Vault at
USN’s facilities, which USN is leasing to Aanshi for its use during the Term and that such Aanshi
Vault has been fully stocked with Aanshi’s Jewelry Products. Aanshi shall retain sole and
exclusive ownership of all products stored in the Aanshi Vault or in any other place leased to
Aanshi by or on behalf of USN until such time as the goods are paid for. Aanshi shall retain sole
and exclusive ownership of any Jewelry Product held by, shipped by or acquired by USN until title
passes, which shall only be deemed to have occurred upon receipt by Aanshi of full payment
therefore. The initial Purchase Price shall not be calculated on a product by product basis.
Rather, the Purchase Price for the aggregate amount of Jewelry Products sold by Aanshi to USN
during a particular period shall be the remainder that results (but not less than zero) when (i)
110% of the then effective SG&A Budget (100% for the first four weeks hereof) for such specified
period is subtracted from (ii) the revenue realized by sales of Jewelry Product and all other
product sold during Aanshi’ 20 hours per day of Programming Time during such corresponding period.
Any refunds owing to customers with respect to sales during such period shall be deducted from the
amount of revenues realized under clause (ii) of the preceding sentence.

          (b) After any adjustment required by Section 1.4(d), USN will be deemed to have made full and
final payment of such Purchase Price to Aanshi, by Aanshi retaining (or transferring at the
direction and option of Aanshi) the amount of the Purchase Price in Aanshi’ merchant account,
subject to Section 1.3(e).

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          (c) To the extent that the amount in clause (i) of the penultimate sentence in Section 1.3(a)
above exceeds the amount in clause (ii) of such sentence, Aanshi shall pay such shortfall.

          (d) By way of example and only for the avoidance of doubt, if the SG&A Budget for any month
after October 15, 2006 is $1,650,000, the amount required to be paid under section 1.2(b) above is
$1,815,000 ($1,650,000 plus $165,000). (i) If during such one month period gross revenues from all
goods sold are only $1,000,000 then all such amounts will be paid to USN and credited and deemed as
paid under section 1.4(a), the Purchase Price to USN will be deemed to be one dollar, and such
goods shall be deemed to be fully paid for by USN under Section 1.3(a) and (b). The remaining
$815,000 shortfall for the then effective SG&A Budget to be paid to USN under Section 1.2(b) shall
be paid by Aanshi as consideration for the use of Programming Time and other value received by it
herein and Aanshi shall absorb the loss from any goods purchased and sold. (ii) If during such one
month period, gross revenues from all goods sold are $2,035,000, then, presuming that the
$1,815,000 SG&A Budget payment has been paid under section 1.4 below, then the Purchase Price will
be deemed to be $220,000 and such Purchase Price for the goods shall be deemed to have been fully
paid for by USN under Section 1.3(b) and all excess ($220,000) shall be kept by Aanshi. (iii) If
during such one month period revenues from all goods were $5,000,000, then, presuming that the
$1,815,000 SG&A Budget payment has been paid under Section 1.4 below, then the Purchase Price of
such goods will be deemed to be $3,185,000 and such the Purchase Price for the goods shall be
deemed to have been fully paid for by USN and all excess shall be kept by Aanshi. In all
circumstances, Aanshi’s liability shall be limited to 110% of SG&A Budget set forth in subparagraph
1.3(a) above, unless provided otherwise herein, including, without limitation, in Section 1.3(e).

          (e) Depending on the amount of monthly gross sales during Aanshi’ 20 hours per day of
Programming Time, Aanshi will also pay to USN, as a discount to the prices paid by USN for Jewelry
Product, the sliding scale payments in accordance with Schedule 1.3(e) attached hereto.

          (f) To the extent that there are any Credit Amounts tendered by Converting Customers in
connection with the Jewelry Products or other goods sold by USN that were acquired from or through
Aanshi, such amount shall be added to the aggregate principal amount of then outstanding under the
Convertible Note.

          (g) All options to purchase common stock of Parent as set forth in Section 1.2(d), and the
shares underlying such option, will be issued without registration under the Securities Act of
1933, as amended, in reliance on an exemption therefrom. In offering and issuing such equity
securities, USN is relying on the representations and warranties made by Aanshi in the Convertible
Note and related purchase agreement, dated as of the date hereof, and all of such representations
and warranties are incorporated herein. The resale of all such equity securities shall be
registered under the same Registration Rights Agreement. The Registration Rights Agreement shall
have demand and unlimited piggyback registration rights. If a registration statement is not
declared effective (or is withdrawn or is otherwise no longer effective) in accordance with the
provisions of the Registration Rights Agreement, covering all of the shares issuable under the
Convertible Note, as amended from time to time, or the shares underlying the options issued under
paragraph 1.3(f), then, in lieu of any shares issuable from

4

 

such default date and onward (until the Registration Rights Agreement is duly complied with),
Aanshi shall have the right to receive and demand cash payments for the full dollar amount of the
Aanshi Credit Payments otherwise due during such month.

     1.4. Procedures regarding Payment of Prices. The payment by USN for the goods sold to
or on behalf of USN by Aanshi shall be as follows:

          (a) Payments from third parties for any sales realized during the Time Period will be made by
customers to Aanshi’s designated merchant account.

          (b) All valid customer credits and refunds with respect to sales of Jewelry Products or other
products of Aanshi sold by USN realized during the Term will be paid to the customers by Aanshi
100% daily from sales during the Term; provided, however, that any sales resulting from redeemed credit amounts from Converting
Customers shall remain the liability of USN and the Convertible Note shall be reduced to the extent
of any prior increases resulting from Credit Amounts tendered for Aanshi’s goods or for any cash
amounts paid by Aanshi to Converting Customers.

          (c) On a daily basis, Aanshi will remit to USN an amount of funds, in accordance with Section
1.2(b). In the event that less then this amount is paid during any time period, Aanshi shall fill
the shortfall promptly and in any event within the time period set forth in Section 1.4(d) below.

          (d) Within five (5) days of the end of each month within the Term, Aanshi and USN will meet to
review the amounts paid under Section 1.2(b) above and the Purchase Prices for the goods during
such one month period as calculated by the terms of this Agreement. Upon determination of such
figure, the parties will re-calculate the payment required by Section 1.3 with respect to such
month. Any shortfall of payments under Section 1.2(b) that were required to be made by Aanshi
during such period shall be made within 5 business days of the determination date of such amounts.

          (e) Aanshi shall not be obligated to make any additional daily payments, other than the daily
payment of the SG&A Budget as provided herein.

     1.5. Operations; SG&A.

          (a) USN will maintain a studio, facilities and personnel to allow for production of the TV
programming during the Term for the Programming Time for Aanshi that is no less sufficient then the
previous support provided by USN. USN will consult with Aanshi regarding changes to USN’s studio,
facilities and personnel, and will not make materially impair, downgrade or reduce the capability
of, USN’s studio, facilities and all centers, and personnel without Aanshi’s written consent, such
consent not to be unreasonably withheld.

          (b) USN will use commercially reasonable efforts to maintain and reduce its SG&A expenses in a
manner consistent with the historical practices of USN. USN will consult with Aanshi regarding
changes to USN’s SG&A expenses, and without Aanshi’s written consent (which consent shall not to be
unreasonably withheld) will not make material increase any line items within USN’s SG&A or
otherwise enter into agreements that will have a material adverse affect on any line items within
the SG&A Budget. On a monthly basis, USN will provide to Aanshi reasonable information and
documentation regarding USN’s prospective SG&A expenses. Notwithstanding the foregoing, the
amounts required to be paid under Section 1.2(b) shall not increase unless otherwise specifically
agreed to by Aanshi.

5

 

     1.6. Retroactive Adjustments. The parties acknowledge that, prior to the date hereof,
Aanshi has made a payment to USN in the amount of approximately $1.6 million as an advance payment
of the SG&A expenses payable hereunder and managed certain aspects of USN’s jewelry sales. Within
four (4) weeks of the date hereof, the parties will in good faith determine appropriate adjustments
to the term hereof to reflect such advance payment by Aanshi.

     1.7. Term. The term of this Agreement (the “Term”) will commence on the date hereof
and shall expire, unless earlier terminated in accordance with Section 3.3 hereof, on the fifth
(5th) anniversary of the date hereof; provided that unless either party provides written notice to
the other party of its intention to not extend the Term upon such fifth (5th) anniversary (which
notice must be delivered not later than one hundred and twenty (120) days prior to such fifth
anniversary), then the Term will be automatically extended for an additional five (5) year Term.

     1.8. Exclusivity. Nothing in this Agreement shall prohibit or restrict USN’s use of
the TV programming during the airtime allocated to USN pursuant hereof, except that that the
parties specifically agree that USN may not sell jewelry and gems, from any other source(s), using
USN’s TV programming during such airtime without the consent of Aanshi, which consent may be
withheld for any reason whatsoever. In the event that goods are sold to USN by Aanshi for sales by
USN during its four hour Programming Time or for internet or other sales, then the purchase price
for Aanshi shall include a reasonable markup to Aanshi and Aanshi may require reasonable payment
terms therefore.

     1.9. Board Rights, Parent hereby agrees that Aanshi shall have the right, during the
Term, to appoint a representative to observe all board meetings and review all materials prepared
for the board of directors of USN, provided that such representative shall not be entitled to
observe any portion of any such meeting or review any portion of any such materials related to the
USN-Aanshi relationship or otherwise relates to confidential information. In addition, Aanshi
shall also have the right to designate one individual to serve as a member of the board of
directors of USN, and if Aanshi delivers written notice of any such designation, then Parent will
nominate and recommend such individual for election by the stockholders of Parent to the board of
directors of Parent and will nominate and elect such nominee to the board of directors of USN
Television.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES

     2.1. Representations and Warranties of Aanshi. Aanshi represents and warrants to USN
as follows:

          (a) Organization. Aanshi is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of New York.

          (b) Authority; Enforceability. Aanshi has full power and lawful authority to execute
and deliver this Agreement and to consummate and perform the transactions contemplated hereby.
This Agreement has been validly executed and delivered by Aanshi. This Agreement constitutes a
valid and legally binding obligation upon Aanshi, enforceable in

6

 

accordance with its terms, subject to the limitations of bankruptcy, insolvency moratorium or
the rules of equity.

          (c) Non-Contravention. Neither the execution and delivery of this Agreement by
Aanshi, nor the consummation and performance of the transactions contemplated hereby, (i) conflicts
with, requires the consent, waiver or approval of, results in a breach of or default under, or
gives to others any interest or right of termination, cancellation or acceleration in or with
respect to, any material agreement by which Aanshi is a party or by which Aanshi or any of its
material properties or assets are bound or affected, (ii) conflicts with the certificate of
incorporation or bylaws of Aanshi, or (iii) conflicts with or violates, in any material respect,
any law, rule, regulation, order, decree or judgment binding upon Aanshi or its assets.

     2.2. Representations Warranties and Covenants of USN. USN represents and warrants to
Aanshi as follows:

          (a) Organization. Parent is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Colorado. USN Television is a corporation duly
incorporated, validly existing and in good standing under the laws of the State of Delaware.

          (b) Authority; Enforceability. USN has full power and lawful authority to execute and
deliver this Agreement and to consummate and perform the transactions contemplated hereby. This
Agreement has been validly executed and delivered by USN. This Agreement constitutes a valid and
legally binding obligation upon USN, enforceable in accordance with its terms, subject to the
limitations of bankruptcy, insolvency moratorium or the rules of equity.

          (c) Non-Contravention. Neither the execution and delivery of this Agreement by USN,
nor the consummation and performance of the transactions contemplated hereby, (i) conflicts with,
requires the consent, waiver or approval of, results in a breach of or default under, or gives to
others any interest or right of termination, cancellation or acceleration in or with respect to,
any material agreement by which USN is a party or by which USN or any of its material properties or
assets are bound or affected, (ii) conflicts with the certificate of incorporation or bylaws of
USN, or (iii) conflicts with or violates, in any material respect, any law, rule, regulation,
order, decree or judgment binding upon USN or its assets.

          (d) Affirmative Covenants. USN covenants that unless Aanshi consents in writing
otherwise:

               (i) Compliance with Laws. USN will, and will cause each subsidiary to, comply with
all laws, ordinances or governmental rules or regulations to which each of them is subject,
including, and will obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their respective properties or
to the conduct of their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations or failures to
obtain or maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate, reasonably be expected to
materially adversely effect USN.

7

 

               (ii) Insurance. USN will, and will cause each subsidiary to, maintain, with
financially sound and reputable insurers, insurance, including, without limitation, the Casualty
Policies and the Liability Policies, with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms and in such amounts
(including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of entities of established reputations engaged in the
same or a similar business and similarly situated.

               (iii) Payment of Taxes and Claims. USN will, and will cause each subsidiary to, file
all income tax or similar tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other taxes, assessments,
governmental charges, or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable and before they
have become delinquent and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of USN or any subsidiary, provided that neither USN nor any
subsidiary need pay any such tax or assessment or claims if the amount, applicability or validity
thereof is contested by USN or such Subsidiary on a timely basis in good faith and in appropriate
proceedings, and USN or a subsidiary has established adequate reserves therefore in accordance with
United States generally accepted accounting principles, consistently applied, on the books of USN
or such subsidiary .

               (iv) Corporate Existence, Etc. USN will at all times preserve and keep in full force
and effect its corporate existence. USN will at all times preserve and keep in full force and
effect the corporate existence of each Subsidiary and all rights and franchises of USN and its
Subsidiaries.

               (v) Authorization and Reservation of Shares. USN shall at all times have authorized,
and reserved for the purpose of issuance, a sufficient number of shares of common stock of Parent
to provide for the full exercise of the outstanding options issued to Aanshi as provided herein.

          (e) Negative Covenants. USN covenants that so long as any portion of the Convertible
Notes is outstanding, unless holders of a majority of the then-outstanding principal amount of the
Convertible Notes consents in writing otherwise:

               (i) Liens. USN will not, and will not permit any subsidiary to, and cause such
subsidiary not to, permit to exist, create, assume or incur, directly or indirectly, any lien or
encumbrance or pledge (“Lien”) on its properties or assets, whether now owned or hereafter
acquired, except:

	 	•	 	Liens existing on property or assets of USN or any Subsidiary as of the date
of this Agreement;
	 
	 	•	 	Liens for taxes, assessments or governmental charges not then due and
delinquent;

8

 

	 	•	 	encumbrances in the nature of leases, subleases, zoning restrictions,
easements, rights of way, minor survey exceptions and other rights and
restrictions of record on the use of real property and defects in title in each
case arising or incurred in the ordinary course of business, which,
individually and in the aggregate, do not materially impair the use or value of
the property or assets subject thereto or which relate only to assets that in
the aggregate are not material;
	 
	 	•	 	Liens incidental to the conduct of business or the ownership of properties
and assets (including landlords’, lessors’, carriers’, warehousemen’s,
mechanics’, materialmen’s and other similar liens) and Liens to secure the
performance of bids, tenders, leases or trade contracts, or to secure statutory
obligations (including obligations under workers compensation, unemployment
insurance and other social security legislation), surety or appeal bonds or
other Liens of like general nature incurred in the ordinary course of business
and not in connection with the borrowing of money;
	 
	 	•	 	any attachment or judgment Lien, unless the judgment it secures has not,
within sixty (60) days after the entry thereof, been discharged or execution
thereof stayed pending appeal, or has not been discharged within sixty (60)
days after the expiration of any such stay;
	 
	 	•	 	Liens that result from actions or inactions of Aanshi; or
	 
	 	•	 	Liens that may be attached as a result of the transactions completed prior
to the date hereof with the parties listed in Schedule 2.2(e)(i)
hereto.

               (ii) Nature of Business. USN will not, and will not permit any subsidiary to, and
cause such Subsidiary not to, engage in any business if, as a result, the general nature of the
business in which USN and its subsidiaries, taken as a whole, would then be engaged would be
substantially changed from the general nature of the business in which USN and its subsidiaries,
taken as a whole, are engaged on the date of this Agreement. USN shall not terminate any lease or
agreement for which it obtains office space unless suitable comparable space is already secured,
with all moving expenses of Aanshi to be fully paid for. USN will not terminate any other major
agreement or license or permit upon which it relies for the ordinary course of its business.

               (iii) Restriction on Distributions and Stock Repurchases. USN will not, and will not
permit any Subsidiary to, and cause such Subsidiary not to, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise) in any one
transaction or series of related transactions any shares of capital stock of USN or any subsidiary
or any warrants, rights or options to purchase or acquire any such shares. USN will not and will
not permit any subsidiary to make any distribution or dividend of cash or other property with
respect to its capital stock.

               (iv) Mergers, Consolidations, Sale of Assets and Investments. USN will not, and will
not permit any Subsidiary to, and cause such Subsidiary not to,

9

 

consolidate, merge, or sell, lease, transfer or otherwise dispose of all or substantially all
of its assets to another person in a single transaction or a series of transactions unless the
surviving corporation and/or the acquiror agrees to assume this Agreement and the Registration
Rights Agreement in their entirety and covenants not to take any actions to impair Aanshi’s
exercise of its rights provided herein and therein. Further, USN will not, and will not permit any
Subsidiary to, and cause such Subsidiary not to, make any investments, acquisitions, contributions
or otherwise engage in any other investment transactions that will impair Aanshi’s exercise of its
rights under this Agreement.

ARTICLE III.

MODIFICATION, WAIVERS, TERMINATION AND EXPENSES

     3.1. Modification. USN and Aanshi may amend, modify or supplement this Agreement in
any manner as they may mutually agree in writing.

     3.2. Waivers. USN and Aanshi may in writing extend the time for or waive compliance
by the other with any of the covenants or conditions of the other contained herein.

     3.3. Termination and Abandonment. This Agreement may be terminated prior to the
expiration of the Term as follows:

          (a) By the mutual consent of Aanshi and USN;

          (b) By Aanshi, upon 120 calendar days written notice to USN at any time during the Term;

          (c) Automatically upon (i) an event of default under the Convertible Note, as may be amended
from time to time, issued to Aanshi as of the date hereof or (ii) the filing of a voluntary or
involuntary bankruptcy petition on USN or any of its subsidiaries or parents, or the taking of any
action that would result in a liquidation, dissolution or cessation of business of USN, or the
making of any assignment for the benefit of creditors or appointment of a trustee, referee or other
person for purposes of liquidating or managing the assets or business of USN unless such default is
specifically waived by Aanshi;

          (d) At the election of USN upon the filing of a voluntary or involuntary bankruptcy petition
on Aanshi or any of its subsidiaries or parents, or the taking of any action that would result in a
liquidation, dissolution or cessation of business of Aanshi, or the making of any assignment for
the benefit of creditors or appointment of a trustee, referee or other person for purposes of
liquidating or managing the assets or business of Aanshi unless such default is specifically waived
by USN; or

          (e) By either party in the event of a material breach by the other party hereto of any
representation, warranty, covenant or agreement contained herein, which is not cured within five
(5) business days after written notice of such breach is given to the party committing such breach
by the complaining party.

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     Termination shall be effective on the date of receipt of written notice specifying the reasons
therefore. No termination of this Agreement hereunder for any reason or in any manner, shall
release, or be construed as to release, any party hereto from any liability or damage to the other
party hereto arising out of, in connection with or otherwise relating to, directly or indirectly
said parties’ material and bad faith breach, default or failure in performance of any of its
covenants, agreements, duties or obligations arising hereunder, or any breaches of any
representation or warranty contained herein. In the event of a termination for any reason, The
Promissory Note shall be repaid in full at such date.

ARTICLE IV.

MISCELLANEOUS

     4.1. Representations and Warranties to Survive. Unless otherwise provided, all of the
representations and warranties contained in this Agreement and in any certificate, exhibit or other
document delivered pursuant to this Agreement shall survive the during the Term. No investigation
made by any party hereto or their representatives shall constitute a waiver of any representation
or warranty, and no such representation or warranty shall be merged into the Closing.

     4.2. Binding Effect. This Agreement constitutes the entire agreement between the
parties. The terms and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective heirs, legal representatives, successor and assigns of the parties hereto.
Nothing in this Agreement, expressed or implied, confers any rights or remedies upon any party
other than the parties hereto and their respective heirs, legal representatives and assigns.

     4.3. Security Interest and Subordination Agreement. As security for the payment of
all obligations and liabilities of USN under this Agreement, USN hereby assigns to Aanshi and
grants to Aanshi a continuing security interest in all of the property of USN, whether tangible or
intangible and, whether now or hereafter owned, existing, acquired or arising and wherever now or
hereafter located. USN shall, at Aanshi’s request, at any time and from time to time,
authenticate, execute and deliver to Aanshi such financing statements, documents and other
agreements and instruments as Aanshi may deem necessary or desirable in its reasonable discretion
in order to establish and maintain a valid, attached and perfected lien to secure payment of USN’s
obligations set forth in this Agreement. Notwithstanding anything to the contrary herein, the
parties expressly acknowledge and agree that any rights granted to Aanshi under this Section 4.3
(including without limitation, all existing and future assets and rights), shall be subject to any
preexisting security interests in USN’s assets granted to or held by creditors or other parties;
provided, however, that USN shall, as a condition to this Agreement, obtain a subordination
agreement of all current and future creditors with respect to Jewelry Products sold by Aanshi to
USN or otherwise hold or to be held by USN from time to time prior to shipping to customers and
other products sold by Aanshi to USN and held by USN prior to sale, and any other assets of Aanshi
that may be in the physical or legal possession of USN.

     4.4. Applicable Law. This Agreement is made pursuant to, and will be construed under,
the laws of the State of California.

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     4.5. Notices. All notices, requests, demands and other communications hereunder shall be in
writing and will be deemed to have been duly given when delivered or on the second business day
after mailed, first class postage prepaid:

          (a) If to Aanshi, to:

Aanshi Gems Inc.

ATTN: Mukesh Vijay

2 West 46th Street, suite 1400

New York, New York 10036

Telephone: (212) 840-0567

Fax: (212) 840-3985

with a copy to:

Ronniel Levy, Esq.

Hodgson Russ LLP

60 East 42nd Street, 37th Floor

New York, New York 10165 — 0150

Telephone: (212) 661-3535

Fax: (212) 972-1677

          (b) If to USN, to:

USN Corporation

ATTN: Chief Executive Officer

2121 Avenue of the Stars, 29th Floor

Los Angeles, CA 90067

Fax: (310) 203-9863

with a copy to:

Timothy J. Hart

Gibson, Dunn & Crutcher LLP

2029 Century Park East, Suite 4000

Los Angeles CA 90067

Fax: 310 552 7036

     These addresses may be changed from time to time by written notice to the other parties.

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

     4.7. Counterparts. This Agreement may be executed in counterparts, each of which will
be deemed an original and all of which together will constitute one instrument.

     4.8. Severability. If any one or more of the provisions of this Agreement shall, for
any reason, be held to be invalid, illegal or unenforceable under applicable law this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had never been contained

12

 

herein. The remaining provisions of this Agreement shall be given effect to the maximum
extent then permitted by law.

     4.9. Forbearance; Waiver. Failure to pursue any legal or equitable remedy or right
available to a party shall not constitute a waiver of such right, nor shall any such forbearance,
failure or actual waiver imply or constitute waiver of subsequent default or breach.

     4.10. Attorneys’ Fees and Expenses. The prevailing party in any legal proceeding
based upon this Agreement shall be entitled to reasonable attorneys’ fees and expenses and court.
costs.

     4.11. Expenses. Each party shall pay all fees and expenses incurred by it incident to
this Agreement and in connection with the consummation of all transactions contemplated by this
Agreement.

     4.12. Integration. This Agreement and all documents and instruments executed pursuant
hereto merge and integrate all prior agreements and representations respecting the transactions
contemplated hereby, whether written or oral, and constitute the sole agreement of the parties in
connection therewith. This Agreement has been negotiated by and submitted to the scrutiny of both
Aanshi and USN and their counsel and shall be given a fair and reasonable interpretation in
accordance with the words hereof, without consideration or weight being given to its having been
drafted by either party hereto or its counsel.

4.13. Indemnity.

     A. USN hereby agrees to indemnify and hold Aanshi harmless in respect of the aggregate of
Indemnifyable Damages of Aanshi. For the purposes of this Agreement, “Indemnifyable Damages of
Aanshi” shall mean the aggregate of all expenses, losses, costs, deficiencies, claims and damages
(including reasonable related counsel fees and expenses) incurred by Aanshi from (i) any inaccurate
representation or warranty made by USN in this Agreement; and (ii) any default in the performance
any of the covenants or agreements made by USN in this Agreement.

     B. Aanshi hereby agrees to indemnify and hold USN harmless in respect of the aggregate of
Indemnifyable Damages of USN. For the purposes of this Agreement, “Indemnifyable Damages of USN”
shall mean the aggregate of all expenses, losses, costs, deficiencies, claims and damages
(including reasonable related counsel fees and expenses) incurred by USN from (i) any inaccurate
representation or warranty made by Aanshi in this Agreement; and (ii) any default in the
performance any of the covenants or agreements made by Aanshi in this Agreement.

[Signatures page follows ]

13

 

     IN WITNESS WHEREOF, the undersigned parties hereto have duly executed this Agreement on the
date first written above.

	 	 	 	 	 
	 	“USN”

USN CORPORATION

a Colorado corporation

 	 
	 	By:  	/s/ Mark J. Miller
 	 
	 	 	Mark J. Miller, Chief Executive Officer 	 
	 	 	 	 
	 
	 	USN TELEVISION GROUP, INC.

a Delaware corporation

 	 
	 	By:  	/s/ Mark J. Miller
 	 
	 	 	Mark J. Miller, Chief Executive Officer 	 
	 	 	 	 
	 
	 	“AANSHI”

AANSHI GEMS INC

a New York corporation

 	 
	 	By:  	/s/ Pankaj Jain
 	 
	 	 	Pankaj Jain, Authorized Representative 	 
	 	 	 	 
	 

Signature Page to Consulting and Product Sales Agreement

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