Bruce Crain

Employment Agreement

Amended and Restated Change in Control Severance Plan

EX-10.110 2 y43661exv10w110.htm EX-10.110: EMPLOYMENT AGREEMENT

 

EXHIBIT 10.110

EXECUTION COPY

AGREEMENT

     Agreement, dated as of December 4, 2007, between Russ Berrie and Company, Inc. (together with its successors and assigns, the “Company”) and Bruce Crain (the “Executive” and, together with the Company, the “Parties”).

     Effective as of December 4, 2007 (the “Commencement Date”), the Executive shall be employed by the Company as its President and Chief Executive Officer, on the terms and conditions set forth herein. His employment by the Company shall be on an “at will” basis and shall be subject to termination by the Company, with or without Cause (as defined below), or the Executive, with or without Good Reason (as defined below), with the consequences provided in this Agreement.

     The Parties intending to be legally bound hereby agree as follows:

     1. POSITION; DUTIES

     The Executive shall be employed as President and Chief Executive Officer of the Company, commencing as of the Commencement Date. He shall have the authorities and responsibilities customarily associated with such status in a company of the size and structure of the Company. He shall report directly to the Board of Directors of the Company (the “Board”) and shall have ultimate responsibility for all the Company’s current and future operations in the U.S. and abroad, which currently include:

 

 

Russ North America

 

 

 

Russ International

 

 

 

Russ Far East

 

 

 

Sassy

 

 

 

Kids Line

Promptly following the Commencement Date, the Executive shall be appointed to the Board. At the Company’s request, upon termination of the Executive’s employment for any reason, the Executive shall promptly resign from the Board and from all other positions that the Executive then holds with the Company or any affiliate and promptly execute all documentation for such resignations.

     The Executive shall devote substantially all of his business time, effort and energies to the business of the Company; provided, however, that notwithstanding the foregoing, he may (a) serve on the board of directors of a reasonable number of trade associations and/or charitable organizations, (b) engage in charitable activities and community affairs, (c) accept and fulfill a reasonable number of speaking engagements and (d) manage his personal investments and affairs, as long as such activities do not individually or in the aggregate interfere with the proper performance of his duties and responsibilities for the Company in any material respect; provided further, that he may serve on the board of directors of any for-profit business entity, but only with the prior written consent of the Chairman of the Board or

 


 

the Chairman of the Executive Committee of the Board, which consent will not be unreasonably withheld or delayed if the Chairman of the Board or the Chairman of the Executive Committee of the Board, as applicable, concludes in his discretion that such service will not interfere with the proper performance of the Executive’s duties hereunder. The Company recognizes that Executive is currently and intends to keep performing services for Kahn Lancaster Lucas, Inc. and that his continued performance of those services is not prohibited under this Agreement, provided that the Chairman of the Board or the Chairman of the Executive Committee of the Board of the Company may require the Executive to cease performing such services in the future after 60 days prior written notice to the Executive from the Chairman of the Board or the Chairman of the Executive Committee of the Board.

     2. COMPENSATION AND BENEFITS

     Subject in each case to the provisions of Section 3 of this Agreement in the event that his employment hereunder terminates, the Executive shall be entitled to the following compensation and benefits with respect to the period during which he is employed hereunder:

          (A) Base Salary.

     The Company shall pay the Executive a base salary at an annual rate of $550,000 (“Base Salary”), payable in accordance with the Company’s usual payroll practices. The Compensation Committee of the Board shall consider an increase of Base Salary annually in its discretion. The Base Salary shall not be decreased at any time or for any purpose during the Executive’s employment hereunder.

          (B) Incentive Compensation.

     The Executive shall be entitled to an annual incentive compensation opportunity as determined by the Compensation Committee of the Board commencing in 2008. The Executive’s annual bonus opportunity shall not be less than 75% of salary at target and 130% at maximum. The Executive’s performance goals will not be established at levels that are more difficult to achieve than for other bonus participants who have identical performance measures (e.g., consolidated corporate goals rather than segment or regional goals). Performance goals will be established by the Compensation Committee of the Board of Directors of the Company by no later than March 31 of each year and the Executive shall have the opportunity to consult on the performance goals. Earned bonuses shall be paid to the Executive at the same time as paid to other officers after the completion of the audit of the Company’s financial statements for the year and the determination by the Compensation Committee of the achievement of the performance goals, but no later than March 15.

          (C) Stock Options and Restricted Stock Units.

     On the Commencement Date, or as soon thereafter as the Compensation Committee of the Board shall approve, the Compensation Committee will grant the Executive (i) a stock option under the Company’s 2004 Stock Option, Restricted and Non-Restricted Stock Plan (the “2004 Plan”) to purchase 20,000 shares of Company stock, (ii) a stock option to purchase 100,000 shares of Company stock (of which stock options to purchase 80,000 shares shall be granted under the 2004 Plan and stock options to purchase 20,000 shares shall be granted

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outside of the 2004 Plan), and (iii) 85,000 shares of Company restricted stock under the 2004 Plan. The stock options described in clause (i) of the preceding sentence shall become fully exercisable on the six month anniversary of the Commencement Date and shall expire on the tenth anniversary of the Commencement Date subject to earlier expiration as set forth herein or in the grant agreement; the stock options described in clause (ii) of the preceding sentence shall become exercisable and nonforfeitable at the rate of 20% per year on each of the first five anniversaries of the Commencement Date and shall expire on the tenth anniversary of the Commencement Date subject to earlier expiration as set forth herein or in the grant, and the restricted stock grants described in clause (iii) of the preceding sentence shall become vested at the rate of 25% per year on each of the first four anniversaries of the Commencement Date. In addition, as soon as practicable in 2008, the Compensation Committee will grant the Executive a stock option under the 2004 Plan to purchase 100,000 shares of Company stock which shall become exercisable and nonforfeitable at the rate of 20% per year on each of the first five anniversaries of the Commencement Date and which shall expire on the tenth anniversary of the Commencement Date subject to earlier expiration as set forth herein or in the grant agreement. The stock option and restricted stock grants shall be evidenced by stock option agreements and a restricted stock award agreement in the forms attached hereto. The exercise price of each stock option shall be the closing price of the Company stock on the New York Stock Exchange on the date of grant. Additional stock option grants will be considered by the Compensation Committee of the Board annually, in its discretion, which shall give consideration to the Company’s sales and EBITDA targets in determining the amount of option grant.

          (D) Expense Reimbursement.

     The Company shall reimburse the Executive for business expenses reasonably incurred by him in the performance of his duties with the Company, in accordance with the Company’s usual practices.

          (E) Other Benefits.

     The Executive will be entitled to participate in the Company’s employee benefit plans and programs applicable to senior executives generally and on a basis no less favorable than those provided to other senior executives. During his employment by the Company, the Executive shall be entitled to life insurance coverage of not less than 200% of his Base Salary, but shall be entitled to the life insurance benefit under the Company’s life insurance program for senior executives generally if it would provide for a higher level of life insurance coverage. If the Executive becomes disabled during employment and entitled to long-term disability benefits under the Company’s long-term disability plan, the Company shall provide the Executive during the period of disability with long-term disability benefits equal to 50% of his salary (prior to offsets provided in the Company’s long-term disability plan) through the Company’s long-term disability plan and a supplemental disability program. The Company agrees to cooperate with Executive and use commercially reasonable best efforts in order that a supplemental program can be obtained so that all or part of the supplemental disability benefit will be provided to Executive on a non-taxable basis. The Company will also pay for an annual physical examination for the Executive by the physician or institution chosen by the Executive. The Executive shall be entitled to be reimbursed for tax preparation and financial

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planning services and advice not to exceed $5,000 annually. The reimbursement of the annual physical examination and tax preparation and financial planning services are subject to the following: (i) no such reimbursement will be made by the Company later than the end of the year following the year in which the underlying expense is incurred, (ii) any such benefit provided by the Company in any year will not be affected by the amount of such benefit provided by the Company in any other year, and (iii) under no circumstances will the Executive be permitted to liquidate or exchange any such benefit for cash or any other benefit.

          (F) Vacation.

     The Executive will be entitled to three weeks vacation annually (or such greater amount provided in applicable Company policies) to be taken at times determined by the Executive which do not unreasonably interfere with the performance of his duties hereunder. Any vacation time not taken during any year may not be carried over to subsequent years.

          (G) Director’s and Officer’s Insurance and Indemnification.

     (i) The Company agrees that (a) if the Executive is made a party, or is threatened to be made a party, to any legal proceeding by reason of the fact that he is or was a director, officer, employee, agent, manager, consultant, or representative of the Company or any affiliates or subsidiaries thereof, or (b) if any legal claim is made, or threatened to be made, that arises out of or relates to the Executive’s service in any of the foregoing capacities, then the Executive shall promptly be indemnified and held harmless by the Company to the fullest extent legally permitted, against any and all costs, expenses, liabilities, and losses (including, without limitation, attorney’s fees, judgments, interest, expenses of investigation, penalties, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement) incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if he has ceased to be a director, member, employee, agent, manager, consultant or representative of the Company and shall inure to the benefit of the Executive’s heirs, executors, and administrators. The Company shall advance to the Executive all costs and expenses incurred by him in connection with any such legal proceeding or legal claim within 15 days after receiving written notice requesting such an advance. Such notice shall include an undertaking by the Executive to repay the amount advanced if he is ultimately determined not be entitled to indemnification against such costs and expenses.

     (ii) Neither the failure of the Company to have made a determination in connection with any request for indemnification or advancement under this Section that the Executive has satisfied any applicable standard of conduct nor a determination by the Company that the Executive has not met any applicable standard of conduct, shall create a presumption that the Executive has not met an applicable standard of conduct.

     (iii) During the term of employment and for a period of six years thereafter, the Company shall keep in place a directors and officers’ liability insurance policy (or policies) providing comprehensive coverage to the Executive equal to at least the greater of (1) $5,000,000 per year and (2) the coverage that the Company provides for any other present or former senior executive or director of the Company.

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          (H) Exclusion of Other Benefits.

     The terms of this Agreement are intended to be in lieu of, and not in addition to, the following benefits which the Company has made available to other executives, and accordingly, the Executive shall not be entitled to (i) participate in the Company’s Change in Control Severance Plan, or (ii) participate in the Company’s general severance policy applicable to domestic vice presidents and above.

     3. CONSEQUENCES OF TERMINATION

          (A) Termination by Company for Cause or Termination by Executive without Good Reason.

     If the Executive’s employment under this Agreement is at any time terminated by the Company for Cause (as defined below), or by the Executive without Good Reason (as defined below), the Executive will be entitled to receive the following (promptly following such termination in the case of clause (i) and at the time specified in Section 2(B) in the case of clause (ii) below):

     (i) Base Salary earned through the date that the Executive’s employment hereunder terminates (the “Termination Date”);

     (ii) Bonus amounts earned for any prior completed calendar year and not yet paid;

     (iii) Other amounts and benefits, if any, in accordance with the applicable terms of any applicable plan, program, corporate governance document, policy, agreement or arrangement of the Company other than additional benefits provided to the Executive under the terms of this Agreement (collectively, “Company Arrangements”).

     In addition, any unvested portion of the stock options and restricted stock award specified in Section 2(C) shall immediately terminate and any unexercised, vested portion of the options shall remain exercisable for the shorter of 90 days and the remainder of the term of such option.

     “Cause” shall mean: (A) wrongful refusal, or repeated willful failure, by the Executive to perform his duties hereunder as an employee of the Company; (B) in carrying out his duties, the Executive engages in conduct that constitutes willful gross neglect, willful gross misconduct or willful fraud with regard to the Company or its assets; or (C) the Executive’s conviction of, or plea of guilty or nolo contendere to, a felony. No termination of the Executive’s employment shall be treated as for “Cause” unless, prior to such termination: (i) the Executive has been provided written notice from the Board or the Executive Committee of the Board setting forth in reasonable detail the basis on which the Board is considering terminating his employment for “Cause” (a “Cause Notice”); (ii) the Executive has failed to cure the basis on which the Board is considering terminating his employment within 10 days of notice thereof except that no notice need be provided to the extent that the act or omission is not curable; (iii) the Executive has been afforded a review by the Board, including a hearing before the Board within 14 days following his receipt of such Cause Notice, provided, that the

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Executive requests such hearing within 7 days of receipt of such Cause Notice; and (iv) within 10 days after the later of such review and such hearing (if any), the Board confirms, by affirmative vote of a majority of its members and on written notice to the Executive, that “Cause” exists. Any determination that “Cause” exists shall be subject to de novo review in arbitration pursuant to Section 10(B) below.

     As of the Termination Date, except as set forth above, the rights of the Executive to the accrual, payment and/or receipt of any other compensation or benefits described under Section 2 of this Agreement, including, but not limited to, any award to be earned for the year in which the Termination Date occurs, shall immediately cease.

          (B) Termination by the Company without Cause or Termination by Executive for Good Reason.

     If the Executive’s employment under this Agreement is terminated by the Company without Cause or by the Executive for Good Reason, the Executive shall be entitled to receive the following:

     (i) Base Salary earned through the Termination Date;

     (ii) Bonus amounts earned for any prior year or period and not yet paid;

     (iii) Base Salary at the rate in effect at the Termination Date for a period of six months after the Termination Date;

     (iv) Coverage under the Company’s life insurance programs (including the life insurance coverage set forth in Section 2(E)) during the six months following the Termination Date;

     (v) Coverage under the Company’s medical, and dental if any, programs during the twelve month period following the Termination Date; and

     (vi) If the Company terminates the Executive’s employment without Cause, but not if the Executive terminates his employment for Good Reason, a bonus for the year in which the Termination Date occurs based on actual performance for the year but prorated for the period of the Executive’s employment through the Termination Date.

Any amounts payable pursuant to clause (i) of this paragraph (B) shall be paid promptly after the Termination Date; any amounts payable pursuant to clauses (ii) or (vi) of this paragraph (B) shall be paid within the time specified in Section 2(B); any amounts payable under clause (iii) of this paragraph (B) shall be paid commencing on the first day of the month following the Termination Date and payable on the first day of each of the next five months thereafter; provided, however, that any payment(s) that would be made under such schedule after March 15 of the year following the Termination Date shall instead be paid on March 1 of the year following the Termination Date; coverage under clause (iv) of this paragraph (B) shall continue for six months following the Termination Date; and coverage under clause (v) of this paragraph (B) shall continue for twelve months following the Termination Date. Notwithstanding the foregoing, if necessary to prevent the Executive from being subject to adverse tax consequences under Section

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409A of the Internal Revenue Code, the amounts payable pursuant to clause (iii) of this paragraph (B) shall not be paid until, and shall be paid in a single sum payment on, the first day after the six month anniversary of the Termination Date and the amount payable pursuant to clause (vi) shall be paid in a single sum payment on the later of the first day after the six month anniversary of the Termination Date or the date that the bonus would be paid in accordance with its terms. In order to receive any payments or benefits under Sections 3(B)(iii), (iv) or (v) and Sections 3(E) and 3(F)of this Agreement and the accelerated vesting of stock options and restricted stock set forth in the following paragraph, the Executive must execute and deliver to the Company a release provided by the Company in substantially the form of Exhibit A hereto. At the end of the twelve month period during which medical, and dental if any, coverage continues under clause (v) above of this paragraph (B), Executive may elect COBRA continuation medical coverage at his own expense. All amounts payable under this Agreement shall be without interest if paid when due.

     If the Executive’s employment under this Agreement is terminated by the Company without Cause or by the Executive for Good Reason, the 220,000 shares of the Company’s stock covered by stock options and the 85,000 shares of restricted stock specified in Section 2(C) shall become immediately vested and nonforfeitable on the Termination Date to the same extent as if the Executive had completed an additional two years of service after the Termination Date and such stock options shall remain exercisable for 90 days following the Termination Date or until the expiration date of the option in accordance with its terms, whichever is earlier.

     As of the Termination Date, except as set forth above, the rights of the Executive to the accrual, payment and/or receipt of any other compensation or benefits described under Section 2 of this Agreement shall immediately cease.

     “Good Reason” shall mean the occurrence of any of the following events without the Executive’s express written consent and without full cure by the Company on 30 days’ written notice from the Executive describing the “Good Reason” event he believes has occurred and requesting cure (provided that, for the avoidance of doubt, if full cure is made by the Company within 15 days of such notice, a “Good Reason” event shall be deemed not to have occurred): (i) removal of the Executive from his position as Chief Executive Officer or other material diminution of his duties or authority, provided that the effect of any sale or other transfer by the Company of a business segment or substantial portion of its assets outside the ordinary course of business or a change in business strategy shall not be deemed to be a material diminution of the Executive’s duties or authority; (ii) failure to maintain the Executive’s salary at the amount specified in Section 2(A) or the Executive’s bonus opportunity specified in Section 2(B); (iii) the Company’s failure to make the equity grants described in Section 2(C) within 90 days of the Commencement Date (unless the equity grants may not be made within such period because of securities law blackout restrictions, in which case the equity grants shall be made as soon as practicable after the securities law blackout restriction no longer applies) or failure to make other material payments hereunder when due; (iv) the Company’s requiring the Executive to relocate the Executive’s office outside of the Northern New Jersey suburbs; or the New York metropolitan area, i.e., New York City, Westchester and Fairfield Counties and Long Island; (v) failure to nominate the Executive to be a member of the Board; or (vi) any failure promptly to obtain the assumption of this

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Agreement by any successor to the Company by way of merger of consolidation. A termination for “Good Reason” shall be effected by the Executive giving at least 30 days’ written notice of such termination after a Good Reason event has occurred.

          (C) Termination by Disability or Death.

     In the event that the employment of the Executive terminates by reason of Disability (as defined below), the Executive shall be entitled to the payments set forth in clauses (i), (ii) and (iii) of Section 3(A) as well as the long-term disability benefit specified in Section 2(E). In the event that the employment of the Executive terminates by death, the amounts set forth in clauses (i) (ii) and (iii) of Section 3(A) shall be paid to his estate and the life insurance benefit specified in Section 2(E) shall be paid to his designated beneficiary, or estate in the absence of designated beneficiary. In addition, the Executive shall be entitled to a bonus for the year in which the Executive’s employment terminates by reason of death or Disability at the time specified in Section 2(B) based on actual performance for the year but prorated for the period of the Executive’s employment for the year and which shall be paid to his designated beneficiary, or estate in the absence of a designated beneficiary, in the event of death.

     In addition, in the event that the employment of the Executive terminates by death or Disability, the stock option grants covering 220,000 shares of the Company’s stock and the 85,000 shares of restricted stock specified in Section 2(C) shall become nonforfeitable to the same extent as if the Executive had completed an additional two years of service after the date of death or termination for Disability and such stock options shall remain exercisable for a period of one year following such death or termination for Disability or the expiration of the option in accordance with its terms, whichever is earlier.

     “Disability” shall mean the Executive’s inability, due to physical or mental incapacity, to substantially perform his duties and responsibilities under this Agreement for 120 days (which need not be consecutive) in any 360 day period, as determined by an approved medical doctor. For this purpose an approved medical doctor shall mean a medical doctor selected by the parties. If the parties cannot agree on a medical doctor, each party shall select a medical doctor and the two doctors shall select a third who shall be the approved medical doctor for this purposes.

          (D) Change in Control.

     Upon the occurrence of a Change in Control, whether or not the employment of the Executive is terminated, the stock option grants covering 220,000 shares of the Company’s stock and the 85,000 shares of restricted stock specified in Section 2(C) shall immediately vest to the extent such stock options and/or restricted shares were scheduled to vest within three years of the date of such Change in Control, and the vesting dates of such stock options or restricted shares that were not scheduled to vest within three years of the date of such Change in Control shall be accelerated by three years. In the event that the Company terminates the Executive’s employment without Cause and a Change in Control occurs within six months following the Termination Date, the aforesaid stock options and restricted shares that were scheduled to vest within three years of the Termination Date (and which did not vest

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on the Termination Date pursuant to Section 3(B)) shall become vested and exercisable on the date of such Change in Control.

     “Change in Control” shall mean the occurrence of any of the following: (i) any “person” (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or “group” (as described in Rule 13d-5 under the Exchange Act), other than any beneficial owner of in excess of 5% of the Company’s voting securities on the date of this Agreement, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing more than 25% of the total combined voting power of the Company’s then outstanding securities, excluding, however, the following: (a) any acquisition of securities directly from the Company, (b) any acquisition of securities by the Company, (c) any acquisition of securities by an employee benefit plan (or related trust) sponsored or maintained by the Company or entirely controlled by the Company, or (d) an event that does not constitute a Change in Control under clauses (iii) and (iv) below; (ii) as a result of any proxy solicitation made otherwise than on behalf of the Board of Directors of the Company, Continuing Directors cease to be a majority of the Board (a “Continuing Director” is any member of the Board who (a) was a member of the Board on November 1, 2007 or (b) first became a member of the Board as a result of or following his election or nomination for election by the Board at a time that Continuing Directors form a majority of the Board and with the approval of a majority of such Continuing Directors); (iii) the merger, consolidation, or other business combination of or by the Company (a “Transaction”), other than a Transaction immediately following which the stockholders of the Company immediately prior to the Transaction continue to be the beneficial owners of securities of the Company or other resulting entity representing more than a majority of the voting power in the Company or other resulting entity in substantially the same proportions as their ownership of Company securities immediately prior to the Transaction, or (iv) the sale of all or substantially all of the Company’s assets, other than a sale immediately following which the stockholders of the Company immediately prior to the sale are the beneficial owners of securities of the purchasing entity in substantially the same proportions as their ownership of Company securities immediately prior to the sale. Except as provided in clause (iv) above, the sale or other transfer by the Company of a business segment or substantial portion of its assets outside the ordinary course of business or a change in business strategy shall not constitute a “Change in Control.”

          (E) Parachute Payment Excise Tax.

     Notwithstanding anything herein to the contrary, if the Executive determines that any amounts due to him under this Agreement and any other plan or program of the Company constitute a “parachute payment,” as such term is defined in Section 280G(b) (2) of the Code, and the amount of the parachute payment, reduced by all federal, state and local taxes applicable thereto, including the excise tax imposed pursuant to Section 4999 of the Code, is less than the amount that the Executive would receive if he were paid three times his “base amount,” as defined in Section 280G(b) (3) of the Code, less $1.00, reduced by all federal, state and local taxes applicable thereto, then at the Executive’s request the Company shall reduce the aggregate of the amounts constituting the parachute payment to an amount that will equal three times the Executive’s base amount less $1.00. The Executive shall have the right

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to specify the portion of such reduction, if any, that will be made under this Agreement and each plan or program of the Company.

          (F) Outplacement.

     In the event that the Company terminates the employment of the Executive without Cause or the Executive terminates his employment for Good Reason, the Executive shall be entitled to outplacement services for a period of six months following the Termination Date for which the Company will reimburse the Executive in an amount not to exceed $10,000.

          (G) No Mitigation; No Offset.

     In the event of any termination of the employment of the Executive hereunder, the Executive shall be under no obligation to seek other employment, and there shall be no offset against any amounts due him (other than as expressly provided herein) on account of any remuneration attributable to any subsequent employment that he may obtain or any claims the Company or any of its affiliates may have against him.

          4. CONFIDENTIALITY

     The Executive shall, during and after his employment by the Company and except in connection with performing services on behalf of (or for the benefit of) the Company or any of its affiliates, keep secret and retain in the strictest confidence all confidential, proprietary and non-public matters, tangible or intangible, of or related to the Company, its stockholders, subsidiaries, affiliates, successors, assigns, officers, directors, attorneys, fiduciaries, representatives, employees, licensees and agents including, without limitation, trade secrets, business strategies and operations, customer lists, manufacturers, material suppliers, financial information, personnel information, legal advice and counsel obtained from counsel, information regarding litigation, actual, pending or threatened, research and development, identities and habits of employees and agents and business relationships, and shall not disclose them to any person, entity or any federal, state or local agency or authority, except as may be required by law. Notwithstanding the foregoing, nothing in this Agreement or elsewhere shall prohibit the Executive from making any statement or disclosure (i) to the extent required by law; (ii) to the extent required by subpoena or other legal process (upon receipt of which the Executive shall immediately give the Company written notice thereof in order to afford the Company an opportunity to contest such disclosure); (iii) with the Company’s prior written consent; or (iv) in confidence to an attorney for the purpose of obtaining legal advice.

     Upon termination of his employment with the Company, the Executive shall return to the Company all confidential, proprietary and non-public materials, and any other property of the Company, in his possession. The personal property of the Executive, including his rolodex, documents relating to his benefits, compensation, tax liabilities, personal obligations (e.g., restrictive covenants), and the like, shall not be subject to return pursuant to the preceding sentence.

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     5. NON-COMPETE; NONSOLICITATION

     The Executive agrees that during his employment by the Company and for one year thereafter, he shall not, directly or indirectly, engage or be interested in (as owner, partner, stockholder, employee, director, officer, agent, fiduciary, consultant or otherwise), with or without compensation, any business engaged in the manufacture, distribution, promotion, design, marketing, merchandising or sale of infant bedding and accessories, infant feeding utensils and bowls, pacifiers, bibs and bottles, infant developmental toys, soft toys and plush products or any other product providing more than 10% of the revenues of the Company for the prior fiscal year. The Executive also agrees that for two years after his termination of employment, he shall not, directly or indirectly, solicit the employment or retention of (or attempt, directly or indirectly, to solicit the employment or retention of or participate in or arrange the solicitation of the employment or retention of) any person who is to his knowledge then employed or retained by the Company, or by any of its subsidiaries or affiliates. Notwithstanding the foregoing, nothing in this Section 5 shall prohibit the Executive from (i) performing services, with or without compensation, for, or engaging or being interested in, any business or entity, that does not directly relate to business activities that compete directly and materially with a material business of the Company or its subsidiaries or (ii) acquiring or holding not more than five percent of any class of publicly-traded securities of any business. A business or entity that realized less than 20% of its revenues during its most recently completed fiscal year from sales of the aggregate of the following products shall not be deemed to compete directly and materially with a material business of the Company or its subsidiaries: infant bedding and accessories; infant feeding utensils and bowls, pacifiers, bibs and bottles, infant developmental toys, soft toys and plush products and any other product providing more than 10% of the revenues of the Company for the prior fiscal year.

     6. NONDISPARAGEMENT

     The Executive shall, after his employment with the Company has terminated, refrain from any action that could reasonably be expected to harm the reputation or goodwill of the Company, its subsidiaries, affiliates and any shareholder holding more than 5% of the Company’s voting securities, including, without limitation, making derogatory comments about the character or ability of the Company or its directors, officers, employees, shareholders, agents or representatives.

     The Company shall, after the employment of the Executive with the Company has terminated, refrain from any action that could reasonably be expected to harm the reputation of the Executive, including, without limitation, making derogatory comments about the character or ability of the Executive.

     7. REMEDY FOR BREACH AND MODIFICATION

     The Executive acknowledges that the provisions of this Agreement are reasonable and necessary for the protection of the Company and that the Company may be irreparably damaged if these provisions are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief or remedies available to the Company, the Company shall be

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entitled to seek appropriate temporary, preliminary and permanent injunctive or other equitable relief for the purposes of restraining the Executive from any actual or threatened breach of or otherwise enforcing these provisions and no bond or security will be required in connection therewith. In addition, notwithstanding any provision in this Agreement to the contrary, if the Executive breaches any of the provisions of Sections 4, 5 or 6 of this Agreement at any time and such breach is either (x) willful and not inconsequential or (y) in a material respect and not cured promptly after notice from the Company, he shall not thereafter be entitled to any payments or benefits under this Agreement.

     8. SEVERABILITY

     If any provision of this Agreement is deemed invalid or unenforceable, such provision shall be deemed modified and limited to the extent necessary to make it valid and enforceable.

     9. COUNTERPARTS; FACSIMILES

     This Agreement may be executed in two or more counterparts, each of which shall be considered an original, but all of which together shall constitute the same instrument. Signatures delivered by facsimile shall be effective for all purposes.

     10. GOVERNING LAW; JURISDICTION; ARBITRATION

          (A) This Agreement shall be governed by, and construed and interpreted in accordance with its express terms, and otherwise in accordance with the laws of the State of New Jersey, without regard to conflicts of laws principles.

          (B) Any claim or dispute arising out of or relating to this Agreement, or the breach, termination or validity of this Agreement, or the Executive’s employment with the Company or the termination thereof (a “Dispute”), shall, except to the extent otherwise provided in Section 10(C) below with respect to certain claims for injunctive relief, be submitted for de novo review in arbitration in accordance with the procedures set forth in this Section 11(B). A party that wishes to initiate the arbitration of a Dispute (the “Initiating Party”) shall give notice of its demand for arbitration to the other party (or parties); that notice must include a description of the Dispute in reasonable detail and a specific description of the relief sought by the Initiating Party, including a proposed form of award by the arbitrator. Within ten days after that notice is given, the other party or parties (each, a “Responding Party”) shall give notice to the Initiating Party including a statement as to whether it wishes to submit to the arbitration a Dispute that varies from, or is in addition to, the Dispute described in the Initiating Party’s notice and a specific description of the relief sought by the Responding Party, including a proposed form of award by the arbitrator. If a Responding Party’s notice describes a Dispute that varies from, or is in addition to, the Dispute described in the Initiating Party’s notice, the Initiating Party may, by notice to the Responding Party within five days after the Responding Party’s notice is given, modify the description of its requested relief, including the proposed form of award by the arbitrator, to take account of the Dispute as described in the Responding Party’s notice. The arbitration shall be conducted in New Jersey before a single arbitrator in accordance with the rules of the

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American Arbitration Association (at the offices of the American Arbitration Association nearest to the principal executive offices of the Company). Each party shall bear its own fees and expenses of arbitration hereunder, including the fees and expenses of its lawyers, representatives, and witnesses, and shall share equally with the other party all other costs of the arbitration, including the fees and expenses of the arbitrators; provided, however, that the arbitrators shall have the power to award recovery of any or all costs of arbitration (including fees and expenses of the arbitrators, costs of assistance required by the tribunal, fees of the American Arbitration Association and reasonable attorneys’ and other experts’ fees) to the prevailing party.

          (C) Notwithstanding the foregoing, either Party may seek to enforce, through injunctive or similar relief, any provision of Sections 4, 5 or 6 of this Agreement in the courts of the State of New Jersey, or if it has or can acquire jurisdiction, in the United States District Court for the District of New Jersey, and each of the Parties hereby consents to the jurisdiction of such courts (and the appropriate appellate courts) and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on either Party anywhere in the world, whether within or without the State of New Jersey.

     11. NOTICES

     Any notice or other communication made or given in connection with this Agreement may be given by counsel, shall be in writing, and, if to a Party, shall be deemed to have been duly given when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile with confirmation of transmission by the transmitting equipment; or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to a Party at his or its address or facsimile number set forth below or at such other address or facsimile number as a Party may specify by notice to the other Party:

 

 

 

 

 

To the Executive, at his principal residence as reflected in
the records of the Company, with a copy to him at his
principal business office during his employment with the
Company:

 

 

 

 

 

with a simultaneous copy to:

 

 

 

 

 

Gary L. Schoenbrun, Esq.
Dickstein Shapiro LLP
1177 Avenue of the Americas
New York NY 10036
Fax No.: 212-277-6501

 

 

 

 

 

To the Company:

 

 

 

 

 

111 Bauer Drive
Oakland, NJ 07436
Attention: Marc S. Goldfarb, Esq. General Counsel
Fax No.: 201-405-7377

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With a simultaneous copy to:

 

 

 

 

 

Edward P. Smith, Esq.
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Fax No.: 212-541-5369

     12. ENTIRE AGREEMENT; AMENDMENT

     This Agreement supersedes all prior agreements between the Parties with respect to its subject matter, is intended (with the documents referred to herein) as a complete and exclusive statement of the terms of the agreement between the Parties with respect thereto, and cannot be changed or terminated orally. Any conflict between the provisions of this Agreement (including all attachments) and the provisions of any other present or future Company Arrangement shall be resolved in favor of this Agreement, unless the Parties otherwise agree in a signed writing that specifically identifies the provision(s) of this Agreement (including all attachments) that are intended to be affected.

     13. WAIVER

     The failure of any Party or person to insist upon strict adherence to any term of this Agreement (including all attachments) on any occasion shall not be considered a waiver or deprive that Party or person of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement (including all attachments). Any waiver must be in writing and must specifically identify the provision(s) of this Agreement (including all attachments) being affected.

     14. ASSIGNMENT

     Except as otherwise provided in this Section 14, this Agreement shall inure to the benefit of and be binding upon the Parties and their respective heirs, representatives, successors and assigns. This Agreement shall not be assignable by the Executive, and shall be assignable by the Company only to any corporation or other entity that succeeds to all, or substantially all, of the Company’s business or assets, and that expressly assumes (or assumes by operation of law in any merger or consolidation) the Company’s obligations hereunder. In the event of the Executive’s death or a judicial determination of his incapacity, references in this Agreement (including its attachments) to the “Executive” shall be deemed to include, as appropriate, his estate, heirs and/or legal representatives.

     15. AUTHORITY

     The Company represents and warrants that it has the power, authority and right to enter into this Agreement and to carry out and perform the terms, covenants and conditions hereof. The Executive represents and warrants that he is not subject to any contractual or other commitment (including commitments relating to notice of resignation) that he has not

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disclosed to the Company and that would be breached by the Executive by his performance of this Agreement or that would restrict the performance of his obligations hereunder.

     16. CODES

     The Board has adopted a Code of Business Conduct and Ethics and a Code of Ethics for Principal Executive Officer and Senior Financial Officers. The Executive is expected to require compliance with those codes by the employees covered thereby and to comply himself.

     17. DEDUCTIONS

     The Company may deduct from the compensation described herein any applicable Federal, state and/or city withholding taxes, any applicable social security contributions, and any other amounts which may be required to be deducted or withheld by the Company pursuant to any Federal, state or city laws, rules or regulations or any election he shall have made.

     18. CONSULTING AGREEMENT

     The provisions of the Consulting Agreement between Executive and the Company dated February 28, 2007 for the compensation of the Executive for providing consulting services to the Company shall terminate on the Commencement Date.

     19. EXPENSES OF PREPARATION OF AGREEMENT

     Each of the Company and the Executive shall bear its own expenses for the preparation and negotiation of this Agreement, provided that the Company shall reimburse the Executive for his legal fees with respect to this Agreement and a Consulting Agreement with the Company to a maximum of $25,000.

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     20. CAPTIONS

     The captions in this Agreement are for convenience of reference only and shall not be given any effect in the interpretation of this Agreement.

     IN WITNESS WHEREOF, the Executive and the Company have signed this Agreement as of the date first set forth above.

RUSS BERRIE AND COMPANY, INC.

 

 

 

By:

 

/s/ Marc S. Goldfarb

 

 

 

 

 

Name: Marc S. Goldfarb

 

 

Title: Senior Vice President and

 

 

            General Counsel

THE EXECUTIVE

/s/ Bruce Crain          
Bruce Crain

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Exhibit A

GENERAL RELEASE

     1. GENERAL RELEASE OF ALL CLAIMS

     The undersigned individual (the “Executive”) hereby irrevocably releases and forever discharges any and all known and unknown liabilities, debts, obligations, causes of action, demands, covenants, contracts, liens, controversies and any other claim of whatsoever kind or nature that the Executive ever had, now has or may have in the future against Russ Berrie and Company, Inc. (the “Company”), its stockholders, subsidiaries, affiliates, successors, assigns, officers, directors, attorneys, fiduciaries, representatives, employees, licensees, agents and assigns (the “Releasees”), to the extent arising out of or related to the performance of any services to or on behalf of the Company or the termination of those services and other than claims for payments, benefits or entitlements preserved by Section 3, and claims for indemnification and advancement of expenses under Section 2(G), of the Employment Agreement dated as of December 4, 2007, between the Company and the Executive (the “Employment Agreement”), including without limitation: (i) any such claims arising out of or related to any federal, state and/or local labor or civil rights laws including, without limitation, the federal Civil Rights Acts of 1866, 1871, 1964, the Equal Pay Act, the Older Workers Benefit Protection Act, the Rehabilitation Act, the Jury Systems Improvement Act, the Uniformed Services Employment and Reemployment Rights Act, the Vietnam Era Veterans Readjustment Assistance Act, the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, the Age Discrimination in Employment Act, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act of 1938, the New York Human Rights Law, the New Jersey Law Against Discrimination, the New Jersey wage and hour laws, and the New Jersey Conscientious Employee Protection Act, the California Fair Employment and Housing Act, the California Labor Code; (ii) any and all other such claims arising out of or related to any contract, any and all other federal, state or local constitutions, statutes, rules, regulations or executive orders; or (iii) any and all such claims arising from any common law right of any kind whatsoever, including, without limitation, any claims for any kind of tortious conduct, promissory or equitable estoppel, defamation, breach of the Company’s policies, rules, regulations, handbooks or manuals, breach of express or implied contract or covenants of good faith, wrongful discharge or dismissal, and/or failure to pay, in whole or part, any compensation of any kind whatsoever (collectively, “Executive’s Claims”).

     Execution of this Release by the Executive operates as a complete bar and defense against any and all of the Executive’s Claims against the Company and/or the other Releasees. If the Executive should hereafter assert any Executive’s Claims in any action or proceeding against the Company or any of the Releasees, as applicable, in any forum, this Release may be raised as and shall constitute a complete bar to any such action or proceeding and the Company and/or the Releasees shall be entitled to recover from the Executive all costs incurred, including attorneys’ fees, in defending against any such Executive’s Claims.

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     Executive further waives and relinquishes any rights and benefits which he has or may have under California Civil Code § 1542 to the fullest extent that he may lawfully waive all such rights and benefits pertaining to the subject matter of this Release. Civil Code § 1542 provides that a general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Executive acknowledges that he is aware that he may later discover facts in addition to or different from those which he now knows or believes to be true with respect to the subject matter of this Release, but it is his intention to fully and finally forever settle and release any and all claims, matters, disputes, and differences, known or unknown, suspected and unsuspected, which now exist, may later exist or may previously have existed between the parties to the extent set forth in the first paragraph hereof, and that in furtherance of this intention this Release shall be and remain in effect as a full and complete general release to the extent set forth in the first paragraph herein, notwithstanding discovery or existence of any such additional or different facts.

     2. OPPORTUNITY FOR REVIEW

     The Executive acknowledges that he has had a reasonable opportunity to review and consider the terms of this Release for a period of at least 21 days, that he understands and has had the opportunity to receive counsel regarding his/ her respective rights, obligations and liabilities under this Release and that to the extent that the Executive has taken less than 21 days to consider this Release, the Executive acknowledges that he has had sufficient time to consider this Release and to consult with counsel and that he does not desire additional time to consider this Release. As long as the Executive signs and delivers this Release within such 21 day time period, he will have seven days after such delivery to revoke his decision by delivering written notice of such revocation to the Company. If the Executive does not revoke his decision during that seven-day period, then this Release shall become effective on the eighth day after being delivered by the Executive.

     3. BINDING EFFECT

     This Release is binding on the Executive’s heirs and personal representative.

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     4. GOVERNING LAW; ARBITRATION; MISCELLANEOUS

     The provisions of Sections 8, 9, 10(A), 11, 13, 15, and 19 of the Employment Agreement shall be deemed incorporated into this Release as if fully set forth herein. Any claim or dispute arising under or relating to this Release, or the breach, termination or validity of this Release, shall be deemed a “Dispute” subject to Section 10(B) of the Employment Agreement.

 

 

 

 

 

 

 

RUSS BERRIE AND COMPANY, INC.

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bruce Crain

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RUSS BERRIE AND COMPANY, INC.
RESTRICTED STOCK AGREEMENT

Date of Grant: December   , 2007

     Russ Berrie and Company, Inc., a New Jersey corporation (the “Company”), does hereby grant to Bruce G. Crain (the “Executive”), as of the date set forth above, pursuant to the 2004 Russ Berrie and Company, Inc. Stock Option, Restricted and Non-Restricted Stock Plan (the “2004 Plan”), which is incorporated herein by reference, 85,000 shares of its Common Stock (stated value $.10) (the “Restricted Stock”), upon the following terms and conditions. This grant is being made pursuant to the terms of the Employment Agreement dated as of December 4, 2007 between the Company and the Executive (the “Employment Agreement”). Capitalized terms used but undefined herein shall have the meanings ascribed to them in the Employment Agreement. This is the Restricted Stock Agreement referred to in Section 6.9 of the 2004 Plan.

     1. The Restricted Stock shall be registered in the name of the Executive and held by the Company until the restrictions on such Restricted Stock lapse and such Restricted Stock is no longer subject to forfeiture in accordance with the terms hereof. As the restrictions on the Restricted Stock lapse (unless such stock is earlier forfeited in accordance with the terms hereof), the Company shall deliver to the Executive certificates representing such stock, free and clear of all restrictions other than those arising under federal and/or state securities laws.

     2. (a) Subject to the provisions of Sections 3 and 7 hereof, the Restricted Stock shall vest ratably over four years (25% per year) from December 4, 2007 (“Employment Commencement Date”), and upon vesting, shall not be subject to any further restrictions hereunder.

          (b) Except as provided in Section 3 hereof, and subject to the provisions of Section 7 hereof in the event of a Business Combination, any non-vested Restricted Stock shall be immediately forfeited and all rights of the Executive to such forfeited Restricted Stock shall terminate without payment of consideration by the Company upon termination of the Executive’s employment by the Company for Cause or termination of employment by the Executive without Good Reason.

     3. (a) In the event that the employment of the Executive is terminated prior to the vesting of all or part of the Restricted Stock, and such termination is by the Company without Cause or by the Executive for Good Reason, or by reason of the

 


 

Executive’s death or Disability, the Executive shall be credited with an additional two years of service after his Termination Date for purposes of determining vesting and nonforfeitability of the Restricted Stock.

          (b) Upon the occurrence of a Change in Control (as defined in the Employment Agreement), whether or not the employment of the Executive has terminated, the shares of Restricted Stock that were scheduled to vest within three years of the date of such Change in Control shall vest on the date of such Change in Control and vesting of the shares of Restricted Stock that were not scheduled to vest within three years of such Change in Control shall be accelerated by three years. In addition, in the event that the Company terminates the Executive’s employment without Cause and a Change in Control occurs within six months following the Termination Date, the shares of Restricted Stock that were scheduled to vest within three years of the Termination Date (and which did not vest on the Termination Date pursuant to Section 3(a)) shall vest on the date of the Change in Control.

          (c) The Committee (as defined in the 2004 Plan) may at any time, in its sole discretion, accelerate the time at which any or all of the Restricted Stock will vest or remove any or all of such restrictions with respect to the Restricted Stock.

     4. None of the Restricted Stock may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during the period in which the Restricted Stock has not become nonforfeitable.

     5. Subject to the restrictions set forth in this Agreement, the Executive shall have all of the rights of a shareholder with respect to the Restricted Stock, including the right to receive all dividends thereon.

     6. An appropriate legend shall be placed on the stock certificate representing the Restricted Stock with respect to the restrictions imposed thereon.

     7. The award of Restricted Stock hereunder shall be subject to adjustment as follows:

          (a) In the event of any change in the outstanding Common Stock by reason of a dissolution or liquidation of the Company, sale of all or substantially all of the assets of the Company, merger or consolidation of the Company with or into any other corporation if the Company is the surviving corporation, statutory share exchange involving capital stock of the Company, reorganization, recapitalization, reclassification, stock dividend, extraordinary dividend, stock split, reverse stock split, stock combination, rights offering, spin-off or other relevant change, the Committee shall adjust the aggregate number of shares of Common Stock available for awards of Restricted Stock

2


 

and any or all other matters deemed appropriate by the Committee, including, without limitation, accelerating the vesting period pertaining to the Restricted Stock.

          (b) In connection with a Business Combination (as defined in the 2004 Plan), the Committee, in its sole discretion, may provide for (i) the continuation of the Plan and/or the assumption of the awards granted thereunder by a successor corporation (or a parent or subsidiary thereof), or (ii) the substitution for such awards of new awards covering the stock of a successor corporation (or a parent or subsidiary thereof), with appropriate adjustments as to the number and kind of shares. In the event of any continuation, assumption or substitution contemplated by the foregoing clauses, the award of Restricted Stock shall continue in the manner and under the terms so provided.

          (c) If, by reason of a change in capitalization described above, Executive shall be entitled to new, additional or different shares of stock or securities of the Company or any other corporation in respect of his Restricted Stock, in the event that the 2004 Plan continues, such new, additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Restricted Stock prior to such change in capitalization.

     8. Subject to the limitations set forth in the 2004 Plan, the Committee is vested with absolute discretion and authority to interpret the 2004 Plan and make all determinations necessary or advisable for the administration thereof. Any good faith determination of the Committee in the administration of the 2004 Plan, as described therein, shall be final, conclusive and binding upon the Executive and any person claiming under or through the Executive, including, without limitation, any adjustments pursuant to Section 7 hereof.

     9. Nothing contained in the 2004 Plan or this Agreement shall confer upon the Executive any right with respect to continuance of employment by the Company nor limit in any way the right of the Company to terminate or modify his employment at any time, with or without Cause.

     10. If the Company is for any reason required to withhold any amount under the laws and regulations of the United States, any jurisdiction thereof or local government with respect to the issuance of Restricted Stock hereunder, or the lapse of restrictions with respect thereto (“Withholding Taxes”), the Executive or other person receiving such stock shall be required to pay the Company the amount of any such Withholding Taxes. The Company shall have the right to require the payment of any such Withholding Taxes before issuing any Restricted Stock hereunder or removing the restrictions with respect thereto. In lieu of all or any part of a cash payment regarding such Withholding Taxes, the Committee will permit the Executive to cover all or any part of the Withholding Taxes, through a reduction in the number of shares of stock delivered to such person or a

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delivery or tender to the Company of shares of Common Stock held by such person, in each case valued in the same manner as used in computing the Withholding Taxes under applicable laws.

     11. The Company shall not be required to issue or deliver a certificate for shares of Restricted Stock hereunder unless the issuance of such certificate complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1933, as amended, and the requirements of the exchanges, if any, on which the Company’s shares of Common Stock may, at that time, be listed.

     12. Notwithstanding anything contained in the 2004 Plan or herein to the contrary, in the event that the disposition of shares of Restricted Stock acquired pursuant to the 2004 Plan is not covered by a then current registration statement under the Securities Act, and is not otherwise exempt from such registration, such shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulations thereunder. The certificates evidencing any of such shares shall be appropriately amended or have an appropriate legend placed thereon to reflect their status as restricted securities as aforesaid.

     13. To the extent that federal laws of the United States do not otherwise control, this Agreement shall be governed by the laws of New Jersey, without giving effect to principles of conflicts of laws, and shall be construed accordingly.

     14. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Agreement, and this Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.

     15. This Agreement shall be binding upon and inure to the benefit of the successors (including by way of merger), assigns and heirs of the respective parties.

     16. The Executive acknowledges and agrees that a violation of Section 4 of this Agreement will cause the Company irreparable injury for which adequate remedy at law is not available. Accordingly, the Executive agrees that the Company shall be

4


 

entitled to an injunction, restraining order or other equitable relief, without the posting of any bond, to prevent the breach of such Section and to enforce the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it may be entitled at law or equity.

 

 

 

 

 

 

 

RUSS BERRIE AND COMPANY, INC.

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

AGREED TO AND ACCEPTED AS OF THE
DATE OF GRANT SET FORTH ABOVE:

 

 

 

 

SIGNATURE-EXECUTIVE

 

 

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[100,000 Shares]
[2008 Option]

RUSS BERRIE AND COMPANY, INC.
STOCK OPTION AGREEMENT

Date of Grant: January   , 2008

     In accordance with the Employment Agreement (the ”Employment Agreement”) dated as of December 4, 2007, between Russ Berrie and Company, Inc, a New Jersey corporation (together with its successors and assigns, the “Company”) and Bruce G. Crain (the “Executive”), the Company does hereby grant to the Executive, as of the grant date set forth above, a stock option (the “Option”) to purchase an aggregate of 100,000 shares of its Common Stock (stated value $.10 per share) (“Shares”) at the price of $[   ] per share (the “Option Price”), upon the following terms and conditions. Capitalized terms used but undefined herein shall have the meanings ascribed to them in the Employment Agreement.

     1. (a) This Option is intended to be a non-qualified stock option and is granted under the Company’s 2004 Stock Option, Restricted and Non-Restricted Stock Plan (the “2004 Plan”).

          (b) Except as provided in Sections 2 and 4 below, this Option shall vest and become exercisable ratably over five years (20% per year) from December 4, 2007 the (“Employment Commencement Date”) and have a term of ten years from the Employment Commencement Date, provided, however, the term of exercisability of a vested portion of the Option shall be subject to the provisions of Sections 2 and 4 below.

     2. (a) If the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason, any outstanding unexercisable portion of this Option shall be deemed to be exercisable to the same extent as if the Executive had completed an additional two years of service after his Termination Date and the exercisable portion of this Option shall remain exercisable for 90 days following the Termination Date or until the ten year expiration date of this Option, whichever is earlier.

          (b) In the event the Executive’s employment terminates by death or Disability, any outstanding unexercisable portion of this Option shall be deemed to be exercisable to the same extent as if the Executive had completed an additional two years of service after the date of death or termination for Disability and the exercisable portion of this Option shall remain exercisable for a period of one year following such death or termination for Disability or until the ten year expiration date of this Option, whichever is earlier.

          (c) Upon the occurrence of a Change in Control, whether or not the employment of the Executive is terminated, any outstanding unexercisable of portion of this

 


 

Option that was scheduled to become exercisable within three years of the date of such Change in Control shall become exercisable, and the exercisability of any portion of this Option that was not scheduled to become exercisable within three years of the date of such Change in Control shall be accelerated by three years. In the event that the Company terminated the Executive’s employment without Cause and a Change in Control occurs within six months following the Termination Date, any outstanding unexercisable portion of this Option that was scheduled to vest within three years of the Termination Date (and which did not vest on the Termination Date pursuant to 2(a) above) shall become exercisable on the date of such Change in Control and shall remain exercisable for 90 days following the date of the Change in Control or until the ten year expiration date of this Option, whichever is earlier.

          (d) In the event that the Executive terminates his employment without Good Reason or the Company terminates the employment of the Executive for Cause, any unexercised portion of this Option that is not exercisable on the Termination Date will be cancelled and deemed terminated on the Termination Date and any outstanding exercisable portion of this Option shall remain exercisable for 90 days following the Termination Date or until the ten year expiration date of this Option, whichever is earlier.

     3. This Option shall be exercised by giving written notice of exercise to the Company at 111 Bauer Drive, Oakland, NJ 07430 (Attention: Chief Financial Officer) as follows:

          (a) Method of Exercise. In order to exercise this Option in whole or in part, the Executive shall submit to the Company a writing specifying the whole number of Shares in respect of which the Option is being exercised and accompanied by payment in full (or an arrangement for payment in full) in accordance with Section 3(b) below of the aggregate Option Price of the Shares in respect of which the Option is being exercised. The number of Shares for which the Option has thus been exercised shall then promptly be issued by the Company (the “Option Shares”) and a certificate for such Shares shall be promptly delivered to the Executive.

          (b) Method of Payment. Payment of the aggregate Option Price for Option Shares may be made (i) by delivery to the Company of cash or a check to the order of the Company and backed by sufficient funds in an amount equal to the aggregate Option Price of such Shares; (ii) to the extent that use of this procedure will not result in any incremental accounting charges to the Company, by authorizing the Company to withhold Shares that would otherwise be delivered to the Executive having an aggregate Market Price on the date of exercise equal to the aggregate Option Price of the Option Shares; (iii) by delivery to the Company of Shares then owned by the Executive having an aggregate Market Price on the date of delivery equal to the aggregate Option Price of the Option Shares; or (iv) by any combination of (i), (ii) or (iii). The Company shall also from time to time make available to the Executive any “cashless exercise” procedure that it then makes available to other option holders who are directors and executive officers of the Company.

          (c) Delivery of Shares in Payment of Option Price. Payment by delivery of Shares may be effected by delivering one or more stock certificates or by otherwise delivering

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Shares to the Company’s reasonable satisfaction, in each case accompanied by such endorsements, stock powers, signature guarantees or other documents or assurances as may reasonably be required by the Company. If a certificate or certificates or other documentation representing Shares in excess of the amount required are delivered, a certificate (or other satisfactory evidence of ownership) representing the excess number of Shares shall be returned by the Company. The Company need not accept fractional Shares.

     4. The number and type of securities (or other property) subject to this Option, the price to be paid therefor, and the other terms of this Agreement, shall be subject to adjustment as follows:

          (a) In the event of any dissolution or liquidation of the Company, sale of all or substantially all of the assets of the Company, merger or consolidation of the Company with or into any other corporation if the Company is the surviving corporation, statutory share exchange involving capital stock of the Company, reorganization, recapitalization, reclassification, stock dividend, extraordinary dividend, stock split, reverse stock split, stock combination, rights offering, spin-off or other relevant change, the Committee (as defined in the 2004 Plan) shall make equitable adjustments to the Option as is applicable under the circumstances. Such adjustment shall include, as applicable, changes in the number of Shares subject to the Option and Option exercise price and any other adjustments deemed appropriate by the Committee.

          (b) In connection with a Business Combination (as defined in the 2004 Plan), the Committee (as defined in the 2004 Plan), in its sole discretion, may provide for (i) the assumption of the Option by a successor corporation (or a parent or subsidiary thereof), (ii) the substitution for the Option of new awards covering the stock of a successor corporation (or a parent or subsidiary thereof), with appropriate adjustments as to the number and kind of shares and exercise prices, (iii) upon 10 days’ advance notice from the Committee to the Executive, the acceleration of the vesting and/or exercise period pertaining to the Option or (iv) upon 10 days’ advance notice from the Committee to the Executive, (x) the cancellation of any outstanding portion of the Option that is then exercisable and the payment to the holder thereof, in cash or stock, or any combination thereof, of the value of such portion based upon the price per share of Stock received or to be received by other stockholders of the Company in connection with the Business Combination, and (y) the cancellation of the portion of the Option that is not then exercisable, provided that the Executive’s Options shall not be cancelled unless all other outstanding unexercisable Options are cancelled as a result of the Business Combination. In the event of any continuation, assumption or substitution contemplated by the foregoing clauses, the Option shall continue in the manner and under the terms so provided.

          (c) If, by reason of any adjustment to the Option pursuant to the provisions described above, the Executive shall be entitled to new, additional or different shares of stock or securities of the Company or any other corporation in respect of the Option, such new, additional or different shares shall thereupon be subject to all of the conditions and restrictions which were applicable to the Shares subject to the Option prior to such adjustment.

3


 

     5. This Option shall not be assignable or transferable except by will or by the laws of descent or distribution provided, however, that the Executive may transfer all or any portion of the Option to a member of his Immediate Family (as defined under the 2004 Plan), a trust for the benefit of the Executive or any member of his Immediate Family, partnerships in which the Executive or his Immediate Family members and/or trusts are the only partners, and/or any organization exempt under Section 501(c) of the Internal Revenue Code of 1986, as amended (the “Code”). Subject to the provisions of Section 2, this Option shall be exercisable only by the Executive or his permitted assignee or transferee.

     6. Nothing contained in this Agreement shall confer upon the Executive any right with respect to continuance of employment by the Company nor limit in any way the right of the Company to terminate or modify his employment at any time, with or without Cause.

     7. Any determination of the Committee as to any adjustments pursuant to Section 4 hereof shall be final, conclusive and binding upon the Executive and any person claiming under or through the Executive, to the extent made by the Committee in good faith.

     8. If the Company is for any reason required to withhold any amount under the tax laws or regulations of the United States, any jurisdiction thereof or local government with respect to the transfer of Option Shares upon exercise of the Option (“Withholding Taxes”), the Executive or other person receiving such Shares shall be required to pay the Company the amount of any such Withholding Taxes, such payment to be made in any of the fashions authorized under Section 3(b) above.

     9. The Company shall not be required to issue or deliver a certificate for Option Shares unless the issuance and delivery of such certificate complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended, and the requirements of the exchanges, if any, on which the Company’s shares of Common Stock may, at that time, be listed.

     10. Notwithstanding anything contained herein to the contrary, in the event that the disposition of Option Shares is not covered by a then current registration statement under the Securities Act, and is not otherwise exempt from such registration, such Option Shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulation thereunder. The certificates evidencing any of such Option Shares shall be appropriately amended or have an appropriate legend placed thereon to reflect their status as restricted securities as aforesaid.

     11. The Executive acknowledges and agrees that a violation of Section 5 of this Agreement will cause the Company irreparable injury for which adequate remedy at law is not available. Accordingly, the Executive agrees that the Company shall be entitled to an injunction, restraining order or other equitable relief, without the posting of any bond, to prevent the breach of Section 5, and to enforce the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it may be entitled at law or equity.

4


 

     12. The Executive shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any Shares purchasable upon exercise of the Option granted hereunder unless and until certificates representing such shares shall have been issued by the Company.

     13. “Market Price,” when used with respect to the price of a Share on a particular day, shall mean the closing price for which a Share is purchased that day (or, if no purchases have been made on such day, on the most recent preceding day on which such a purchase occurred) on the principal national securities exchange or national market system on which Shares are then listed or eligible for sale (or, if Shares are not then listed or eligible for sale on any such exchange or market system, the price as determined reasonably in good faith by the Committee).

 

 

 

 

 

 

RUSS BERRIE AND COMPANY, INC.
 

 

 

By:  

 

 

 

 

 

 

 

 

 

 

 

AGREED TO AND ACCEPTED AS OF THE
DATE OF GRANT SET FORTH ABOVE:

                      

5


 

20,000 Share]
[2007 Option]

RUSS BERRIE AND COMPANY, INC.
STOCK OPTION AGREEMENT

Date of Grant: December   , 2007

     In accordance with the Employment Agreement (the ”Employment Agreement”) dated as of December 4, 2007, between Russ Berrie and Company, Inc, a New Jersey corporation (together with its successors and assigns, the “Company”) and Bruce G. Crain (the “Executive”), the Company does hereby grant to the Executive, as of the grant date set forth above, a stock option (the “Option”) to purchase an aggregate of 20,000 shares of its Common Stock (stated value $.10 per share) (“Shares”) at the price of $[   ] per share (the “Option Price”), upon the following terms and conditions. Capitalized terms used but undefined herein shall have the meanings ascribed to them in the Employment Agreement.

     1. (a) This Option is intended to be a non-qualified stock option and is granted under the Company’s 2004 Stock Option, Restricted and Non-Restricted Stock Plan (the “2004 Plan”).

          (b) Except as provided in Sections 2 and 4 below, this Option shall fully vest and become exercisable on the six month anniversary of December 4, 2007 (“Employment Commencement Date”) and have a term of ten years from the Employment Commencement Date, provided, however, the term of exercisability of the Option shall be subject to the provisions of Sections 2 and 4 below.

     2. (a) If the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason, this Option shall be exercisable in full and shall remain exercisable for 90 days following the Termination Date or until the ten year expiration date of this Option, whichever is earlier.

          (b) In the event the Executive’s employment terminates by death or Disability, this Option shall be exercisable in full and shall remain exercisable for a period of one year following such death or termination for Disability or until the ten year expiration date of this Option, whichever is earlier.

          (c) Upon the occurrence of a Change in Control, whether or not the employment of the Executive is terminated, this Option shall become exercisable in full.

          (d) In the event that the Executive terminates his employment without Good Reason or the Company terminates the employment of the Executive for Cause, any unexercised portion of this Option that is not exercisable on the Termination Date will be cancelled and deemed terminated on the Termination Date and any outstanding exercisable

 


 

portion of this Option shall remain exercisable for 90 days following the Termination Date or until the five year expiration date of this Option, whichever is earlier.

     3. This Option shall be exercised by giving written notice of exercise to the Company at 111 Bauer Drive, Oakland, NJ 07430 (Attention: Chief Financial Officer) as follows:

          (a) Method of Exercise. In order to exercise this Option in whole or in part, the Executive shall submit to the Company a writing specifying the whole number of Shares in respect of which the Option is being exercised and accompanied by payment in full (or an arrangement for payment in full) in accordance with Section 3(b) below of the aggregate Option Price of the Shares in respect of which the Option is being exercised. The number of Shares for which the Option has thus been exercised shall then promptly be issued by the Company (the “Option Shares”) and a certificate for such Shares shall be promptly delivered to the Executive.

          (b) Method of Payment. Payment of the aggregate Option Price for Option Shares may be made (i) by delivery to the Company of cash or a check to the order of the Company and backed by sufficient funds in an amount equal to the aggregate Option Price of such Shares; (ii) to the extent that use of this procedure will not result in any incremental accounting charges to the Company, by authorizing the Company to withhold Shares that would otherwise be delivered to the Executive having an aggregate Market Price on the date of exercise equal to the aggregate Option Price of the Option Shares; (iii) by delivery to the Company of Shares then owned by the Executive having an aggregate Market Price on the date of delivery equal to the aggregate Option Price of the Option Shares; or (iv) by any combination of (i), (ii) or (iii). The Company shall also from time to time make available to the Executive any “cashless exercise” procedure that it then makes available to other option holders who are directors and executive officers of the Company.

          (c) Delivery of Shares in Payment of Option Price. Payment by delivery of Shares may be effected by delivering one or more stock certificates or by otherwise delivering Shares to the Company’s reasonable satisfaction, in each case accompanied by such endorsements, stock powers, signature guarantees or other documents or assurances as may reasonably be required by the Company. If a certificate or certificates or other documentation representing Shares in excess of the amount required are delivered, a certificate (or other satisfactory evidence of ownership) representing the excess number of Shares shall be returned by the Company. The Company need not accept fractional Shares.

     4. The number and type of securities (or other property) subject to this Option, the price to be paid therefor, and the other terms of this Agreement, shall be subject to adjustment as follows:

          (a) In the event of any dissolution or liquidation of the Company, sale of all or substantially all of the assets of the Company, merger or consolidation of the Company with or into any other corporation if the Company is the surviving corporation, statutory share exchange involving capital stock of the Company, reorganization, recapitalization,

2


 

reclassification, stock dividend, extraordinary dividend, stock split, reverse stock split, stock combination, rights offering, spin-off or other relevant change, the Committee (as defined in the 2004 Plan) shall make equitable adjustments to the Option as is applicable under the circumstances. Such adjustment shall include, as applicable, changes in the number of Shares subject to the Option and Option exercise price and any other adjustments deemed appropriate by the Committee.

          (b) In connection with a Business Combination (as defined in the 2004 Plan), the Committee (as defined in the 2004 Plan), in its sole discretion, may provide for (i) the assumption of the Option by a successor corporation (or a parent or subsidiary thereof), (ii) the substitution for the Option of new awards covering the stock of a successor corporation (or a parent or subsidiary thereof), with appropriate adjustments as to the number and kind of shares and exercise prices, (iii) upon 10 days’ advance notice from the Committee to the Executive, the acceleration of the vesting and/or exercise period pertaining to the Option or (iv) upon 10 days’ advance notice from the Committee to the Executive, (x) the cancellation of any outstanding portion of the Option that is then exercisable and the payment to the holder thereof, in cash or stock, or any combination thereof, of the value of such portion based upon the price per share of Stock received or to be received by other stockholders of the Company in connection with the Business Combination, and (y) the cancellation of the portion of the Option that is not then exercisable, provided that the Executive’s Options shall not be cancelled unless all other outstanding unexercisable Options are cancelled as a result of the Business Combination. In the event of any continuation, assumption or substitution contemplated by the foregoing clauses, the Option shall continue in the manner and under the terms so provided.

          (c) If, by reason of any adjustment to the Option pursuant to the provisions described above, the Executive shall be entitled to new, additional or different shares of stock or securities of the Company or any other corporation in respect of the Option, such new, additional or different shares shall thereupon be subject to all of the conditions and restrictions which were applicable to the Shares subject to the Option prior to such adjustment.

     5. This Option shall not be assignable or transferable except by will or by the laws of descent or distribution provided, however, that the Executive may transfer all or any portion of the Option to a member of his Immediate Family (as defined under the 2004 Plan), a trust for the benefit of the Executive or any member of his Immediate Family, partnerships in which the Executive or his Immediate Family members and/or trusts are the only partners, and/or any organization exempt under Section 501(c) of the Internal Revenue Code of 1986, as amended (the “Code”). Subject to the provisions of Section 2, this Option shall be exercisable only by the Executive or his permitted assignee or transferee.

     6. Nothing contained in this Agreement shall confer upon the Executive any right with respect to continuance of employment by the Company nor limit in any way the right of the Company to terminate or modify his employment at any time, with or without Cause.

     7. Any determination of the Committee as to any adjustments pursuant to

3


 

Section 4 hereof shall be final, conclusive and binding upon the Executive and any person claiming under or through the Executive, to the extent made by the Committee in good faith.

     8. If the Company is for any reason required to withhold any amount under the tax laws or regulations of the United States, any jurisdiction thereof or local government with respect to the transfer of Option Shares upon exercise of the Option (“Withholding Taxes”), the Executive or other person receiving such Shares shall be required to pay the Company the amount of any such Withholding Taxes, such payment to be made in any of the fashions authorized under Section 3(b) above.

     9. The Company shall not be required to issue or deliver a certificate for Option Shares unless the issuance and delivery of such certificate complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended, and the requirements of the exchanges, if any, on which the Company’s shares of Common Stock may, at that time, be listed.

     10. Notwithstanding anything contained herein to the contrary, in the event that the disposition of Option Shares is not covered by a then current registration statement under the Securities Act, and is not otherwise exempt from such registration, such Option Shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulation thereunder. The certificates evidencing any of such Option Shares shall be appropriately amended or have an appropriate legend placed thereon to reflect their status as restricted securities as aforesaid.

     11. The Executive acknowledges and agrees that a violation of Section 5 of this Agreement will cause the Company irreparable injury for which adequate remedy at law is not available. Accordingly, the Executive agrees that the Company shall be entitled to an injunction, restraining order or other equitable relief, without the posting of any bond, to prevent the breach of Section 5, and to enforce the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it may be entitled at law or equity.

     12. The Executive shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any Shares purchasable upon exercise of the Option granted hereunder unless and until certificates representing such shares shall have been issued by the Company.

     13. “Market Price,” when used with respect to the price of a Share on a particular day, shall mean the closing price for which a Share is purchased that day (or, if no purchases have been made on such day, on the most recent preceding day on which such a purchase occurred) on the principal national securities exchange or national market system on which

4


 

Shares are then listed or eligible for sale (or, if Shares are not then listed or eligible for sale on any such exchange or market system, the price as determined reasonably in good faith by the Committee).

 

 

 

 

 

 

RUSS BERRIE AND COMPANY, INC.
 

 

 

By:  

 

 

 

 

 

 

 

 

 

 

 

AGREED TO AND ACCEPTED AS OF THE
DATE OF GRANT SET FORTH ABOVE:

                      

5


 

[100,000 Shares]
[2007 Option]

RUSS BERRIE AND COMPANY, INC.
STOCK OPTION AGREEMENT

Date of Grant: December   , 2007

     In accordance with the Employment Agreement (the ”Employment Agreement”) dated as of December 4, 2007, between Russ Berrie and Company, Inc, a New Jersey corporation (together with its successors and assigns, the “Company”) and Bruce G. Crain (the “Executive”), the Company does hereby grant to the Executive, as of the grant date set forth above, a stock option (the “Option”) to purchase an aggregate of 100,000 shares of its Common Stock (stated value $.10 per share) (“Shares”) at the price of $[   ] per share (the “Option Price”), upon the following terms and conditions. Capitalized terms used but undefined herein shall have the meanings ascribed to them in the Employment Agreement.

     1. (a) This Option is intended to be a non-qualified stock option. Of the Shares covered by this Option, 80,000 Shares are granted under the Company’s 2004 Stock Option, Restricted and Non-Restricted Stock Plan (the “2004 Plan”) and 20,000 Shares are granted outside the 2004 Plan.

          (b) Except as provided in Sections 2 and 4 below, this Option shall vest and become exercisable ratably over five years (20% per year) from December 4, 2007 the (“Employment Commencement Date”) and have a term of ten years from the Employment Commencement Date, provided, however, the term of exercisability of a vested portion of the Option shall be subject to the provisions of Sections 2 and 4 below.

     2. (a) If the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason, any outstanding unexercisable portion of this Option shall be deemed to be exercisable to the same extent as if the Executive had completed an additional two years of service after his Termination Date and the exercisable portion of this Option shall remain exercisable for 90 days following the Termination Date or until the ten year expiration date of this Option, whichever is earlier.

          (b) In the event the Executive’s employment terminates by death or Disability, any outstanding unexercisable portion of this Option shall be deemed to be exercisable to the same extent as if the Executive had completed an additional two years of service after the date of death or termination for Disability and the exercisable portion of this Option shall remain exercisable for a period of one year following such death or termination for Disability or until the ten year expiration date of this Option, whichever is earlier.

          (c) Upon the occurrence of a Change in Control, whether or not the

 


 

employment of the Executive is terminated, any outstanding unexercisable portion of this Option that was scheduled to become exercisable within three years of the date of such Change in Control shall become exercisable, and the exercisability of any portion of this Option that was not scheduled to become exercisable within three years of the date of such Change in Control shall be accelerated by three years. In the event that the Company terminated the Executive’s employment without Cause and a Change in Control occurs within six months following the Termination Date, any outstanding unexercisable portion of this Option that was scheduled to vest within three years of the Termination Date (and which did not vest on the Termination Date pursuant to 2(a) above) shall become exercisable on the date of such Change in Control and shall remain exercisable for 90 days following the date of the Change in Control or until the ten year expiration date of the Option, whichever is earlier.

          (d) In the event that the Executive terminates his employment without Good Reason or the Company terminates the employment of the Executive for Cause, any unexercised portion of this Option that is not exercisable on the Termination Date will be cancelled and deemed terminated on the Termination Date and any outstanding exercisable portion of this Option shall remain exercisable for 90 days following the Termination Date or until the ten year expiration date of this Option, whichever is earlier.

     3. This Option shall be exercised by giving written notice of exercise to the Company at 111 Bauer Drive, Oakland, NJ 07430 (Attention: Chief Financial Officer) as follows:

          (a) Method of Exercise. In order to exercise this Option in whole or in part, the Executive shall submit to the Company a writing specifying the whole number of Shares in respect of which the Option is being exercised and accompanied by payment in full (or an arrangement for payment in full) in accordance with Section 3(b) below of the aggregate Option Price of the Shares in respect of which the Option is being exercised. The number of Shares for which the Option has thus been exercised shall then promptly be issued by the Company (the “Option Shares”) and a certificate for such Shares shall be promptly delivered to the Executive.

          (b) Method of Payment. Payment of the aggregate Option Price for Option Shares may be made (i) by delivery to the Company of cash or a check to the order of the Company and backed by sufficient funds in an amount equal to the aggregate Option Price of such Shares; (ii) to the extent that use of this procedure will not result in any incremental accounting charges to the Company, by authorizing the Company to withhold Shares that would otherwise be delivered to the Executive having an aggregate Market Price on the date of exercise equal to the aggregate Option Price of the Option Shares; (iii) by delivery to the Company of Shares then owned by the Executive having an aggregate Market Price on the date of delivery equal to the aggregate Option Price of the Option Shares; or (iv) by any combination of (i), (ii) or (iii). The Company shall also from time to time make available to the Executive any “cashless exercise” procedure that it then makes available to other option holders who are directors and executive officers of the Company.

          (c) Delivery of Shares in Payment of Option Price. Payment by delivery of

2


 

Shares may be effected by delivering one or more stock certificates or by otherwise delivering Shares to the Company’s reasonable satisfaction, in each case accompanied by such endorsements, stock powers, signature guarantees or other documents or assurances as may reasonably be required by the Company. If a certificate or certificates or other documentation representing Shares in excess of the amount required are delivered, a certificate (or other satisfactory evidence of ownership) representing the excess number of Shares shall be returned by the Company. The Company need not accept fractional Shares.

     4. The number and type of securities (or other property) subject to this Option, the price to be paid therefor, and the other terms of this Agreement, shall be subject to adjustment as follows:

          (a) In the event of any dissolution or liquidation of the Company, sale of all or substantially all of the assets of the Company, merger or consolidation of the Company with or into any other corporation if the Company is the surviving corporation, statutory share exchange involving capital stock of the Company, reorganization, recapitalization, reclassification, stock dividend, extraordinary dividend, stock split, reverse stock split, stock combination, rights offering, spin-off or other relevant change, the Committee (as defined in the 2004 Plan) shall make equitable adjustments to the Option as is applicable under the circumstances. Such adjustment shall include, as applicable, changes in the number of Shares subject to the Option and Option exercise price and any other adjustments deemed appropriate by the Committee.

          (b) In connection with a Business Combination (as defined in the 2004 Plan), the Committee (as defined in the 2004 Plan), in its sole discretion, may provide for (i) the assumption of the Option by a successor corporation (or a parent or subsidiary thereof), (ii) the substitution for the Option of new awards covering the stock of a successor corporation (or a parent or subsidiary thereof), with appropriate adjustments as to the number and kind of shares and exercise prices, (iii) upon 10 days’ advance notice from the Committee to the Executive, the acceleration of the vesting and/or exercise period pertaining to the Option or (iv) upon 10 days’ advance notice from the Committee to the Executive, (x) the cancellation of any outstanding portion of the Option that is then exercisable and the payment to the holder thereof, in cash or stock, or any combination thereof, of the value of such portion based upon the price per share of Stock received or to be received by other stockholders of the Company in connection with the Business Combination, and (y) the cancellation of the portion of the Option that is not then exercisable, provided that the Executive’s Options shall not be cancelled unless all other outstanding unexercisable Options are cancelled as a result of the Business Combination. In the event of any continuation, assumption or substitution contemplated by the foregoing clauses, the Option shall continue in the manner and under the terms so provided.

          (c) If, by reason of any adjustment to the Option pursuant to the provisions described above, the Executive shall be entitled to new, additional or different shares of stock or securities of the Company or any other corporation in respect of the Option, such new, additional or different shares shall thereupon be subject to all of the conditions and restrictions which were applicable to the Shares subject to the Option prior to such adjustment.

3


 

     5. This Option shall not be assignable or transferable except by will or by the laws of descent or distribution provided, however, that the Executive may transfer all or any portion of the Option to a member of his Immediate Family (as defined under the 2004 Plan), a trust for the benefit of the Executive or any member of his Immediate Family, partnerships in which the Executive or his Immediate Family members and/or trusts are the only partners, and/or any organization exempt under Section 501(c) of the Internal Revenue Code of 1986, as amended (the “Code”). Subject to the provisions of Section 2, this Option shall be exercisable only by the Executive or his permitted assignee or transferee.

     6. Nothing contained in this Agreement shall confer upon the Executive any right with respect to continuance of employment by the Company nor limit in any way the right of the Company to terminate or modify his employment at any time, with or without Cause.

     7. Any determination of the Committee as to any adjustments pursuant to Section 4 hereof shall be final, conclusive and binding upon the Executive and any person claiming under or through the Executive, to the extent made by the Committee in good faith.

     8. If the Company is for any reason required to withhold any amount under the tax laws or regulations of the United States, any jurisdiction thereof or local government with respect to the transfer of Option Shares upon exercise of the Option (“Withholding Taxes”), the Executive or other person receiving such Shares shall be required to pay the Company the amount of any such Withholding Taxes, such payment to be made in any of the fashions authorized under Section 3(b) above.

     9. The Company shall not be required to issue or deliver a certificate for Option Shares unless the issuance and delivery of such certificate complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended, and the requirements of the exchanges, if any, on which the Company’s shares of Common Stock may, at that time, be listed.

     10. Notwithstanding anything contained herein to the contrary, in the event that the disposition of Option Shares is not covered by a then current registration statement under the Securities Act, and is not otherwise exempt from such registration, such Option Shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulation thereunder. The certificates evidencing any of such Option Shares shall be appropriately amended or have an appropriate legend placed thereon to reflect their status as restricted securities as aforesaid.

     11. The Executive acknowledges and agrees that a violation of Section 5 of this Agreement will cause the Company irreparable injury for which adequate remedy at law is not available. Accordingly, the Executive agrees that the Company shall be entitled to an injunction, restraining order or other equitable relief, without the posting of any bond, to prevent the breach of Section 5, and to enforce the terms and provisions hereof in any court of

4


 

competent jurisdiction in the United States or any state thereof, in addition to any other remedy to which it may be entitled at law or equity.

     12. The Executive shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any Shares purchasable upon exercise of the Option granted hereunder unless and until certificates representing such shares shall have been issued by the Company.

     13. “Market Price,” when used with respect to the price of a Share on a particular day, shall mean the closing price for which a Share is purchased that day (or, if no purchases have been made on such day, on the most recent preceding day on which such a purchase occurred) on the principal national securities exchange or national market system on which Shares are then listed or eligible for sale (or, if Shares are not then listed or eligible for sale on any such exchange or market system, the price as determined reasonably in good faith by the Committee).

 

 

 

 

 

 

RUSS BERRIE AND COMPANY, INC.
 

 

 

By:  

 

 

 

 

 

 

 

 

 

 

 

AGREED TO AND ACCEPTED AS OF THE
DATE OF GRANT SET FORTH ABOVE:

                      

5

EX-10.120 11 c78734exv10w120.htm EXHIBIT 10.120

Exhibit 10.120

RUSS BERRIE AND COMPANY, INC.
AMENDED AND RESTATED
CHANGE IN CONTROL SEVERANCE PLAN

The purpose of this Amended and Restated Change in Control Severance Plan (the “Plan”) is to enable Russ Berrie and Company, Inc., a New Jersey corporation (the “Company”), to offer a form of income protection to “Participants” (as defined in Section 7.5 below) in the event their employment with the Company terminates under certain circumstances due to a “Change in Control” (as defined in Section 7.2 below). Notwithstanding anything herein to the contrary, however, if in connection with any sale of any substantial line of business of the Company, a Participant employed within such line of business is offered and accepts employment by the purchaser of such line of business or its affiliates, no “termination” hereunder shall be deemed to have occurred, no benefits shall be payable hereunder, and the Participant shall cease to be a Participant hereunder.

ARTICLE I: BENEFITS

1.1 Eligibility for Benefits; Benefits; Payment; and Rights of Participants.

(a) If a Participant’s employment with the Company is terminated by the Company without “Cause” (as defined in Section 7.1 below) or by the Participant for “Good Reason” (as defined in Section 7.4 below) (each, a “Qualifying Termination”) during the period commencing six months prior to and ending two years after a Change in Control, such Participant shall be paid the applicable “Severance Benefit” (as defined below) and shall receive the additional benefits described in this Article I. The term “Severance Benefit” shall mean:

 

(i)

 

if the Qualifying Termination occurs during the six-month period preceding or the one-year period following the Change in Control, an amount equal to 150% of the Participant’s “Current Total Annual Compensation” (as defined in Section 7.3 below); and

 

(ii)

 

if the Qualifying Termination occurs during the second year after the Change in Control, an amount equal to 75% of the Participant’s Current Total Annual Compensation.

(b) Any Participant entitled to a Severance Benefit (in accordance with Section 1.1(a) above) whose Qualifying Termination occurs within two years after a Change in Control shall receive his Severance Benefit in the form of a lump-sum payment within 30 business days after his employment with the Company terminates; any Participant entitled to a Severance Benefit (in accordance with Section 1.1(a) above) whose Qualifying Termination occurs prior to a Change in Control shall receive his Severance Benefit in the form of a lump-sum payment six months and one day following his termination of employment with the Company, provided that a Change in Control occurs during such period.

 

 


 

(c) Notwithstanding anything herein to the contrary, if the Company determines in good faith that any Participant is a “specified employee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and any regulations or other guidance issued thereunder, or any successor similar provision, regulations or guidance (“Section 409A”) when payments hereunder are due him, if all or any portion of such payments (whether alone or in combination with payments from any other plan maintained by the Company) would, in the good faith opinion of the Company, subject such Participant to the excise tax and/or interest provisions under Section 409A if paid in full within six months of such Participant’s termination date, the Company shall reduce the amounts payable to such Participant hereunder (and from any other plan required to be aggregated with this Change in Control Plan pursuant to Section 409A) to the maximum amount payable under Section 409A in such six-month period, and all remaining amounts otherwise payable to such Participant shall be paid (in a lump sum, without interest) to such Participant on the day which is six months and one day after the Participant’s termination of employment.

1.2 Additional Benefits. A Participant entitled to receive a Severance Benefit shall also receive the following additional benefits:

(a) The Company shall cause options to purchase Company stock (“Stock Options”) held by a Participant that are not fully vested and exercisable on the date of the Qualifying Termination to:

 

(i)

 

if the Qualifying Termination occurs during the six months preceding or the first year following the Change in Control, become fully vested and exercisable as of the date of such Qualifying Termination (or, if later, as of the date on which the Change in Control occurred); and

 

(ii)

 

if the Qualifying Termination occurs during the second year following the Change in Control, become fully vested and exercisable as of the date of such Qualifying Termination as to those Stock Options that would otherwise have vested within one year after the Qualifying Termination.

(b) The Company shall cause unvested restricted shares of Company stock (the “Restricted Shares”) held by a Participant on the date of the Qualifying Termination to:

 

(i)

 

if the Qualifying Termination occurs during the six months preceding or the first year following the Change in Control, become fully vested as of the date of such Qualifying Termination (or, if later, as of the date on which the Change in Control occurred) as to those Restricted Shares for which the vesting restrictions would otherwise have lapsed within one year after the Qualifying Termination; and

 

(ii)

 

if the Qualifying Termination occurs during the second year after the Change in Control, become fully vested as of the date of such Qualifying Termination as to those Restricted Shares for which the vesting restrictions otherwise would have lapsed within six months after the Qualifying Termination.

 

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(c) The Company shall for a period of 18 months (in the case of a Qualifying Termination to which Section 1.1(a)(i) applies) or one year (in the case of a Qualifying Termination to which Section 1.1(a)(ii) applies) following the Qualifying Termination continue to provide to the Participant (i) use of an automobile or payment of an automobile allowance in an amount sufficient to compensate the Participant to substantially the same extent as if the Company continued to provide the automobile and (ii) medical and other insurance benefits, in each case to the extent and on substantially the same basis as provided immediately prior to the Qualifying Termination (disregarding any reduction described in clause (B) of the definition of Good Reason).

1.3 Reduction of Payments. If a Participant’s receipt of any payment and/or non-monetary benefit under this Plan (including, without limitation, the accelerated vesting of Stock Options and/or Restricted Shares) (collectively, the “Plan Payments”) would cause him or her to become subject to the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the Company shall reduce his or her Plan Payments to the extent necessary to avoid the application of such excise tax if (i) the required reduction does not exceed 10% of the aggregate amount of the Plan Payments and (ii) as a result of such reduction, the net benefits to the Participant of the Plan Payments as so reduced (after payment of applicable income taxes) exceeds the net benefit to the Participant of the Plan Payments without such reduction (after payment of applicable income taxes and excise taxes). If a reduction in Plan Payments to a Participant in the amount permitted by clause (i) is insufficient to avoid the application of such excise tax, then the provisions of “Exhibit A,” attached hereto and incorporated herein, shall apply to that Participant.

1.4 Rights of Participants. Nothing contained herein shall be held or construed to create any liability or obligation on the Company to retain any Participant in its service or in a corporate officer position. All Participants shall remain subject to discharge or discipline to the same extent as if the Plan did not exist.

ARTICLE II: FUNDING

2.1 Funding. The Plan shall be funded out of the general assets of the Company as and when benefits are payable under the Plan. All Participants shall be solely general creditors of the Company.

ARTICLE III: ADMINISTRATION OF THE PLAN

3.1 Plan Administrator. The general administration of the Plan shall be placed with the Compensation Committee of the Board of Directors of the Company (the “Board”) or an administrative committee appointed by the Board (the “Committee”).

3.2 Reimbursement of Expenses of Committee. The Company shall pay or reimburse the members of the Committee for all reasonable expenses incurred in connection with their duties hereunder.

 

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3.3 Action by the Plan Committee. Decisions of the Committee shall be made by a majority of its members attending a meeting at which a quorum is present (which meeting may be held telephonically), or by written action in accordance with applicable law. No member of the Committee may act with respect to a matter which involves only that member.

3.4 Delegation of Authority. The Committee may delegate any and all of its powers and responsibilities hereunder to other persons by formal resolution filed with and accepted by the Board. Any such delegation shall not be effective until it is accepted by the Board and the persons designated and may be rescinded at any time by written notice from the Committee to the person to whom the delegation is made.

3.5 Retention of Professional Assistance. The Committee may employ such legal counsel, accountants and other persons as may be required in carrying out its work in connection with the Plan, and the Company shall pay the fees and expenses of such persons.

3.6 Accounts and Records. The Committee shall maintain such accounts and records regarding the fiscal and other transactions of the Plan, and such other data as may be required to carry out its functions under the Plan and to comply with all applicable laws.

3.7 Compliance with Applicable Law. The Company shall be deemed the administrator of the Plan for the purposes of any applicable law and shall be responsible for the preparation and filing of any required returns, reports, statements or other filings with appropriate governmental agencies. The Company shall also be responsible for the preparation and delivery of information to persons entitled to such information under any applicable law.

3.8 Reimbursement of Expenses. If any contest or dispute shall arise under this Plan involving termination of a Participant’s employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof and the Participant prevails on the merits in such contest or dispute, the Company shall, promptly after the date a court issues a final order from which no appeal can be taken, or with respect to which the time period to appeal has expired, reimburse such Participant for all reasonable legal fees and expenses, if any, paid by the Participant in connection with such contest or dispute (together with interest in an amount equal to the J.P. Morgan Chase Bank prime rate from time to time in effect, such interest to begin to accrue on the dates Participant actually paid such fees and expenses through the date of payment thereof).

ARTICLE IV: AMENDMENT

4.1 Amendment. The Company reserves the right to amend, in whole or in part, any or all of the provisions of this Plan by action of the Board at any time; provided, that, no such amendment may reduce the benefits and payments due to any Participant hereunder in the event of a Qualifying Termination.

 

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ARTICLE V: SUCCESSORS

5.1 Successors. The Company shall require any successor or assignee, whether direct or indirect, by purchase or otherwise (and whether or not by operation of law), to all or substantially all the business or assets of the Company, expressly and unconditionally to assume and agree to perform the Company’s obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place, provided, that, no such assumption and agreement shall be required from a successor or assignee that becomes obligated for the Company’s obligations hereunder through a merger, consolidation or otherwise by operation of law. In such event, the term “Company,” as used in this Plan, shall mean the Company, as applicable, as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Plan. Any payment or benefit to which a Participant has become entitled under this Plan which remains unpaid at the time of such Participant’s death shall be paid to the estate of such Participant when it becomes due.

ARTICLE VI: MISCELLANEOUS

6.1 No Duty to Mitigate/Set-off. No Participant entitled to receive a Severance Benefit shall be required to seek other employment or to attempt in any way to reduce any amounts payable to him pursuant to this Plan. The Severance Benefit payable hereunder shall not be reduced by any compensation earned by the Participant as a result of employment by another employer or otherwise. Subject to Section 6.5, the Company’s obligations to pay the Severance Benefits and to perform its obligations hereunder shall not be affected by any circumstances including without limitation, any set off, counterclaim, recoupment, defense or other right which the Company may have against the Participant.

6.2 Headings. The headings of the Plan are inserted for convenience of reference only and shall have no effect upon the meaning of the provisions hereof.

6.3 Use of Words. Whenever used in this instrument, a masculine pronoun shall be deemed to include the masculine and feminine gender, and a singular word shall be deemed to include the singular or plural, in all cases where the context so requires.

6.4 Controlling Law. The construction and administration of the Plan shall be governed by the laws of the State of New York (without reference to rules relating to conflicts of law).

6.5 Withholding. The Company shall have the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it reasonably believes it may have to withhold federal, state or local income or other taxes incurred by reason of payments pursuant to this Plan.

6.6 Severability. Should any provision of the Plan be deemed or held to be unlawful or invalid for any reason, such fact shall not adversely affect the other provisions of the Plan unless such determination shall render impossible or impracticable the functioning of the Plan, and in such case, an appropriate provision or provisions shall be adopted so that the Plan may continue to function properly.

 

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6.7 Rights Under Other Plans, Policies, Practices and Agreements.

(a) Other than as expressly provided herein, the Plan does not supersede any other plans, policies, and/or practices of the Company.

(b) The Plan supersedes any other change in control severance plans, policies and/or practices of the Company as to the Participants; provided, that, the Plan shall not supersede any individual executed agreement or arrangement between a single Participant and the Company in effect on January 1, 2003 or thereafter, which agreement specifically addresses payments or benefits made or provided upon termination of employment or in connection with a Change in Control (an “Additional Agreement”). If a Participant is due benefits or payments under both an Additional Agreement and the Plan and/or where the Plan and the Applicable Additional Agreement have inconsistent or conflicting terms and conditions, the Participant shall receive the greater of the benefits and payments, and the more favorable terms and conditions to him, under the Additional Agreement and the Plan, determined on an item-by-item basis.

ARTICLE VII: DEFINITIONS

7.1 “Cause” shall mean: (A) refusal or repeated failure by a Participant to perform his or her duties as an employee of the Company; (B) gross negligence or willful misconduct by a Participant in connection with such Participant’s employment by the Company; (C) misappropriation or fraud with regard to the Company or its assets; or (D) conviction of, or the pleading of guilty or nolo contendere to, a felony or, to the extent involving the assets or business of the Company, a misdemeanor or other criminal offense; which, in the case of clause (A) is not fully remedied (to the extent reasonably possible to be remedied) within 15 days after the Company gives the Participant notice thereof.

7.2 “Change in Control” shall mean the occurrence of any of the following: (A) any “person” (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or group (as defined in Rule 13d-5 under the Exchange Act), excluding any Permitted Holder or any Permitted Group (or the members thereof) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing 25% (or such greater percentage as may then represent the percentage of total combined voting power held by all Permitted Holders) or more of the total combined voting power of the Company’s then outstanding securities, other than by reason of receiving a distribution from any person referred to in clause (vi), (vii), (viii), (ix), (x) or (xi) of the definition of Permitted Holder; (B) as a result of any proxy solicitation made otherwise than by or on behalf of (x) the Board, (y) one or more Permitted Holders, or (z) any Permitted Group (or the members thereof), Continuing Directors to cease to be a majority of the Board (a “Continuing Director” is any member of the Board who (a) was a member of the Board on January 1, 2003, (b) first became a member of the Board as a result of or following his election or nomination for election by the Board at a time that Continuing Directors form a majority of the Board) or (c) first became a member of the Board as a result of or following his election or nomination for election by the Board with the approval of a majority of Continuing Directors in office at the time of such appointment or nomination; (C) the merger, consolidation or other business combination of or by the Company (a “Transaction”), other than a Transaction immediately following which (x) the stockholders of the Company immediately prior to the Transaction continue to be the beneficial owners of securities of the Company or other resulting entity representing more than a majority of the voting power in the Company or other resulting entity, in substantially the same proportions as their ownership of Company voting securities immediately prior to the Transaction or (y) Permitted Holders are the beneficial owners of securities of the resulting entity representing more

 

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than a majority of the voting power in such equity; (D) the sale of all or substantially all of the Company’s assets (it being understood that a sale following which the Company continues to engage (directly or through any of its subsidiaries) in either the business conducted by its Gift segment or the Kids Line business shall not constitute the sale of all or substantially all of the Company’s assets or a Change in Control), other than a sale immediately following which (x) the stockholders of the Company immediately prior to the sale are the beneficial owners of securities of the purchasing entity representing more than a majority of the voting power in the purchasing entity, in substantially the same proportions as their ownership of Company voting securities immediately prior to the Transaction or (y) Permitted Holders are the beneficial owners of securities of the purchasing entity representing more than a majority of the voting power in such equity; (E) a recapitalization or similar transaction of the Company in which any “person” (as defined in Section 3(a)(9) of the Exchange Act) or “group” (as defined in Rule 13d-5 under the Exchange Act), excluding any Permitted Holder or any Permitted Group (or the members thereof) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing 20% or more of the total combined voting power of the Company’s then outstanding securities; or (F) the approval by the shareholders of a plan of liquidation or dissolution of the Company.

7.3 “Current Total Annual Compensation” shall be the sum of the following amounts: (A) the greater of a Participant’s highest rate of annual salary during the calendar year in which his employment terminates or such Participant’s highest rate of annual salary during the calendar year immediately prior to the year of such termination; (B) the greater of a Participant’s annual bonus compensation (prior to any bonus deferral election) earned in respect of each of the two most recent calendar years immediately preceding the calendar year in which the Participant’s employment terminated; and (C) the amount of the Company’s contribution to the Participant’s 401(k) account for the last full year prior to such termination.

7.4 “Good Reason” shall mean the occurrence of any of the following events after a Change in Control without the Participant’s express written consent: (A) material diminution in the importance of a Participant’s position, status or authority as of the date immediately prior to the Change in Control; (B) a material reduction in a Participant’s aggregate compensation or benefits; (C) a failure of any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) of the Company to assume in writing (or by operation of law in a merger) the obligations of the Company hereunder as required by Section 5.1; or (D) the Company’s requiring the Participant to relocate the Participant’s office outside of the metropolitan area in which it is located immediately prior to the Change in Control (for this purpose, the Northern New Jersey suburbs shall constitute the “metropolitan area” for Participants whose office is located in Oakland, New Jersey or elsewhere in the Northern New Jersey suburbs). A termination for Good Reason shall mean a termination by a Participant effected by written notice given by the Participant to the Company within 30 days after the occurrence of the Good Reason event, unless the Company shall, within 15 days after receiving such notice, take such action as is necessary to fully remedy such Good Reason event and give the Participant written notice thereof, in which case the Good Reason event shall be deemed to have not occurred.

7.5 “Participant” shall mean such individuals as may from time to time be designated as such by the Board or a duly authorized committee thereof.

 

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7.6 “Permitted Group” means a group, as defined in Rule 13d-5 under the Exchange Act, in which the Permitted Holders that are members of such group have (x) beneficial ownership of voting securities of the Company having a majority of the voting power of all voting securities of the Company that are beneficially owned by members of the group and (y) the power to direct the voting of a majority of the voting securities of the Company held by all members of the group.

7.7 “Permitted Holder” shall mean (i) the Company; (ii) any subsidiary of the Company; (iii) any employee benefit plan sponsored or maintained by the Company; (iv) Angelica Berrie; (v) any lineal descendent of Russell Berrie; (vi) the Estate of Russell Berrie; (vii) The Russell Berrie 2001 Annuity Trust; (viii) The Russell Berrie 1999 Charitable Remainder Trust; (ix) The Russell Berrie 2002A Trust; (x) The Russell Berrie Foundation, a New Jersey Nonprofit Corporation; (xi) any trust created pursuant to the terms of the instruments governing or creating any of the persons referred to in clauses (vi), (vii), (viii), (ix) and (x); and (xii) any fiduciary of any of the persons referred to in clauses (vi), (vii), (viii), (ix), (x) and (xi) acting in his or her capacity as such.

7.8 “year” shall mean the period from any day in a calendar year to the same day in the immediately succeeding calendar year.

 

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Exhibit A

Gross-Up. This Exhibit A shall apply to a Participant only as provided by the last sentence of Section 1.3 of the Plan; “Affected Participant” shall mean any Participant to which this Exhibit A so applies.

(a) For purposes of this Exhibit A, the following terms shall have the following meanings:

Payment” shall mean any payment or distribution (or acceleration of benefits) by the Company to or for the benefit of the Affected Participant (whether paid or payable or distributed or distributable (or accelerated) pursuant to the terms of this Plan or otherwise, but determined without regard to any additional payments required under this Exhibit A). In addition, “Payment” shall also include the amount of income deemed to be received by the Affected Participant as a result of the acceleration of the exercisability of any of the Affected Participant’s options to purchase stock of the Company, the acceleration of the lapse of restrictions on restricted stock of the Company held by the Affected Participant or the acceleration of payment from any deferral plan.

Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, or any interest or penalties incurred by the Affected Participant with respect to such excise tax.

Income Tax” shall mean all taxes other than the Excise Tax (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes imposed by any United States federal (including (i) FICA and Medicare taxes, and (ii) the tax resulting from the loss of any federal deductions or exemptions which would have been available to the Affected Participant but for receipt of the Payment), state or local government.

(b) In the event it shall be determined in accordance with this Exhibit A that a Payment is subject to an Excise Tax, then the Affected Participant shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Affected Participant of Income Tax and Excise Tax imposed upon the Gross-Up Payment, the Affected Participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.

(c) All determinations required to be made under this Exhibit A, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to a Change in Control or, if such accounting firm fails to agree to perform the functions contemplated by this Exhibit A, an accounting firm of national reputation designated by the Company (in either case, the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and to the Affected Participant within 20 business days of the receipt of notice from

 

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the Affected Participant that there has been a Plan Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). All fees and expenses of the Accounting Firm with respect to the matters contemplated by this Exhibit A shall be borne by the Company. Any Gross-Up Payment, as determined pursuant to this Exhibit A, shall be paid by the Company to the Affected Participant within ten days of the Determination. If the Accounting Firm determines that no Excise Tax is payable, the Affected Participant may request the Accounting Firm to furnish the Affected Participant with a written opinion that there is a reasonable basis for that determination. The Determination by the Accounting Firm shall be binding upon the Company and the Affected Participant, except as provided in paragraph (d) below. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (d) below and the Affected Participant is thereafter required to make payment of any Excise Tax or Income Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Affected Participant.

(d) The Affected Participant shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment or the Underpayment. Such notification shall be given as soon as practicable but no later than five business days after the Affected Participant is informed in writing of such claim and shall include copies of all communications received from the Internal Revenue Service and apprize the Company of the nature of such claim and the date on which such claim is requested to be paid. The Affected Participant shall not pay such claim prior to the expiration of the 30-day period following the date on which such notice is given to the Company. If the Company notifies the Affected Participant in writing prior to the expiration of such period that it desires to contest such claim, the Affected Participant shall not pay such claim unless directed to do so by the Company and:

(i) give the Company any information reasonably requested by the Company relating to such claim and provide the Company with copies of all communications received from the Internal Revenue Service or other taxing authority with respect to such claim, or served on it in any related litigation, upon receipt,

(ii) take such action in connection with contesting such claim as the Company shall from time to time direct, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to control any proceeding relating to such claim;

 

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provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Affected Participant harmless, on an after-tax basis, for any Excise Tax or Income Tax imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (d), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect to such claim and may, at its sole option, either direct the Affected Participant to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Affected Participant shall prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided further, that if the Company directs the Affected Participant to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Affected Participant on an interest-free basis and shall indemnify and hold the Affected Participant harmless, on an after-tax basis, from any Excise Tax or Income Tax imposed with respect to such advance or with respect to any imputed income with respect to such advance. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder or an Underpayment and the Affected Participant shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority, provided that such action by the Affected Participant does not affect the Company’s ability to settle or contest issues with respect to which a Gross-Up Payment would be payable or an Underpayment.

(e) If, after the receipt by the Affected Participant of an amount advanced by the Company pursuant to paragraph (d) above, the Affected Participant receives any refund with respect to such claim, the Affected Participant shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after payment of taxes applicable thereto). If, after the receipt by the Affected Participant of an amount advanced by the Company pursuant to paragraph (d) above, the proceedings contemplated by paragraph (d) above, result in a final determination not subject to further review or appeal to the effect that the Affected Participant is not be entitled to any refund with respect to such claims then such advance shall be forgiven and shall not be required to be repaid.

 

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