EXHIBIT 2.1

 

ASSET PURCHASE AGREEMENT

 

by and among

 

RBSACQ, INC.

 

and

 

SASSY, INC. and its SHAREHOLDERS

 

Dated July 26, 2002

 

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TABLE OF CONTENTS

 

1.

DEFINITIONS AND USAGE

 

1.1.

Definitions.

 

1.2.

Usage.

 

 

 

2.

SALE AND TRANSFER OF ASSETS; CLOSING

 

2.1.

Assets to Be Sold.

 

2.2.

Excluded Assets.

 

2.3.

Consideration.

 

2.4.

Liabilities.

 

2.5.

Allocation.

 

2.6.

Closing.

 

2.7.

Closing Obligations.

 

2.8.

Adjustment Amount, EBITDA Adjustment Amount and Payment.

 

2.9.

Adjustment Procedures.

 

2.10.

Consents.

 

 

 

3.

REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS.

 

3.1.

Organization and Good Standing.

 

3.2.

Enforceability; Authority; No Conflict.

 

3.3.

Capitalization.

 

3.4.

Financial Statements.

 

3.5.

Books and Records.

 

3.6.

Sufficiency of Assets.

 

3.7.

Description of Owned Real Property.

 

3.8.

Description of Leased Real Property.

 

3.9.

Title to Assets; Encumbrances.

 

3.10.

Condition of Facilities.

 

3.11.

Accounts Receivable.

 

3.12.

Inventories.

 

3.13.

No Undisclosed Liabilities.

 

3.14.

Taxes.

 

3.15.

No Material Adverse Change.

 

3.16.

Employee Benefits.

 

3.17.

Compliance With Legal Requirements; Governmental Authorizations.

 

3.18.

Legal Proceedings; Orders.

 

3.19.

Absence of Certain Changes and Events.

 

3.20.

Contracts; No Defaults.

 

3.21.

Insurance.

 

3.22.

Environmental Matters.

 

3.23.

Employees.

 

3.24.

Labor Disputes; Compliance.

 

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3.25.

Intellectual Property Assets.

 

3.26.

Compliance With the Foreign Corrupt Practices Act and Export Control and
Anti–boycott Laws.

 

3.27.

Euro-Affected Products and Services.

 

3.28.

Relationships With Related Persons.

 

3.29.

Brokers or Finders.

 

3.30.

Solvency.

 

3.31.

Disclosure.

 

3.32.

Collective Bargaining Agreement.

 

3.33.

Addition.

 

3.34.

Procter & Gamble

 

3.35.

I-9 Forms

 

 

 

4.

REPRESENTATIONS AND WARRANTIES OF BUYER.

 

4.1.

Organization and Good Standing.

 

4.2.

Authority; No Conflict.

 

4.3.

Certain Proceedings.

 

4.4.

Operation of Buyer.

 

4.5.

Sufficient Resources.

 

4.6.

Brokers or Finders.

 

 

 

5.

COVENANTS OF SELLER PRIOR TO CLOSING.

 

5.1.

Access and Investigation.

 

5.2.

Operation of the Business of Seller.

 

5.3.

Negative Covenant.

 

5.4.

Required Approvals.

 

5.5.

Notification.

 

5.6.

No Negotiation.

 

5.7.

Best Efforts.

 

5.8.

Payment of Liabilities.

 

5.9.

Change of Name.

 

5.10.

Current Evidence of Title.

 

 

 

6.

COVENANTS OF BUYER PRIOR TO CLOSING.

 

6.1.

Required Approvals.

 

6.2.

Notification.

 

6.3.

Best Efforts.

 

 

 

7.

CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE.

 

7.1.

Accuracy of Representations.

 

7.2.

Seller’s Performance.

 

7.3.

Consents.

 

7.4.

Additional Documents.

 

7.5.

No Proceedings.

 

7.6.

No Conflict.

 

7.7.

Title Insurance.

 

7.8.

Governmental Authorizations

 

7.9.

Environmental Report.

 

7.10.

Employees.

 

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7.11.

Due Diligence Review.

 

7.12.

Required Approvals.

 

7.13.

Resignation.

 

7.14.

Notice.

 

7.15.

MAM Agreement.

 

7.16.

Intellectual Property Forms.

 

 

 

8.

CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE.

 

8.1.

Accuracy of Representations.

 

8.2.

Buyer’s Performance.

 

8.3.

Additional Documents.

 

8.4.

No Injunction.

 

 

 

9.

TERMINATION.

 

9.1.

Termination Events.

 

9.2.

Effect of Termination.

 

 

 

10.

ADDITIONAL COVENANTS.

 

10.1.

Employees and Employee Benefits.

 

10.2.

Payment of All Taxes Resulting From Sale of Assets by Seller.

 

10.3.

Payment of Other Retained Liabilities.

 

10.4.

Restrictions on Seller Dissolution and Distributions.

 

10.5.

Removing Excluded Assets.

 

10.6.

Reports and Returns.

 

10.7.

Assistance in Proceedings.

 

10.8.

Noncompetition, Nonsolicitation and Nondisparagement.

 

10.9.

Customer and Other Business Relationships.

 

10.10.

Retention of and Access to Records.

 

10.11.

Kentwood Operations.

 

10.12.

Insurance.

 

10.13.

Further Assurances.

 

10.14.

Post-Closing Payments.

 

10.15.

MAM Agreement.

 

10.16.

Escrow.

 

10.17.

Straub Assignments.

 

10.18.

K-Mart.

 

10.19.

Escrow Trust Instructions.

 

10.20.

Letter of Credit.

 

 

 

11.

INDEMNIFICATION; REMEDIES.

 

11.1.

Survival.

 

11.2.

Indemnification and Reimbursement by Seller and Shareholders.

 

11.3.

Indemnification and Reimbursement by Seller and Shareholders — Environmental
Matters.

 

11.4.

Indemnification and Reimbursement by Buyer.

 

11.5.

Limitations on Amount — Seller and Shareholders.

 

11.6.

Limitations on Amount — Buyer.

 

11.7.

Time Limitations.

 

11.8.

Third-Party Claims.

 

11.9.

Other Claims.

 

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12.

CONFIDENTIALITY.

 

12.1.

Definition of Confidential Information.

 

12.2.

Restricted Use of Confidential Information.

 

12.3.

Exceptions.

 

12.4.

Legal Proceedings.

 

12.5.

Return or Destruction of Confidential Information.

 

12.6.

Attorney-Client Privilege.

 

 

 

13.

GENERAL PROVISIONS.

 

13.1.

Expenses.

 

13.2.

Public Announcements.

 

13.3.

Notices.

 

13.4.

Jurisdiction; Service of Process.

 

13.5.

Enforcement of Agreement.

 

13.6.

Waiver; Remedies Cumulative.

 

13.7.

Entire Agreement and Modification.

 

13.8.

Schedules.

 

13.9.

Assignments, Successors and No Third-Party Rights.

 

13.10.

Severability.

 

13.11.

Construction.

 

13.12.

Governing Law.

 

13.13.

Execution of Agreement.

 

13.14.

Shareholder Obligations.

 

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ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement (“Agreement”) is dated July 26, 2002, by and among
RBSACQ, Inc., a Delaware corporation (“Buyer”); Sassy, Inc., an Illinois
corporation (“Seller”); Robert Kaplan, a resident of Wyoming (“Kaplan”); Fritz
Hirsch, a resident of Illinois (“Hirsch”); Steve Rotblatt, a resident of
Illinois (“Rotblatt”); and Homer Douglas, a resident of Michigan (“Douglas”)
(Kaplan, Hirsch, Rotblatt and Douglas are referred to herein as “Shareholders”).

 

RECITALS

 

Shareholders own one hundred percent of the issued and outstanding shares of
capital stock of Seller.  Seller desires to sell, and Buyer desires to purchase,
the Assets of Seller for the consideration and on the terms and conditions set
forth in this Agreement.

 

The parties, intending to be legally bound, agree as follows:

 

1.                                      DEFINITIONS AND USAGE

 

1.1. Definitions.  For purposes of this Agreement, the following terms and
variations thereof have the meanings specified or referred to in this
Section 1.1:

 

“Accounts Receivable” — (a) all trade accounts receivable and other rights to
payment from customers of Seller and the full benefit of all security for such
accounts or rights to payment, including all trade accounts receivable
representing amounts receivable in respect of goods shipped or products sold or
services rendered to customers of Seller, (b) all other accounts or notes
receivable of Seller and the full benefit of all security for such accounts or
notes and (c) any claim, remedy or other right related to any of the foregoing.

 

“Active Employees” — as defined in Section 10.1(a).

 

“Adjustment Amount” — as defined in Section 2.8.

 

“Appurtenances” — all privileges, rights, easements, hereditaments and
appurtenances belonging to or for the benefit of the Land, including all
easements appurtenant to and for the benefit of any Land (a “Dominant Parcel”)
for, and as the primary means of access between, the Dominant Parcel and a
public way, or for any other use upon which lawful use of the Dominant Parcel
for the purposes for which it is presently being used is dependent, and all
rights existing in and to any streets, alleys, passages and other rights-of-way
included thereon or adjacent thereto (before or after vacation thereof) and
vaults beneath any such streets.

 

“Assets” — as defined in Section 2.1.

 

“Assignment and Assumption Agreement” — as defined in Section 2.7(a)(ii).

 

“Assumed Liabilities” — as defined in Section 2.4(a).

 

“Balance Sheet” — as defined in Section 3.4.

 

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“Bargaining Unit Employees” — as defined in Section 10.1(f).

 

“Basket” — as defined in Section 11.5.

 

“Best Efforts” — the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to achieve that result as
expeditiously as possible, provided, however, that a Person required to use Best
Efforts under this Agreement will not be thereby required to take actions that
would result in a material adverse change in the benefits to such Person of this
Agreement and the Contemplated Transactions or to dispose of or make any
material change to its business, expend any material funds or incur any other
material burden.

 

“Bill of Sale” — as defined in Section 2.7(a)(i).

 

“Bulk Sales Laws” — as defined in Section 5.8.

 

“Business Day” — any day other than (a) Saturday or Sunday or (b) any other day
on which banks in New York, New Jersey or Illinois are permitted or required to
be closed.

 

“Buyer” — as defined in the first paragraph of this Agreement.

 

“Cap” — as defined in Section 11.5.

 

“Buyer Contact” — as defined in Section 12.2(a).

 

“Buyer Indemnified Persons” — as defined in Section 11.2.

 

“Cash Consideration” — as defined in Section 2.3.

 

“Closing” — as defined in Section 2.6.

 

“Closing Balance Sheet” — as defined in Section 2.9(b).

 

“Closing Date” — the date on which the Closing actually takes place.

 

“Closing Income Statement” — as defined in Section 2.9(b).

 

“Closing Working Capital” — as defined in Section 2.9(b).

 

“COBRA” — the requirements of Part 6 of Subtitle B of Title I of ERISA and Code
Section 4980B and of any similar applicable state law.

 

“Code” — the Internal Revenue Code of 1986.

 

“Collective Bargaining Agreement” — as defined in Section 10.1(f).

 

“Confidential Information” — as defined in Section 12.1.

 

“Consent” — any approval, consent, ratification, waiver or other authorization.

 

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“Contemplated Transactions” — all of the transactions contemplated by this
Agreement.

 

“Contract” — any agreement, contract, Lease, consensual obligation, promise or
undertaking (whether written or oral and whether express or implied), including
open purchase and sale orders.

 

“Copyrights” — as defined in Section 3.25(a)(iii).

 

“Damages” — as defined in Section 11.2.

 

“Disclosing Party” — as defined in Section 12.1(a).

 

“EBITDA” — with respect to the Seller, at the time of determination, the
earnings of the Seller before interest, income taxes, depreciation and
amortization.

 

“EBITDA Adjustment Amount” — as defined in Section 2.8(b).

 

“Employee Plans” — as defined in Section 3.16(a).

 

“Employment Agreements” — the Hirsch Employment Agreement, the Rotblatt
Employment Agreement and the Douglas Employment Agreement.

 

“Encumbrance” — any charge, claim, community or other marital property interest,
condition, equitable interest, lien, option, pledge, security interest,
mortgage, right of way, easement, encroachment, servitude, right of first
option, right of first refusal or similar restriction, including any restriction
on use, voting (in the case of any security or equity interest), transfer,
receipt of income or exercise of any other attribute of ownership.

 

“Environment” — soil, land surface or subsurface strata, surface waters
(including navigable waters and ocean waters), groundwaters, drinking water
supply, stream sediments, ambient air (including indoor air), plant and animal
life and any other environmental medium or natural resource.

 

“Environmental, Health and Safety Liabilities” — any cost, damages, expense,
liability, obligation or other responsibility required under any Environmental
Law or Occupational Safety and Health Law, including those consisting of or
relating to:  (a) any environmental, health or safety matter or condition
(including on-site or off-site contamination, occupational safety and health and
regulation of any chemical substance or product);  (b) any fine, penalty,
judgment, award, settlement, legal or administrative Proceeding, damages, loss,
claim, demand or response, remedial or inspection cost or expense required under
any Environmental Law or Occupational Safety and Health Law; (c) financial
responsibility imposed under any Environmental Law or Occupational Safety and
Health Law for cleanup costs or corrective action, including any cleanup,
removal, containment or other remediation or response actions required by any
Environmental Law or Occupational Safety and Health Law and for any natural
resource damages; or (d) any other compliance, corrective or remedial measure
required under any Environmental Law or Occupational Safety and Health Law.  The
terms “removal,” “remedial” and “response action” include the types of
activities covered by the United States

 

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Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (CERCLA).

 

“Environmental Law” — any Legal Requirement in effect as of the Closing Date,
relating to public health or safety, worker health or safety, pollution or
protection of human health or the Environment, including natural resources,
including, without limitation, the Clean Air Act, 42 U.S.C. Section 7401 et
seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Resource
Conservation Recovery Act (“RCRA”), 42 U.S.C. Section 6901 et seq. and any
similar or implementing federal, state or local law, which governs: (a) the
existence, clean-up, removal and/or remedy of contamination or threat of
contamination on or about real property; (b) the emission or discharge of
Hazardous Materials into the Environment; (c) the control of Hazardous
Materials; or (d) the use, generation, or transport, treatment, storage,
disposal, removal, recycling, handling, or recovery of Hazardous Materials.

 

“ERISA” — the Employee Retirement Income Security Act of 1974.

 

“Excluded Assets” — as defined in Section 2.2.

 

“Facilities” — any Real Property, leasehold or other interest in real property
currently owned or operated by Seller, including the Tangible Personal Property
used or operated by Seller at the respective locations of the Real Property
specified in Section 3.7.  Notwithstanding the foregoing, for purposes of the
definitions of “Hazardous Activity” and “Remedial Action” and Sections 3.22 and
11.3, “Facilities” shall mean any real property, leasehold or other interest in
real property currently or formerly owned or operated by Seller, including the
Tangible Personal Property owned, used or operated by Seller at the respective
locations of the Real Property specified in Section 3.7.

 

“GAAP” — generally accepted accounting principles for financial reporting in the
United States, applied on a basis consistent with the basis on which the Balance
Sheet and the other financial statements referred to in Section 3.4 were
prepared.

 

“Governing Documents” — with respect to a party hereto, (a) the articles or
certificate of incorporation and the bylaws of such Person; (b) all
stockholders’ agreements, voting agreements, voting trust agreements, joint
venture agreements, registration rights agreements or other agreements or
documents relating to the organization, management or operation of such Person
or relating to the rights, duties and obligations of the stockholders of such
Person; and (c) any amendment or supplement to any of the foregoing.

 

“Governmental Authorization” — any Consent, license, registration or permit
issued, granted, given or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Legal Requirement.

 

“Governmental Body” — any:  (a) nation, state, county, city, town, borough,
village, district or other jurisdiction; (b) federal, state, local, municipal,
foreign or other government or political subdivision thereof; (c) governmental
or quasi-governmental authority of any nature (including any agency, branch,
department, board, commission, court, tribunal or other entity exercising
governmental or quasi-governmental powers); (d) multinational organization or
body;

 

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(e) body exercising, or entitled or purporting to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power; or (f) official of any of the foregoing.

 

“Ground Lease” — any long–term lease of land in which most of the rights and
benefits comprising ownership of the land and the improvements thereon or to be
constructed thereon, if any, are transferred to the tenant for the term thereof.

 

“Ground Lease Property” — any land, improvements and appurtenances subject to a
Ground Lease in favor of Seller.

 

“Guarantee” — as defined in Section 4.2.

 

“Hazardous Activity” — the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment or use of Hazardous Material in, on, under,
about or from any of the Facilities or any part thereof into the Environment.

 

“Hazardous Material” — any substance, material or waste which is regulated by
any Governmental Body, including any material, substance or waste which is
defined as a “hazardous waste,” “hazardous material,” “hazardous substance,”
“extremely hazardous waste,” “restricted hazardous waste,” “contaminant,” “toxic
waste” or “toxic substance” under any provision of Environmental Law, and
including petroleum, petroleum products, asbestos, presumed asbestos–containing
material or asbestos–containing material, urea formaldehyde and polychlorinated
biphenyls.

 

“HSR Act” — the Hart–Scott–Rodino Antitrust Improvements Act of 1976.

 

“Improvements” — all buildings, structures, fixtures and improvements located on
the Land or included in the Assets, including those under construction.

 

“Indemnified Person” — as defined in Section 11.8.

 

“Indemnifying Person” — as defined in Section 11.8.

 

“Independent Accountants” — as defined in Section 2.9(b).

 

“Initial Working Capital” — $12,000,000, as calculated pursuant to the
methodology set forth in Schedule 2.9(b).

 

“Intellectual Property Assets” — as defined in Section 3.25(a).

 

“Interim Balance Sheet” — as defined in Section 3.4.

 

“Inventories” — all inventories owned by Seller, wherever located, including all
finished goods, work in process, raw materials, spare parts and all other
materials and supplies to be used or consumed by Seller in the production of
finished goods.

 

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“IRS” — the United States Internal Revenue Service and, to the extent relevant,
the United States Department of the Treasury, and any successor entities
thereof.

 

“Kentwood Operations” — the receiving, packaging, warehousing, shipping, quality
inspection, inventory control, marketing, research and development, engineering,
customer service, consumer relations, information systems and financial and
administrative functions currently conducted by Seller in the Kentwood, Michigan
facility of Seller.

 

“Knowledge” — an individual will be deemed to have Knowledge of a particular
fact or other matter if:  (a) that individual is actually aware of that fact or
matter; or (b) that individual would discover or otherwise become aware of that
fact or matter in the course of conducting a reasonably comprehensive
investigation regarding the accuracy of any representation or warranty contained
in this Agreement.

 

Seller will be deemed to have Knowledge of a particular fact or other matter if
any of Kaplan, Hirsch, Rotblatt, Douglas, Torjus Lundevall or Phil Minster had
Knowledge of that fact or other matter (as set forth in (a) and (b) above), and
any such individual will be deemed to have conducted a reasonably comprehensive
investigation regarding the accuracy of the representations and warranties made
herein by Seller.  Buyer will be deemed to have Knowledge of a particular fact
or other matter if either of Tom Bowles or John Wille had Knowledge of that fact
or other matter (as set forth in (a) and (b) above), and any such individual
will be deemed to have conducted a reasonably comprehensive investigation
regarding the accuracy of the representations and warranties made herein by
Buyer.

 

“Land” — all parcels and tracts of land in which Seller has an ownership
interest in fee.

 

“Lease” — any Real Property Lease or any lease or rental agreement, license,
right to use or installment and conditional sale agreement to which Seller is a
party and any other Seller Contract pertaining to the leasing or use of any
Tangible Personal Property.

 

“Legal Requirement” — any federal, state, local, municipal, foreign,
international, multinational or other constitution, law, ordinance, code,
regulation, statute or treaty.

 

“Letters of Credit” — as defined in Section 7.4(b).

 

“Liability” — with respect to any Person, any liability or obligation of such
Person of any kind, character or description, whether known or unknown, absolute
or contingent, accrued or unaccrued, disputed or undisputed, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise, and
whether or not the same is required to be accrued on the financial statements of
such Person.

 

“MAM Agreement” — the Distribution Agreement, dated June 15, 2000, between
Seller and MAM Babyartikel G.M.B.H. (“MAM”).

 

“Marks” — as defined in Section 3.25(a)(i).

 

“Material Consents” — as defined in Section 7.3.

 

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“Noncompetition Agreement” — as defined in Section 2.7(a)(vii).

 

“Occupational Safety and Health Law” — any Legal Requirement designed to provide
safe and healthful working conditions and to reduce occupational safety and
health hazards, including the Occupational Safety and Health Act.

 

“Order” — any order, injunction, judgment, decree, ruling, assessment or
arbitration award of any Governmental Body or arbitrator.

 

“Patents” — as defined in Section 3.25(a)(ii).

 

“Permitted Encumbrances” — as defined in Section 3.9.

 

“Permitted Real Estate Encumbrances” — as defined in Section 3.9(b).

 

“Person” — an individual, partnership, corporation, business trust, limited
liability company, limited liability partnership, joint stock company, trust,
unincorporated association, joint venture or other entity or a Governmental
Body.

 

“Proceeding” — any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, whether public or private) commenced,
brought, conducted or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.

 

“Product Liability Insurance Policies” — as defined in Section 10.12.

 

“Purchase Price” — as defined in Section 2.3.

 

“RB” — as defined in Section 4.2.

 

“Real Property” — the Land and Improvements and all Appurtenances thereto and
any Ground Lease Property.

 

“Real Property Lease” — any Ground Lease or Space Lease.

 

“Receiving Party” — as defined in Section 12.1(a).

 

“Related Person” —

 

With respect to a particular individual: (a) each other member of such
individual’s Family; and (b) any Person that is directly or indirectly
controlled by any one or more members of such individual’s Family.

 

With respect to a specified Person other than an individual:  any Person that
directly or indirectly controls, is directly or indirectly controlled by or is
directly or indirectly under common control with such specified Person.

 

For purposes of this definition the “Family” of an individual includes (i) the
individual, (ii) the individual’s spouse, (iii) any other natural person who is
related to the individual or the

 

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individual’s spouse within the second degree and (iv) any other natural person
who resides with such individual.

 

“Release” — any release, spill, emission, leaking, pumping, pouring, dumping,
emptying, injection, deposit, disposal, discharge, dispersal or leaching on or
into the Environment or into or out of any property.

 

“Remedial Action” — all actions, including any capital expenditures, required
under Environmental Law (a) to clean up, remove, treat or in any other way
address any Hazardous Material; (b) to prevent the Release or Threat of Release
or to minimize the further Release of any Hazardous Material; (c) to perform
pre–remedial studies and investigations or post–remedial monitoring and care; or
(d) to bring all Facilities and the operations conducted thereon into compliance
with Environmental Laws and environmental Governmental Authorizations.

 

“Representative” — with respect to a particular Person, any director, officer,
manager, employee, agent, consultant, advisor, accountant, financial advisor,
legal counsel or other representative of that Person.

 

“Retained Liabilities” — as defined in Section 2.4(b).

 

“Seller” — as defined in the first paragraph of this Agreement.

 

“Seller Contract” — any Contract (a) under which Seller has or may acquire any
rights or benefits; (b) under which Seller has or may become subject to any
obligation or liability; or (c) by which Seller or any of the assets owned or
used by Seller is or may become bound.

 

“Shareholders” — as defined in the first paragraph of this Agreement.

 

“Space Lease” — any lease or rental agreement pertaining to the occupancy of any
improved space on any Land.

 

“Subsidiary” — with respect to any Person (the “Owner”), any corporation or
other Person of which securities or other interests having the power to elect a
majority of that corporation’s or other Person’s board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred), are held by the Owner or one or more of its Subsidiaries.

 

“Tangible Personal Property” — all machinery, equipment, tools, furniture,
office equipment, computer hardware, supplies, materials, vehicles and other
items of tangible personal property (other than Inventories) of every kind owned
or leased by Seller (wherever located and whether or not carried on Seller’s
books), together with any express or implied warranty by the manufacturers or
sellers or lessors of any item or component part thereof and all maintenance
records and other documents relating thereto.

 

“Tax” — any income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental, windfall profit,
customs, vehicle, airplane, boat, vessel or other title or registration, capital
stock, franchise, employees’ income

 

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withholding, foreign or domestic withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer, value added,
alternative, add-on minimum and other tax, fee, assessment, levy, tariff, charge
or duty of any kind whatsoever and any interest, penalty, addition or additional
amount thereon imposed, assessed or collected by or under the authority of any
Governmental Body or payable under any tax-sharing agreement or any other
Contract.

 

“Tax Return” — any return (including any information return), report, statement,
schedule, notice, form, declaration, claim for refund or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.

 

“Third Party” — a Person that is not a party to this Agreement.

 

“Third–Party Claim” — any claim against any Indemnified Person by a Third Party,
whether or not involving a Proceeding.

 

“Threat of Release” — a reasonable likelihood of a Release that can reasonably
be expected to require action pursuant to any applicable Legal Requirement in
order to prevent or mitigate damage to the Environment that may result from such
Release.

 

“Title Commitment” — as defined in Section 5.10(a).

 

“Title Insurer” — as defined in Section 5.10(a).

 

“Title Objection” — as defined in Section 5.10(c).

 

“Twelve Month EBITDA” — as defined in Section 2.8(b).

 

“Union” — as defined in Section 10.1(f).

 

“WARN Act” — as defined in Section 10.1(c).

 

“Working Capital” — as defined in Section 2.9(a).

 

1.2. Usage.

 

(a)           Interpretation.  In this Agreement, unless a clear contrary
intention appears:

 

(i)            the singular number includes the plural number and vice versa;

 

(ii)           reference to any Person includes such Person’s successors and
assigns but, if applicable, only if such successors and assigns are not
prohibited by this Agreement, and reference to a Person in a particular capacity
excludes such Person in any other capacity or individually;

 

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(iii)          reference to any gender includes each other gender;

 

(iv)          reference to any agreement, document or instrument means such
agreement, document or instrument as amended or modified and in effect from time
to time in accordance with the terms thereof;

 

(v)           reference to any Legal Requirement means such Legal Requirement as
amended, modified, codified, replaced or reenacted, in whole or in part, and in
effect from time to time, including rules and regulations promulgated
thereunder, and reference to any Section or other provision of any Legal
Requirement means that provision of such Legal Requirement from time to time in
effect and constituting the substantive amendment, modification, codification,
replacement or reenactment of such Section or other provision;

 

(vi)          “hereunder,” “hereof,” “hereto,”  and words of similar import
shall be deemed references to this Agreement as a whole and not to any
particular Article, Section or other provision hereof;

 

(vii)         “including” (and with correlative meaning “include”) means
including without limiting the generality of any description preceding such
term;

 

(viii)        “or” is used in the inclusive sense of “and/or”;

 

(ix)           with respect to the determination of any period of time, “from”
means “from and including” and “to” means “to but excluding”; and

 

(x)            references to documents, instruments or agreements shall be
deemed to refer as well to all addenda, exhibits, schedules or amendments
thereto.

 

(b)           Accounting Terms and Determinations.  Unless otherwise specified
herein, all accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP.

 

(c)           Legal Representation of the Parties.  This Agreement was
negotiated by the parties with the benefit of legal representation, and any rule
of construction or interpretation otherwise requiring this Agreement to be
construed or interpreted against any party shall not apply to any construction
or interpretation hereof.

 

2.             SALE AND TRANSFER OF ASSETS; CLOSING

 

2.1. Assets to Be Sold.  Upon the terms and subject to the conditions set forth
in this Agreement, at the Closing, Seller shall sell, convey, assign, transfer
and deliver to Buyer, and Buyer shall purchase and acquire from Seller, free and
clear of any Encumbrances other than Permitted Encumbrances, all of Seller’s
right, title  and interest in and to all of Seller’s property and assets, real,
personal or mixed, tangible and intangible, of every kind and description,
wherever located, including the following (but excluding the Excluded Assets):

 

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(a)           all Real Property, including the Real Property described on
Schedule 3.7 and the Real Property Leases described on Schedule 3.8;

 

(b)           all Tangible Personal Property, including those items described on
Schedule 2.1(b);

 

(c)           all Inventories;

 

(d)           subject to Section 2.10(c), all Accounts Receivable;

 

(e)           all Seller Contracts, including those listed on Schedule 3.20(a),
and all outstanding offers or solicitations made by or to Seller to enter into
any Contract;

 

(f)            all Governmental Authorizations and all pending applications
therefor or renewals thereof, in each case to the extent transferable to Buyer,
including those listed on Schedule 3.17(b);

 

(g)           all data and records related to the operations of Seller,
including client and customer lists, supplier lists and records, referral
sources, research and development reports and records, production reports and
records, service and warranty records, equipment logs, operating guides and
manuals, financial and accounting records, creative materials, advertising
materials, promotional materials, studies, reports, correspondence and other
similar documents and records and, subject to Legal Requirements, copies of all
personnel records and other records described in Section 2.2(g);

 

(h)           all of the intangible rights and property of Seller, including
Intellectual Property Assets, going concern value, goodwill, telephone, telecopy
and e-mail addresses and listings and those items listed on Schedules 3.25(d),
(e), (f), (g) and (h);

 

(i)            all insurance benefits, including rights and proceeds, arising
from or relating to the Assets or the Assumed Liabilities prior to the Closing
Date;

 

(j)            all claims of Seller against Third Parties relating to the
Assets, whether choate or inchoate, known or unknown, contingent or
noncontingent, including all such claims listed on Schedule 2.1(j); and

 

(k)           all rights of Seller relating to deposits and prepaid expenses,
claims for refunds and rights to offset in respect thereof that are not listed
on Schedule 2.2(d) and that are not excluded under Section 2.2(h).

 

All of the property and assets to be transferred to Buyer hereunder are herein
referred to collectively as the “Assets.”

 

Notwithstanding the foregoing, the transfer of the Assets pursuant to this
Agreement shall not include the assumption of any Liability related to the
Assets unless Buyer expressly assumes that Liability pursuant to Section 2.4(a).

 

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2.2. Excluded Assets.  Notwithstanding anything to the contrary contained in
Section 2.1 or elsewhere in this Agreement, the following assets of Seller
(collectively, the “Excluded Assets”) are not part of the sale and purchase
contemplated hereunder, are excluded from the Assets and shall remain the
property of Seller after the Closing:

 

(a)           all cash, cash equivalents and short-term investments;

 

(b)           all minute books, stock records and corporate seals;

 

(c)           the shares of capital stock of Seller held in treasury;

 

(d)           those rights relating to deposits and prepaid expenses and claims
for refunds and rights to offset in respect thereof listed on Schedule 2.2(d);

 

(e)           all insurance policies and rights thereunder (except to the extent
specified in Sections 2.1(i) and (j) and 7.4(c));

 

(f)            all of the Seller Contracts listed on Schedule 2.2(f);

 

(g)           all personnel records and other records that Seller is required by
law to retain in its possession;

 

(h)           all claims for refund of Taxes and other Governmental Body charges
of whatever nature, including, without limitation, the anticipated duty refund
in connection with customs duties paid under the MAM Agreement prior to the
Closing Date;

 

(i)            all rights in connection with and assets of the Employee Plans;

 

(j)            all rights of Seller under this Agreement, the Bill of Sale and
the Assignment and Assumption Agreement; and

 

(k)           the property and assets expressly designated on Schedule 2.2(k).

 

2.3. Consideration.

 

(a)           The aggregate consideration for the Assets (the “Purchase Price”)
will be (x) $44,990,000 (the “Cash Consideration”), plus or minus the Adjustment
Amount, (y) the EBITDA Adjustment Amount, if any, and (z) the assumption of the
Assumed Liabilities.

 

(b)           In accordance with Section 2.7(b), at the Closing, Buyer shall
deliver to Seller (i) the Cash Consideration by wire transfer and (ii) an
executed Assignment  and Assumption Agreement.  The Adjustment Amount and the
EBITDA Adjustment, if any, shall be paid in accordance with Section 2.8 below.

 

(c)           In addition, the Buyer will establish the Cash Bonus plan
described in Exhibit 8.3(b)(i) and the EBITDA Earnout plan described in
Exhibit 8.3(b)(ii).

 

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2.4. Liabilities.

 

(a)           Assumed Liabilities.  On the Closing Date, Buyer shall assume and
agree to discharge only the following Liabilities of Seller (the “Assumed
Liabilities”):

 

(i)            any trade account payable reflected on the Closing Balance Sheet
(as defined in Section 2.9(b) below) (other than a trade account payable to any
Shareholder or a Related Person of Seller or any Shareholder) that remains
unpaid at and is not delinquent as of the Closing Date;

 

(ii)           any Liability arising after the Closing Date under (w) the Seller
Contracts described on Schedule 3.20(a), including any liability under the Mam
Agreement arising out of the matter described on Item 1 of Schedule 3.13, other
than the excluded Seller Contracts described on Schedule 2.2(f); (x) purchase or
sale orders or supplier purchase orders entered into by Seller in the ordinary
course of business, consistent with past practice; and (y) Seller Contracts
affecting the ownership or leasing any interest in real or personal property
(including personal property leases and installment and conditional sales
agreements) having a value per item or aggregate payments of less than $20,000
or with a term of less than one year, entered into in the ordinary course of
business, consistent with past practice, and in each case, any amendments
thereto or arising out of or relating to a breach by Seller that occurred prior
to the Closing Date);

 

(iii)          any Liability of Seller arising after the Closing Date under any
Seller Contract included in the Assets that is entered into by Seller after the
date hereof in accordance with past practice and in the ordinary course of
business (other than any Liability arising out of or relating to a breach by
Seller that occurred prior to the Closing Date);

 

(iv)          Liabilities listed on Schedule 2.4(b)(vii); and

 

(v)           two-thirds of any Liabilities with respect to preference claims
arising as a result of the K-Mart bankruptcy, which shall in no event exceed
$255,425.

 

(b)           Retained Liabilities.  The Retained Liabilities shall remain the
sole responsibility of and shall be retained, paid, performed and discharged
solely by Seller. “Retained Liabilities” shall mean every Liability of Seller
other than the Assumed Liabilities, and notwithstanding anything to the contrary
in Section 2.4(a), shall include, without limitation:

 

(i)            subject to Sections 10.12, 11.2(e), 11.4(g) and 11.5 of this
Agreement, any Liability arising out of or relating to products of Seller to the
extent manufactured or sold prior to the Closing Date other than to the extent
assumed under Section 2.4(a)(ii);

 

(ii)           any Liability under any Contract assumed by Buyer pursuant to
Section 2.4(a) that arises after the Closing Date but that arises as a result of
any breach that occurred prior to the Closing Date;

 

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(iii)          any Liability for Taxes, including (A) any Taxes arising as a
result of Seller’s operation of its business or ownership of the Assets prior to
the Closing Date, (B) any Taxes that will arise as a result of the sale of the
Assets pursuant to this Agreement imposed on Seller by applicable Legal
Requirements and (C) any deferred Taxes of any nature, except for any Taxes set
forth on the Closing Balance Sheet;

 

(iv)          any Liability under any Contract not assumed by Buyer under
Section 2.4(a), including any Liability arising out of or relating to Seller’s
credit facilities or any security interest related thereto;

 

(v)           any Environmental, Health and Safety Liabilities arising out of or
relating to the operation of Seller’s business prior to the Closing Date or
Seller’s leasing, ownership or operation of real property;

 

(vi)          any Liability under the Employee Plans or to the extent not
accrued as a current liability on the Closing Balance Sheet, relating to
payroll, vacation, sick leave, workers’ compensation, unemployment benefits,
pension benefits, employee stock option or profit-sharing plans, health care
plans or benefits or any other employee plans or benefits of any kind for
Seller’s employees or former employees or both;

 

(vii)         except as set forth on Schedule 2.4(b)(vii), any Liability under
any employment, severance, retention or termination Contract with any employee
of Seller or any of its Related Persons;

 

(viii)        any Liability arising out of or relating to any employee grievance
whether or not the affected employees are hired by Buyer;

 

(ix)           any Liability of Seller to any Shareholder or Related Person of
Seller or any Shareholder;

 

(x)            any Liability to indemnify, reimburse or advance amounts to any
officer, director, employee or agent of Seller;

 

(xi)           any Liability to distribute to any of Seller’s Shareholders or
otherwise apply all or any part of the consideration received hereunder;

 

(xii)          any Liability arising out of any Proceeding pending as of the
Closing Date;

 

(xiii)         any Liability arising out of any Proceeding commenced after the
Closing Date and arising out of or relating to any occurrence or event happening
prior to the Closing Date, except to the extent expressly assumed hereunder;

 

(xiv)        any Liability arising out of or resulting from Seller’s compliance
or noncompliance with any Legal Requirement or Order of any Governmental Body;

 

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(xv)         any Liability of Seller under this Agreement or any other document
executed in connection with the Contemplated Transactions;

 

(xvi)        any Liability of Seller based upon Seller’s acts or omissions, or
arising out of or in connection with the business conducted by Seller, occurring
prior to the Closing Date, except to the extent expressly assumed hereunder;

 

(xvii)       any Liability of Seller based upon Seller’s acts or omissions
occurring after the Closing Date;

 

(xviii)      any Liability of Seller to RBK Management Company; and

 

(xix)         any Liability incurred by Seller relating to any duties on tooling
located in foreign countries.

 

2.5. Allocation.  The Purchase Price shall be allocated in accordance with the
determination of a reputable valuation firm designated mutually by the Seller
and the Buyer (at Buyer’s expense). After the Closing, the parties shall make
consistent use of the allocation, fair market value and useful lives specified
by such valuation firm for all Tax purposes and in all filings, declarations 
and reports with the IRS in respect thereof, including the reports required to
be filed under Section 1060 of the Code.  Buyer shall prepare and deliver IRS
Form 8594 to Seller within seventy-five (75) days after the Closing Date to be
filed with the IRS.  In any Proceeding related to the determination of any Tax,
neither Buyer nor Seller or Shareholders shall contend or represent that such
allocation is not a correct allocation.

 

2.6. Closing.  The purchase and sale provided for in this Agreement (the
“Closing”) will take place at the offices of Kaye Scholer LLP at 425 Park
Avenue, New York, NY 10022, commencing at 10:00 a.m. (local time) on the later
of (a) July 26, 2002, or (b) the date that is five (5) Business Days following
the satisfaction or waiver of all conditions to Closing hereunder unless Buyer
and Seller otherwise agree.  Subject to the provisions of Article 9, failure to
consummate the purchase and sale provided for in this Agreement on the date and
time and at the place determined pursuant to this Section 2.6 will not result in
the termination of this Agreement and will not relieve any party of any
obligation under this Agreement.  In such a situation, the Closing will occur as
soon as practicable, subject to Article 9.

 

2.7. Closing Obligations.  In addition to any other documents to be delivered
under other provisions of this Agreement, at the Closing:

 

(a)           Seller and Shareholders, as the case may be, shall deliver to
Buyer, together with funds sufficient to pay all Taxes necessary for the
transfer, filing or recording thereof:

 

(i)            a bill of sale for all of the Assets that are Tangible Personal
Property in the form of Exhibit 2.7(a)(i) (the “Bill of Sale”) executed by
Seller;

 

(ii)           an assignment of all of the Assets that are intangible personal
property in the form of Exhibit 2.7(a)(ii), which assignment shall also contain

 

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Buyer’s undertaking and assumption of the Assumed Liabilities (the
“Assignment and Assumption Agreement”) executed by Seller;

 

(iii)          for each interest in Real Property identified on Schedules 3.7
and 3.8, a recordable warranty deed, an Assignment and Assumption of Lease in
the form of Exhibit 2.7(a)(iii) or such other appropriate document or instrument
of transfer, as the case may require, each in form and substance satisfactory to
Buyer and its counsel and executed by Seller;

 

(iv)          assignments of all Intellectual Property Assets and separate
assignments of all registered Marks, Patents, Copyrights and Net Names in the
form of Exhibit 2.7(a)(iv) executed by Seller;

 

(v)           such other deeds, bills of sale, assignments, certificates of
title, documents  and other instruments of transfer and conveyance as may
reasonably be requested by Buyer, each in form and substance satisfactory to
Buyer and its legal counsel and executed by Seller;

 

(vi)          (1)           an employment agreement in the form of
Exhibit 2.7(a)(vi)(1), executed by Hirsch (the “Hirsch Employment Agreement”);

 

(2)           an employment agreement in the form of Exhibit 2.7(a)(vi)(2),
executed by Rotblatt (the “Rotblatt Employment Agreement”);

 

(3)           an employment agreement in the form of Exhibit 2.7(a)(vi)(3),
executed by Douglas (the “Douglas Employment Agreement”);

 

(vii)         a noncompetition agreement in the form of Exhibit 2.7(a)(vii),
executed by Kaplan (the “Noncompetition Agreement”);

 

(viii)        a certificate executed by Seller and each Shareholder as to the
accuracy of their representations and warranties as of the date of this
Agreement  and as of the Closing in accordance with Section 7.1 and as to their
compliance with and performance of their covenants and obligations to be
performed or complied with at or before the Closing in accordance with
Section 7.2;  and

 

(ix)           a certificate of the Secretary of Seller certifying, as complete
and accurate as of the Closing, attached copies of the Governing Documents of
Seller, certifying and attaching all requisite resolutions or actions of
Seller’s board of directors and shareholders approving the execution and
delivery of this Agreement and the consummation of the Contemplated Transactions
and the change of name contemplated by Section 5.9 and certifying to the
incumbency and signatures of the officers of Seller executing this Agreement and
any other document relating to the Contemplated Transactions and accompanied by
the requisite documents for amending the relevant Governing Documents of Seller

 

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required to effect such change of name in form sufficient for filing with the
appropriate Governmental Body.

 

(b)           Buyer shall deliver to Seller and Shareholders, as the case may
be:

 

(i)            the Cash Consideration by wire transfer to an account specified
by Seller in a writing delivered to Buyer at least three (3) Business Days prior
to the Closing Date;

 

(ii)           the Assignment and Assumption Agreement executed by Buyer;

 

(iii)          the Employment Agreements executed by Buyer;

 

(iv)          the Noncompetition Agreement executed by Buyer;

 

(v)           a certificate executed by Buyer as to the accuracy of its
representations  and warranties as of the date of this Agreement and as of the
Closing in accordance with Section 8.1 and as to its compliance with and
performance of its covenants and obligations to be performed or complied with at
or before the Closing in accordance with Section 8.2; and

 

(vi)          a certificate of the Secretary of Buyer certifying, as complete
and accurate as of the Closing, attached copies of the Governing Documents of
Buyer and certifying and attaching all requisite resolutions or actions of
Buyer’s board of directors and shareholders, if required, approving the
execution and delivery of this Agreement and the consummation of the
Contemplated Transactions and certifying to the incumbency and signatures of the
officers of Buyer executing this Agreement and any other document relating to
the Contemplated Transactions.

 

2.8. Adjustment Amount, EBITDA Adjustment Amount and Payment.

 

(a)           Adjustment Amount.  Subject to Section 2.10(c), the “Adjustment
Amount” (which may be a positive or negative number) will be equal to the amount
determined by subtracting Closing Working Capital (as determined in accordance
with Section 2.9(b) below) from Initial Working Capital.  If the Adjustment
Amount is positive, the Adjustment Amount shall be paid by wire transfer by
Seller to an account specified by Buyer, and if the Adjustment Amount is
negative,  the absolute value of the Adjustment Amount shall be paid by wire
transfer by Buyer to an account specified by Seller.  Within three Business Days
after the calculation of the Closing Working Capital becomes binding and
conclusive on the parties pursuant to Section 2.9(b), Seller or Buyer, as the
case may be, shall make the wire transfer payment provided for in this
Section 2.8.

 

(b)              EBITDA Adjustment Amount If the EBITDA of Seller for the twelve
months (to the day) immediately preceding the Closing Date (the “Twelve Month
EBITDA”) is greater than $7.277 million, an amount (the “EBITDA Adjustment
Amount”) equal to the lesser of $2 million and the amount, determined by the
following calculation:  (Twelve Month EBITDA minus $7.277 million) times 6.184,
shall be paid by Buyer to Seller by wire transfer within three Business Days
after the calculation thereof becomes binding and conclusive on the

 

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parties pursuant to Section 2.9(c).  The calculation of the Twelve Month EBITDA
shall be computed taking into account the following add-back items to net income
used in calculating EBITDA for the Seller for the year ended December 31, 2001,
which, taking into account a LIFO adjustment of $188,314, resulted in EBITDA of
$7,096,008 for such year; provided, however, that (x) in the case of
point-in-time events resulting in an add-back item, such add-back item shall
only be included to the extent that the corresponding event occurred during the
twelve-month period (to the day) immediately preceding the Closing Date, and
(y) in the case of ratable events resulting in an add-back item, only the
portion of such add-back item accruing during the twelve-month period (to the
day) immediately preceding the Closing Date shall be included.  Such add-backs
to net income in 2001 are as follows: (i) management fees of $1,341,250;
(ii) tooling costs of $163,805 (such costs were expensed, not capitalized);
(iii) excess compensation of $250,000; (iv) interest expense of $702,084;
(v) depreciation of $315,847; (vi) taxes of $104,576; (vii) $220,370 of goods
shipped to Kmart and written off; (viii) a LIFO adjustment equal to (x) $188,314
minus (y) the lesser of (1) $94,157 and (2) 50% of the amount, if any, by which
Twelve Month EBITDA would exceed $7.277 million if the add-back provided by this
clause (viii) were $188,314; (ix) $64,000 in costs relating to an unconsummated
acquisition; and (x) $83,411 from a MAM goods pricing adjustment for the fiscal
year ended December 31, 2000.  Such add-backs to net income in 2002 are as
follows:  (i) management fees; (ii) tooling costs (that are expensed, not
capitalized); (iii) excess compensation; (iv) interest expense;
(v) depreciation; (vi) taxes; (vii) unconsummated acquisition costs and 50% of
the costs directly associated with the Contemplated Transactions; and (viii) a
LIFO adjustment, all as calculated in accordance with past practice.

 

2.9. Adjustment Procedures.

 

(a)           “Working Capital” as of a given date shall mean the amount
calculated by subtracting the current liabilities (accounts payable and accrued
liabilities) of Seller included in the Assumed Liabilities as of that date from
the current assets of Seller included in the Assets as of that date.

 

(b)           Adjustment Amount.

 

(i)            Seller shall prepare a balance sheet (“Closing Balance Sheet”)
and income statement (“Closing Income Statement”) of Seller as of the Closing
Date and for the period from the date of the Balance Sheet through the Closing
Date, all in accordance with GAAP.  The Closing Balance Sheet shall reflect the
results of a physical inventory to be conducted by Seller, effective as of the
Closing Date.  Buyer shall be present for such physical inventory and the
parties shall mutually agree to the methods and results thereof.  Seller shall
then determine the Working Capital as of the Closing Date, plus half the amount
of capital expenditures set forth on Schedule 2.9(b) (the “Closing Working
Capital”) based upon the Closing Balance Sheet and Closing Income Statement and
using the same methodology as was used to calculate the Initial Working Capital,
as set forth on Schedule 2.9(b)(i).  Seller shall deliver the Closing Balance
Sheet, Closing Income Statement and its determination of the Closing Working
Capital to Buyer within ninety (90) days following the Closing Date.  In
preparing the Closing Balance Sheet, Closing Income Statement and Closing
Working Capital, Buyer

 

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agrees that Seller may use Buyer’s employees (former Seller employees) and
records during normal business hours, upon reasonable advance notice, to
facilitate such preparation, provided that any such use shall not interfere to
any significant extent with the normal operations of Buyer and/or its business.

 

(ii)           In connection with its review of the Closing Balance Sheet and
the Closing Income Statement, Buyer shall have the right to audit such
statements and determinations, and Seller agrees to cooperate with Buyer during
the preparation thereof to accommodate any such audit.  If within thirty (30)
days following delivery of the Closing Balance Sheet, Closing Income Statement
and the Closing Working Capital calculation Buyer has not given Seller written
notice of its objection as to the Closing Working Capital calculation (which
notice shall state in reasonable detail the basis of Buyer’s objection), then
the Closing Working Capital calculated by Seller shall be binding and conclusive
on the parties and be used in computing the Adjustment Amount.

 

(iii)          If Buyer timely gives Seller such notice of objection, and if
Seller and Buyer fail to resolve the issues outstanding with respect to the
Closing Income Statement and the calculation of the Closing Working Capital in
good faith within thirty (30) days of Seller’s receipt of Buyer’s objection
notice, Seller and Buyer shall submit the issues remaining in dispute to
PriceWaterhouseCoopers (the “Independent Accountants”) for resolution applying
the principles, policies and practices referred to in Section 2.9(b).  If issues
are submitted to the Independent Accountants for resolution, (i) Seller and
Buyer shall furnish or cause to be furnished to the Independent Accountants such
work papers and other documents and information relating to the disputed issues
as the Independent Accountants may request and are available to that party or
its agents and shall be afforded the opportunity to present to the Independent
Accountants any material relating to the disputed issues and to discuss the
issues with the Independent Accountants; (ii) the determination by the
Independent Accountants, as set forth in a notice to be delivered to both Seller
and Buyer within sixty (60) days of the submission to the Independent
Accountants of the issues remaining in dispute, shall be final, binding and
conclusive on the parties and shall be used in the calculation of the Closing
Working Capital; and (iii) if the determinations of either party differ from
those of the Independent Accountants by more than 15%, such party shall pay the
fees and costs of the Independent Accountants and the costs and expenses,
including reasonable attorney’s fees, of the other party; if the determinations
of both parties differ from those of the Independent Accountants by either (i)
15% or less, or (ii) more than 15%, Seller and Buyer will each bear fifty
percent (50%) of the fees and costs of the Independent Accountants for such
determination, and each party shall pay its own costs and expenses.

 

(c)           EBITDA Adjustment Amount.

 

(i)            Seller shall determine (x) the Twelve Month EBITDA and (y) the
EBITDA Adjustment Amount, if any, in accordance with the provisions of

 

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Section 2.8(b).  Seller shall deliver such determinations, including a
description of the basis upon which such determination was made, to Buyer within
ninety (90) days following the Closing Date.  In determining the Twelve Month
EBITDA and the EBITDA Adjustment Amount, if any, Buyer agrees that Seller may
use Buyer’s employees (former Seller employees) and records during normal
business hours, upon reasonable advance notice, to facilitate such preparation,
provided that any such use shall not interfere to any significant extent with
the normal operations of Buyer and/or its business.

 

(ii)           If within thirty (30) days following delivery of such
determinations, Buyer has not given Seller written notice of its objection
thereto (which notice shall state in reasonable detail the basis of Buyer’s
objection), then such determinations shall be binding and conclusive on the
parties.

 

(iii)          If Buyer timely gives Seller such notice of objection, and if
Seller and Buyer fail to resolve the issues outstanding with respect to the
determination of the Twelve Month EBITDA and the EBITDA Adjustment Amount in
good faith within thirty (30) days of Seller’s receipt of Buyer’s objection
notice, Seller and Buyer shall submit the issues remaining in dispute to the
Independent Accountants for resolution applying the principles, policies and
practices referred to in herein and in Section 2.8(b).  If issues are submitted
to the Independent Accountants for resolution, (i) Seller and Buyer shall
furnish or cause to be furnished to the Independent Accountants such work papers
and other documents and information relating to the disputed issues as the
Independent Accountants may request and are available to that party or its
agents and shall be afforded the opportunity to present to the Independent
Accountants any material relating to the disputed issues and to discuss the
issues with the Independent Accountants; (ii) the determination by the
Independent Accountants, as set forth in a notice to be delivered to both Seller
and Buyer within sixty (60) days of the submission to the Independent
Accountants of the issues remaining in dispute, shall be final, binding and
conclusive on the parties and shall be used in the calculation of the Twelve
Month EBITDA and the EBITDA Adjustment Amount; and (iii) if the determinations
of either party differ from those of the Independent Accountants by more than
15%, such party shall pay the fees and costs of the Independent Accountants and
the costs and expenses, including reasonable attorney’s fees, of the other
party; if the determinations of both parties differ from those of the
Independent Accountants by either (i) 15% or less, or (ii) more than 15%, Seller
and Buyer will each bear fifty percent (50%) of the fees and costs of the
Independent Accountants for such determination, and each party shall pay its own
costs and expenses.

 

2.10.                     Consents.

 

(a)           If there are any Material Consents that have not yet been obtained
(or otherwise are not in full force and effect) as of the Closing, in the case
of each Seller Contract as to which such Material Consents were not obtained (or
otherwise are not in full force and effect) (the “Restricted Material
Contracts”), Buyer may waive the closing conditions as to any such

 

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Material Consent and either:  (i) elect to have Seller continue its efforts to
obtain the Material Consents; or (ii) elect to have Seller retain that
Restricted Material Contract and all Liabilities arising therefrom or relating
thereto.

 

(b)           If Buyer waives the closing condition as to any Material Consent
and elects to have Seller continue its efforts to obtain such Material Consent
and the Closing occurs, notwithstanding Sections 2.1 and 2.4, neither this
Agreement nor the Assignment and Assumption Agreement nor any other document
related to the consummation of the Contemplated Transactions shall constitute a
sale, assignment, assumption, transfer, conveyance or delivery or an attempted
sale, assignment, assumption, transfer, conveyance or delivery of the Restricted
Material Contracts, and following the Closing, the parties shall use Best
Efforts, and cooperate with each other, to obtain the Material Consent relating
to each Restricted Material Contract as quickly as practicable.  Pending the
obtaining of such Material Consents relating to any Restricted Material
Contract, the parties shall cooperate with each other in any reasonable and
lawful arrangements designed to provide to Buyer the benefits of use of the
Restricted Material Contract for its term (or any right or benefit arising
thereunder, including the enforcement for the benefit of Buyer of any and all
rights of Seller against a third party thereunder).  Once a Material Consent for
the sale, assignment, assumption, transfer, conveyance and delivery of a
Restricted Material Contract is obtained, Seller shall promptly assign,
transfer, convey and deliver such Restricted Material Contract to Buyer, and
Buyer shall assume the obligations under such Restricted Material Contract
assigned to Buyer from and after the date of assignment to Buyer pursuant to a
special-purpose assignment and assumption agreement substantially similar in
terms to those of the Assignment and Assumption Agreement (which special-purpose
agreement the parties shall prepare, execute and deliver in good faith at the
time of such transfer, all at no additional cost to Buyer).

 

(i)            If there are any Consents listed on Exhibit 7.3 necessary for the
assignment and transfer of any Seller Contracts to Buyer (the “Nonmaterial
Consents”) which have not yet been obtained (or otherwise are not in full force
and effect) as of the Closing (the “Restricted Nonmaterial Contracts”), Buyer
shall, at the Closing, accept the assignment of such Restricted Nonmaterial
Contracts, in which case, as between Buyer and Seller, such Restricted
Nonmaterial Contracts shall, to the maximum extent practicable and
notwithstanding the failure to obtain the applicable Nonmaterial Consent, be
transferred at the Closing pursuant to the Assignment and Assumption Agreement
as elsewhere provided under this Agreement.

 

(c)           Notwithstanding anything to the contrary contained herein, the
assignment of the right to receive payments under the Wal-Mart Stores, Inc.
Vendor Agreement between Wal-Mart Stores, Inc. and the Seller (the “Walmart
Agreement”) shall not be effective until the 30th day after notice has been
given to Walmart Stores, Inc., under the Walmart Agreement Standards for
Vendors, under the section titled “Notice Regarding Assignment of Accounts” (the
“WM Assignment Effective Date”).  During the period between the Closing Date and
the WM Assignment Effective Date, Seller agrees to pay an amount to the Buyer,
as and when collected, equal to the amount of any receivables collected under
the WalMart Agreement (the “Receivables Amount”), without regard to when such
receivables arose.  For purposes of calculating the Adjustment Amount under
Section 2.8, Working Capital shall be calculated to

 

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include as an asset (i) any accounts receivable attributable to the Walmart
Agreement on the Closing Date, as shown on the Closing Balance Sheet that remain
outstanding and are assigned to Buyer on the WM Assignment Effective Date plus
(ii) any payments made to Buyer in respect of any Receivable Amount pursuant to
the preceding sentence in respect of collections of receivables outstanding on
the Closing Date, and the calculation of Working Capital shall not include as an
asset any other receivables under the Walmart Agreement.  Seller agrees that no
Receivable Amount shall be distributed to any Shareholder prior to the WM
Assignment Effective Date.

 

3.                                      REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDERS.

 

Seller represents and warrants, jointly and severally, and each Shareholder
represents and warrants, severally, to Buyer as follows:

 

3.1. Organization and Good Standing.

 

(a)           Schedule 3.1(a) contains a complete and accurate list of Seller’s
jurisdiction of incorporation and any other jurisdictions in which it is
qualified to do business as a foreign corporation.  Seller is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under the Seller Contracts. Seller is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification, except where the absence to be so qualified would not have a
material adverse effect on the business, operations, assets, results of
operations or condition (financial or other) of Seller.

 

(b)           Complete and accurate copies of the Governing Documents of Seller,
as currently in effect, are attached to Schedule 3.1(b).

 

(c)           Seller has no Subsidiary nor does it own any shares of capital
stock or other securities of any other Person.

 

3.2. Enforceability; Authority; No Conflict.

 

(a)           This Agreement constitutes the legal, valid and binding obligation
of Seller and each Shareholder, enforceable against each of them in accordance
with its terms, except to the extent that enforceability is limited by the laws
of bankruptcy, insolvency or similar laws affecting creditors’ rights and
remedies, or by equitable principles.  Upon the execution and delivery by Seller
and Shareholders of the Employment Agreements, the Noncompetition Agreement and
each other agreement to be executed or delivered by any or all of Seller and
Shareholders at the Closing (collectively, the “Seller’s Closing Documents”),
each of Seller’s Closing Documents will constitute the legal, valid and binding
obligation of each of Seller and the Shareholders, enforceable against each of
them in accordance with its terms, except to the extent that enforceability is
limited by the laws of bankruptcy, insolvency or similar laws

 

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affecting creditors’ rights and remedies, or by equitable principles. Seller has
the absolute and unrestricted right, power and authority to execute and deliver
this Agreement and, at Closing, the Seller’s Closing Documents to which it is a
party and to perform its obligations under this Agreement and, at Closing, the
Seller’s Closing Documents, and such action has been duly authorized by all
necessary action by the Shareholders and Seller’s board of directors.  Each
Shareholder has all necessary legal capacity to enter into this Agreement and
the Seller’s Closing Documents to which such Shareholder is a party and to
perform his obligations hereunder and thereunder.

 

(b)           Except as set forth on Schedule 3.2(b), neither the execution and
delivery of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with or without notice
or lapse of time):

 

(i)            breach (A) any provision of any of the Governing Documents of
Seller or (B) any resolution adopted by the board of directors of the Seller or
the Shareholders;

 

(ii)           breach or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under any Legal Requirement or any Order to which Seller or
either Shareholder, or any of the Assets, may be subject;

 

(iii)          contravene, conflict with or result in a violation or breach of
any of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by Seller or that otherwise relates to the Assets or
to the business of Seller;

 

(iv)          cause Buyer to become subject to, or to become liable for the
payment of, any Tax;

 

(v)           breach any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or payment under, or to cancel, terminate or modify, any Seller
Contract of an amount or value in excess of $25,000;

 

(vi)          result in the imposition or creation of any Encumbrance upon or
with respect to any of the Assets; or

 

(vii)         result in any Shareholder of the Seller having the right to
exercise dissenters’ appraisal rights.

 

(c)           Except as set forth on Schedule 3.2(c), neither Seller nor any
Shareholder is required to give any notice to or obtain any Consent from any
Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.

 

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3.3. Capitalization.  The authorized equity securities of Seller consist of
10,000 shares of common stock, par value one dollar per share, of which 1,200
shares are issued and outstanding, 960 of which are owned by Kaplan, 120 of
which are owned by Hirsch, 60 of which are owned by Rotblatt and 60 of which are
owned by Douglas.  Shareholders are and will be on the Closing Date the record
and beneficial owners and holders of the shares owned by each of them, free and
clear of all Encumbrances.  There are no Contracts relating to the issuance,
sale or transfer of any equity securities or other securities of Seller.  Other
than the Shareholders, no other Person owns, holds or has the right to acquire
any equity securities or other securities of Seller.

 

3.4. Financial Statements.  Seller has delivered to Buyer:  (a) an unaudited
(but reviewed by Friduss, Lukee, Schiff & Co., P.C., the independent certified
public accountants of the Seller (“Reviewed”)) balance sheet of Seller as at
December 31, 2001 (including the notes thereto, the “Balance Sheet”), and the
related Reviewed unaudited statements of income, changes in shareholders’ equity
and cash flows for the fiscal year then ended, including in each case the notes
thereto, (b) Reviewed balance sheets of Seller as at December 31 in each of the
fiscal years 1998 through 2000, and the related Reviewed statements of income,
changes in shareholders’ equity and cash flows for each of the fiscal years then
ended, including in each case the notes thereto; and (c) an unaudited balance
sheet of Seller as at March 31, 2002, (the “Interim Balance Sheet”) and the
related unaudited statement of income for the three months then ended, certified
by Seller’s chief financial officer.  Such financial statements fairly present
the financial condition and the results of operations, changes in shareholders’
equity and cash flows of Seller, as applicable, as at the respective dates of
and for the periods referred to in such financial statements, all in accordance
with GAAP, subject, in the case of interim financial statements, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be significant) and the absence of notes (that, if presented,
would not differ materially from those included in the Balance Sheet).  The
financial statements referred to in this Section 3.4 reflect the consistent
application of such accounting principles throughout the periods involved,
except as set forth on Schedule 3.4 or as disclosed in the notes to such
financial statements.  The financial statements have been and will be prepared
from and are in accordance with the accounting records of Seller.  Seller has
also delivered to Buyer copies of all letters from Seller’s auditors to Seller’s
board of directors during the thirty-six (36) months preceding the execution of
this Agreement, together with copies of any responses thereto.

 

3.5. Books and Records.  The books of account and other financial records of
Seller, all of which have been made available to Buyer, are complete and
correct, in all material respects, and represent actual, bona fide transactions
and have been maintained in accordance with sound business practices including
the maintenance of an adequate system of internal controls.  The minute books of
Seller, all of which have been made available to Buyer, contain accurate and
complete, in all material respects, records of all meetings held of, and
corporate action taken by, the Shareholders, the board of directors and any
committees of the board of directors of Seller, and no meeting of any such
Shareholders, board of directors or committee at which action has been taken to
obligate the Seller or subject the Seller to any liability after the date hereof
has been held for which minutes have not been prepared or are not contained in
such minute books.

 

3.6. Sufficiency of Assets.  Except as set forth on Schedule 3.6, the Assets
(a) constitute all of the assets, tangible and intangible, of any nature
whatsoever, necessary to operate Seller’s

 

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business in the manner presently operated by Seller and (b) include all of the
operating assets of Seller.

 

3.7. Description of Owned Real Property.  Schedule 3.7 contains a correct legal
description, street address and tax parcel identification number of all tracts,
parcels and subdivided lots in which Seller has an ownership interest in fee.

 

3.8. Description of Leased Real Property.  Schedule 3.8 contains a street
address of all tracts, parcels and subdivided lots in which Seller has a
leasehold interest and an accurate description (by location, name of lessor,
date of Lease and term expiry date) of all Real Property Leases.

 

3.9. Title to Assets; Encumbrances.

 

(a)           Seller owns good and marketable title to its respective estates in
the Real Property, free and clear of any Encumbrances, other than:  (i) liens
for Taxes for the current tax year which are not yet due and payable; and
(ii) those described on Schedule 3.9(a)(i) (“Real Estate Encumbrances”).  True
and complete copies of (A) all deeds, existing title insurance policies and
surveys of or pertaining to the Real Property and (B) all instruments,
agreements and other documents evidencing, creating or constituting any Real
Estate Encumbrances have been delivered to Buyer.  Seller warrants to Buyer
that, at the time of Closing, the Real Property shall be free and clear of all
Real Estate Encumbrances other than those identified on Schedule 3.9(a)(ii) as
acceptable to Buyer (“Permitted Real Estate Encumbrances”), it being understood
by the parties that, except for liens for Taxes for the current year which are
not yet due and payable, any liens against the Real Property that are capable of
discharge with the payment of money shall not constitute Permitted Real Estate
Encumbrances.

 

(b)           Seller owns good and transferable title to all of the other Assets
free and clear of any Encumbrances other than those described on
Schedule 3.9(b)(i) (“Non-Real Estate Encumbrances”).  Seller warrants to Buyer
that, at the time of Closing, all other Assets shall be free and clear of all
Non-Real Estate Encumbrances other than those identified on Schedule 3.9(b)(ii)
as acceptable to Buyer (“Permitted Non-Real Estate Encumbrances” and, together
with the Permitted Real Estate Encumbrances, “Permitted Encumbrances”).

 

3.10.       Condition of Facilities.

 

(a)           Use of the Real Property for the various purposes for which it is
presently being used is permitted as of right under all applicable zoning Legal
Requirements and is not subject to “permitted nonconforming” use or structure
classifications.  All Improvements are in substantial compliance with all
applicable Legal Requirements, including those pertaining to zoning, building
and the disabled.  No part of any Improvement encroaches on any real property
not included in the Real Property, and there are no buildings, structures,
fixtures or other improvements primarily situated on adjoining property which
encroach on any part of the Land.  The Land for each owned Facility abuts on and
has vehicular access to a public road, is supplied with public or quasi-public
utilities appropriate for the operation of the Facilities located thereon and,
except as described on Schedule 3.10(a), is not located within any flood plain
or area subject to wetlands regulation or any similar restriction.  With respect
to the lease of property

 

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located at 2101 Waukegan Rd, Suite 203 Bannockburn, Illinois  60015, the
foregoing representations set forth in this Section 3.10(a) shall be qualified
to the Knowledge of Seller and Shareholders.  To the Knowledge of Seller and
Shareholders, there is no existing or proposed plan to modify or realign any
street or highway or any existing or proposed eminent domain Proceeding that
would result in the taking of all or any part of any Facility or that would
prevent or hinder the continued use of any Facility as heretofore used in the
conduct of the business of Seller.

 

(b)           Each item of Tangible Personal Property used in the day to day
operation of Seller’s business, other than those with a book value under $10,000
that are not material to the operations of any aspect of Seller’s business, is
in good repair and good operating condition, ordinary wear and tear excepted, is
suitable for immediate use in the ordinary course of business and is free from
latent and patent defects.  No item of Tangible Personal Property used in the
day to day operation of Seller’s business, other than those with a book value
under $10,000 that are not material to the operations of any aspect of Seller’s
business, is in need of repair or replacement other than as part of routine
maintenance, provided however, that to the extent the above representation
applies to (i) tooling that is in the possession of Seller’s suppliers or other
third parties in the People’s Republic of China or (ii) the items described on
Schedule 3.10(b), the Seller only represents that to the Seller’s Knowledge,
such tooling and such items have been maintained in the ordinary course of
business by such supplier or third party.  Except as disclosed on
Schedule 3.10(b), all Tangible Personal Property used in Seller’s business is in
the possession of Seller.

 

3.11.       Accounts Receivable.  All Accounts Receivable that are reflected on
the Balance Sheet and the Interim Balance Sheet, and on the accounting records
of Seller as of the Closing Date represent or will represent valid obligations
arising from sales actually made or services actually performed by Seller in the
ordinary course of business consistent with past practice. Except to the extent
paid prior to the Closing Date, such Accounts Receivable are or will be as of
the Closing Date current and collectible net of the respective reserves shown on
the Balance Sheet, the Interim Balance Sheet and on the Closing Balance Sheet
(which reserves are calculated as described on Schedule 3.11, and will not
represent a material adverse change in the composition of such Accounts
Receivable in terms of aging).  Except as set forth on Schedule 3.11, there is
no contest, claim, defense or right of setoff under any Contract with any
account debtor of an Account Receivable relating to the amount or validity of
such Account Receivable.  Schedule 3.11 contains a complete and accurate list of
all Accounts Receivable as of the date of the Interim Balance Sheet, which list
sets forth the aging of each such Account Receivable.

 

3.12.       Inventories.  (a)    Schedule 3.12(a) sets forth all of the
Inventories as of the date of the Interim Balance Sheet.

 

(b)           All items included in the Inventories consist of a quality and
quantity usable and, with respect to finished goods, saleable, in the ordinary
course of business of Seller, consistent with past practice, and are in good and
merchantable condition, in conformity with applicable voluntary Toy
Manufacturing Standards of the Toy Industry Association, Inc. and for the
purposes for which intended, and meet all Legal Requirements of Governmental
Bodies applicable to such Inventories, except for the inventory reserve set
forth on Schedule 3.12(b)

 

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(which reserve is calculated as set forth on Schedule 3.12(b)).  Seller is not
in possession of any inventory not owned by Seller, including goods already
sold.  All of the Inventories have been valued at the lower of cost or net
realizable value on a last in, first out basis.  Inventories now on hand that
were purchased after the date of the Balance Sheet or the Interim Balance Sheet
were purchased in the ordinary course of business of Seller consistent with past
practice at a cost not exceeding market prices prevailing at the time of
purchase.  The quantities of each item of Inventories (whether raw materials,
work-in-process or finished goods) are reasonable in the present circumstances
of Seller.  Work-in-process Inventories are now valued, and will be valued on
the Closing Date, according to GAAP.  Except as set forth on Schedule 3.12(b),
(x) Seller has not made, within the past three years, nor are there any pending,
material claims against manufacturers of the Inventories, including, without
limitation, with respect to breach of warranty or the quality or condition of
such Inventories and (y) customers or consumers have not made, within the past
three years, nor are there any pending, material claims, including, without
limitation, with respect to breach of warranty or the quality or condition of
any products sold by Seller thereto.

 

3.13.       No Undisclosed Liabilities.  Except as set forth on Schedule 3.13,
Seller has no Liability that is required to be reflected or reserved against on
financial statements under GAAP that is not so reflected or reserved against in
the Balance Sheet, the Interim Balance Sheet and/or the Closing Balance Sheet.

 

3.14.       Taxes.

 

(a)           Tax Returns Filed and Taxes Paid.  Seller has filed or caused to
be filed on a timely basis all federal, state and all other material Tax Returns
and all material reports with respect to Taxes that are or were required to be
filed pursuant to applicable Legal Requirements. All Tax Returns and reports
filed by Seller are true, correct and complete in all material respects. Seller
has paid, or made provision for the payment of, all Taxes that have or may have
become due for all periods covered by the Tax Returns or otherwise, or pursuant
to any assessment received by Seller, except such Taxes, if any, as are listed
on Schedule 3.14(a) and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided in the
Balance Sheet and the Interim Balance Sheet.  Except as provided on
Schedule 3.14(a), Seller currently is not the beneficiary of any extension of
time within which to file any Tax Return.  No claim has ever been made or, to
the Knowledge of Seller, is expected to be made by any Governmental Body in a
jurisdiction where Seller does not file Tax Returns that it is or may be subject
to taxation by that jurisdiction.  There are no Encumbrances on any of the
Assets that arose in connection with any failure (or alleged failure) to pay any
Tax, and Seller has no Knowledge of any basis for assertion of any claims
attributable to Taxes which, if adversely determined, would result in any such
Encumbrance.

 

(b)           Delivery of Tax Returns and Information Regarding Audits and
Potential Audits.  Seller has delivered or made available to Buyer copies of,
and Schedule 3.14(b) contains a complete and accurate list of, all Tax Returns
filed since January 1, 1998.  The federal and state income or franchise Tax
Returns of Seller have been audited by the IRS or relevant state tax authorities
or are closed by the applicable statute of limitations for all taxable years
through December 31, 1997.  Schedule 3.14(b) contains a complete and accurate
list of all Tax Returns of Seller that have been audited or are currently under
audit and accurately describes any

 

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deficiencies or other amounts that were paid or are currently being contested. 
To the Knowledge of Seller, no undisclosed material deficiencies are expected to
be asserted with respect to any such audit.  All deficiencies proposed as a
result of such audits have been paid, reserved against, settled or are being
contested in good faith by appropriate proceedings as described on
Schedule 3.14(b).  Seller has delivered, or made available to Buyer, copies of
any examination reports, statements or deficiencies or similar items with
respect to such audits.  Except as provided on Schedule 3.14(b), Seller has no
Knowledge that any Governmental Body is likely to assess any material additional
taxes for any period for which Tax Returns have been filed.  There is no dispute
or claim concerning any material Taxes of Seller either (i) claimed or raised by
any Governmental Body in writing or (ii) as to which Seller has Knowledge. 
Schedule 3.14(b) contains a list of all Tax Returns for which the applicable
statute of limitations has not run.  Except as described on Schedule 3.14(b),
Seller has not given or been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of Seller or for which
Seller may be liable.

 

(c)           Proper Accrual.  The charges, accruals and reserves with respect
to Taxes on the financial statements of Seller are adequate (determined in
accordance with GAAP) and are at least equal to Seller’s liability for Taxes. 
There exists no proposed tax assessment or deficiency against Seller except as
disclosed in the Interim Balance Sheet or on Schedule 3.14(c).

 

(d)           Specific Potential Tax Liabilities and Tax Situations.

 

(i)            Withholding.  All Taxes that Seller is or was required by Legal
Requirements to withhold, deduct or collect have been duly withheld, deducted
and collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.

 

(ii)           Tax Sharing or Similar Agreements.  There is no tax sharing
agreement, tax allocation agreement, tax indemnity obligation or similar written
or unwritten agreement, arrangement, understanding or practice with respect to
Taxes (including any advance pricing agreement, closing agreement or other
arrangement relating to Taxes) that will require any payment by Seller.

 

(iii)          Consolidated Group.  Seller (A) has not been a member of an
affiliated group within the meaning of Code Section 1504(a) (or any similar
group defined under a similar provision of state, local or foreign law) and
(B) has no liability for Taxes of any person (other than Seller and its
Subsidiaries) under Treas. Reg. sect. 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor by contract or
otherwise.

 

(iv)          S Corporation.  Seller is, and has been since November 1, 1987, an
S corporation as defined in Code Section 1361, and Seller has not been required
to pay any amounts of Tax pursuant to either the built-in-gains tax under Code
Section 1374 or the passive income tax under Code Section 1375.

 

Schedule 3.14(d)(iv) lists all the states and localities with respect to which

 

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Seller has filed any corporate, income or franchise tax returns and sets forth
whether Seller is treated as the equivalent of an S corporation by or with
respect to each such state or locality.  Seller has properly filed Tax Returns
with and paid and discharged any liabilities for Taxes in any states or
localities in which it is subject to Tax.  Seller has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
Section 6662.

 

3.15.       No Material Adverse Change.  Since the date of the Balance Sheet,
there has not been any material adverse change in the business, operations,
prospects (to the Knowledge of Seller or any Shareholder), assets, results of
operations or condition (financial or other) of Seller, and to Seller’s
Knowledge, no event has occurred or circumstance exists that may result in such
a material adverse change; provided, however, that any change resulting from
conditions affecting Seller’s industry or general business or economic
conditions shall not constitute a material adverse change in the business of
Seller.

 

3.16.       Employee Benefits.  Set forth on Schedule 3.16 is a complete and
correct list of all “employee benefit plans” as defined by Section 3(3) of
ERISA, all specified fringe benefit plans as defined in Section 6039D of the
Code, and all other bonus, incentive-compensation, deferred-compensation,
profit-sharing, stock-option, stock-appreciation-right, stock-bonus,
stock-purchase, employee-stock-ownership, savings, severance, change-in-control,
supplemental-unemployment, layoff, salary-continuation, retirement, pension,
health, life-insurance, disability, accident, group-insurance, vacation,
holiday, sick-leave, fringe-benefit or welfare plan, and any other employee
compensation or benefit plan, agreement, policy, practice, commitment, contract
or understanding (whether qualified or nonqualified, currently effective or
terminated, written or unwritten) and any trust, escrow or other agreement
related thereto that is maintained or contributed to by Seller which employees
of Seller are eligible to participate (collectively the “Employee Plans”).  No
Employee Plan is (x) a “Multiemployer Plan” (as defined in Section 3(37) of
ERISA); or (y) subject to Title IV of ERISA.  All Employee Plans are in written
form, and descriptions thereof have been provided to the Buyer.

 

3.17.       Compliance With Legal Requirements; Governmental Authorizations.

 

(a)           Except as set forth on Schedule 3.17(a):

 

(i)            Seller is, and at all times since January 1, 1999, has been, in
substantial compliance with each Legal Requirement that is or was applicable to
it or to the conduct or operation of its business or the ownership or use of any
of its assets;

 

(ii)           no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) constitutes or results in a material
violation by Seller of, or a material failure on the part of Seller to comply
with, any Legal Requirement (including, but not limited to, the WARN Act) or
(B) gives rise to any significant obligation on the part of Seller to undertake,
or to bear all or any portion of the cost of, any remedial action of any nature;
and

 

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(iii)          Seller has not received, at any time since January 1, 1999, any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding (A) any actual, alleged, possible or
potential violation of, or failure to comply with, any Legal Requirement or
(B) any actual, alleged, possible or potential obligation on the part of Seller
to undertake, or to bear all or any portion of the cost of, any remedial action
of any nature.

 

(b)           Schedule 3.17(b) contains a complete and accurate list of each
Governmental Authorization that is held by Seller or that otherwise relates to
Seller’s business or the Assets.  Each Governmental Authorization listed or
required to be listed on Schedule 3.17(b) is valid and in full force and
effect.  Except as set forth on Schedule 3.17(b):

 

(i)            Seller is, and at all times since January 1, 1999, has been, in
substantial compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified on
Schedule 3.17(b);

 

(ii)           no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) constitutes or results directly or
indirectly in a material violation of or a failure to comply in any material
respect with any term or requirement of any Governmental Authorization listed or
required to be listed on Schedule 3.17(b) or (B) will result directly or
indirectly in the revocation, withdrawal, suspension, cancellation or
termination of, or any modification to, any Governmental Authorization listed or
required to be listed on Schedule 3.17(b);

 

(iii)          Seller has not received, at any time since January 1, 1999, any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding (A) any actual, alleged, possible or
potential violation of or failure to comply with any term or requirement of any
Governmental Authorization or (B) any actual, proposed, possible or potential
revocation, withdrawal, suspension, cancellation, termination of or modification
to any Governmental Authorization; and

 

(iv)          all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed on
Schedule 3.17(b) have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made with the
appropriate Governmental Bodies.

 

The Governmental Authorizations listed on Schedule 3.17(b) collectively
constitute all of the Governmental Authorizations necessary to permit Seller to
lawfully conduct and operate its business in the manner in which it currently
conducts and operates such business and to permit Seller to own and use its
assets in the manner in which it currently owns and uses such assets, except
where the absence of such Governmental Authorizations would not have a material

 

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adverse effect on the business, operations, assets, results of operations or
condition (financial or other) of Seller.

 

3.18.       Legal Proceedings; Orders.

 

(a)           Except as set forth on Schedule 3.18(a), there is no pending or,
to Seller’s Knowledge, threatened Proceeding:

 

(i)            by or against Seller or that otherwise relates to or may
materially affect the business of, or any of the assets owned or used by,
Seller; or

 

(ii)           that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, any of the Contemplated
Transactions.

 

To the Knowledge of Seller, no event has occurred or circumstance exists that is
reasonably likely to give rise to or serve as a basis for the commencement of
any such Proceeding.  Seller has delivered to Buyer copies of all pleadings,
correspondence and other documents relating to each Proceeding listed on
Schedule 3.18(a).  There are no Proceedings listed or required to be listed on
Schedule 3.18(a) that could have a material adverse effect on the business,
operations, assets or condition of Seller or upon the Assets.

 

(b)           Except as set forth on Schedule 3.18(b):  (i) there is no Order to
which Seller, its business or any of the Assets is subject; and (ii) to the
Knowledge of Seller, no officer, director, agent or employee of Seller is
subject to any Order that prohibits such officer, director, agent or employee
from engaging in or continuing any conduct, activity or practice relating to the
business of Seller.

 

(c)           Except as set forth on Schedule 3.18(c):  (i) Seller is, and, at
all times has been in compliance with all of the terms and requirements of each
Order to which it or any of the Assets is or has been subject; (ii) to Seller’s
Knowledge, no event has occurred or circumstance exists that is reasonably
likely to constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any Order to
which Seller or any of the Assets is subject; and (iii) Seller has not received,
at any time, any notice or other communication (whether oral or written) from
any Governmental Body or any other Person regarding any actual, alleged,
possible or potential violation of, or failure to comply with, any term or
requirement of any Order to which Seller or any of the Assets is or has been
subject.

 

3.19.       Absence of Certain Changes and Events.  Except as set forth on
Schedule 3.19, since the date of the Balance Sheet, Seller has conducted its
business only in the ordinary course of business consistent with past practice
and there has not been any:

 

(a)           amendment to the Governing Documents of Seller;

 

(b)           payment (except in the ordinary course of business consistent with
past practice) or increase by Seller of any bonuses, salaries or other
compensation to any Shareholder, director, officer or employee or entry into any
employment, severance or similar Contract with any director, officer or
employee;

 

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(c)           adoption of, amendment to or increase in the payments to or
benefits under, any Employee Plan;

 

(d)           damage to or destruction or loss of any Asset with a book value in
excess of $25,000, whether or not covered by insurance;

 

(e)           entry into, termination of or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit or similar Contract to which Seller is a party, or (ii) any purchase
orders to vendors or customers of an amount or value in excess of $50,000, or
any other Contract or transaction involving a total remaining commitment by
Seller of at least $20,000;

 

(f)            sale (other than sales of Inventories in the ordinary course of
business consistent with past practice), lease, abandonment, lapse or other
disposition of any Asset or property of Seller (including the Intellectual
Property Assets) or the creation of any Encumbrance on any Asset with a fair
market value in excess of $10,000;

 

(g)           cancellation or waiver of any claims or rights with a value to
Seller in excess of $25,000;

 

(h)           written or oral notification by any significant customer or
supplier of an intention to discontinue or materially change the terms of its
relationship with Seller;

 

(i)            material change in the accounting methods used by Seller; or

 

(j)            Contract by Seller to do any of the foregoing.

 

3.20.       Contracts; No Defaults.

 

(a)           Schedule 3.20(a) contains an accurate and complete list, and
Seller has delivered to Buyer accurate and complete copies, of:

 

(i)            each Seller Contract that involves performance of services or
delivery of goods or materials by Seller of an amount or value in excess of
$25,000;

 

(ii)           each Seller Contract that involves performance of services or
delivery of goods or materials to Seller of an amount or value in excess of
$25,000;

 

(iii)          each Seller Contract that was not entered into in the ordinary
course of business, consistent with past practice and that involves expenditures
or receipts of Seller in excess of $10,000;

 

(iv)          each Seller Contract affecting the ownership of, leasing of, title
to, use of or any leasehold or other interest in any real or personal property
(except personal property leases and installment and conditional sales
agreements having

 

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a value per item or aggregate payments of less than $20,000 and with a term of
less than one year);

 

(v)           each Seller Contract with any labor union or other employee
representative of a group of employees relating to wages, hours and other
conditions of employment;

 

(vi)          each Seller Contract (however named) involving a sharing of
profits, losses, costs or liabilities by Seller with any other Person;

 

(vii)         each Seller Contract containing covenants that in any way purport
to restrict Seller’s business activity or limit the freedom of Seller to engage
in any line of business or to compete with any Person;

 

(viii)        each Seller Contract providing for payments to or by any Person
based on sales, purchases or profits, other than direct payments for goods;

 

(ix)           each power of attorney of Seller that is currently effective and
outstanding;

 

(x)            each Seller Contract entered into other than in the ordinary
course of business, consistent with past practice, that contains or provides for
an express undertaking by Seller to be responsible for consequential damages;

 

(xi)           each Seller Contract for capital expenditures in excess of
$25,000;

 

(xii)          each Seller Contract not denominated in U.S. dollars;

 

(xiii)         each Seller Contract with a written warranty, guaranty and/or
other similar undertaking with respect to contractual performance extended by
Seller other than in the ordinary course of business, consistent with past
practice; and

 

(xiv)        each amendment, supplement and modification (whether oral or
written) in respect of any of the foregoing.

 

The parties hereto agree that Seller need not deliver purchase or sale orders or
supplier’s purchase orders entered into by Seller in the ordinary course of
business, consistent with past practice in an amount less than $25,000.

 

(b)           Except as set forth on Schedule 3.20(b), no Shareholder or any
Related Person of a Shareholder has or may acquire any rights under, and no
Shareholder has or may become subject to any obligation or liability under, any
Contract that relates to the business of Seller or any of the Assets.

 

(c)           Except as set forth on Schedule 3.20(c):

 

(i)            each Seller Contract identified or required to be identified on
Schedule 3.20(a) and which is to be assigned to or assumed by Buyer under this

 

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Agreement is in full force and effect and is valid and enforceable in accordance
with its terms, except to the extent that enforceability is limited by the laws
of bankruptcy, insolvency or similar laws affecting creditors’ rights and
remedies, or by equitable principles;

 

(ii)           each Seller Contract identified or required to be identified on
Schedule 3.20(a) and which is being assigned to or assumed by Buyer is
assignable by Seller to Buyer without the consent of any other Person; and

 

(iii)          to the Knowledge of Seller, no Contract identified or required to
be identified on Schedule 3.20(a) and which is to be assigned to or assumed by
Buyer under this Agreement will upon completion or performance thereof have a
material adverse affect on the business, assets or condition of Seller or the
business to be conducted by Buyer with the Assets.

 

(d)           Except as set forth on Schedule 3.20(d):

 

(i)            Seller is in material and substantial compliance with all
applicable terms and requirements of each Seller Contract which is being assumed
by Buyer;

 

(ii)           to the Knowledge of Seller, each other Person that has any
obligation or liability under any Seller Contract which is being assigned to
Buyer is, and at all times since January 1, 2000, has been, in full compliance
with all applicable terms and requirements of such Contract;

 

(iii)          no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with or result in a
breach of, or give any other Person, or to the Knowledge of Seller or the
Shareholders, Seller,  the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or payment under, or to
cancel, terminate or modify, any Seller Contract that is being assigned to or
assumed by Buyer;

 

(iv)          no event has occurred or circumstance exists under or by virtue of
any Contract that (with or without notice or lapse of time) would cause the
creation of any Encumbrance affecting any of the Assets; and

 

(v)           Seller has not given to or received from any other Person any
notice or other communication (whether oral or written) regarding any actual,
alleged, possible or potential violation or breach of, or default under, any
Contract which is being assigned to or assumed by Buyer.

 

(e)           Except as set forth on Schedule 3.20(e), there are no
renegotiations of, attempts to renegotiate or outstanding rights to renegotiate
any material amounts paid or payable to Seller under current or completed
Contracts with any Person having the contractual or statutory right to demand or
require such renegotiation and no such Person has made written demand for such
renegotiation.

 

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(f)            Each Contract relating to the sale, design, manufacture or
provision of products or services by Seller has been entered into in the
ordinary course of business of Seller, consistent with past practice, and has
been entered into without the commission of any act alone or in concert with any
other Person, or any consideration having been paid or promised, that is or
would be in violation of any Legal Requirement.

 

(g)           Except as set forth on Schedule 3.20(g), Seller has not previously
refused to distribute a New Non-Core Product (as that term is defined in the Mam
Agreement)

 

3.21.       Insurance.

 

(a)           Seller has delivered to Buyer:

 

(i)            accurate and complete copies of all policies of insurance (and
correspondence relating to coverage thereunder) to which Seller is a party or
under which Seller is or has been covered at any time since January 1, 1999, a
list of which is included on Schedule 3.21(a);

 

(ii)           accurate and complete copies of all pending applications by
Seller for policies of insurance; and

 

(iii)          any written statement by the auditor of Seller’s financial
statements or any consultant or risk management advisor with regard to the
adequacy of Seller’s coverage or of the reserves for claims.

 

(b)           Schedule 3.21(b) describes:

 

(i)            any self–insurance arrangement by or affecting Seller, including
any reserves established thereunder;

 

(ii)           any Contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk to which Seller is a party or which
involves the business of Seller; and

 

(iii)          all obligations of Seller to provide insurance coverage to Third
Parties (for example, under Leases or service agreements) and identifies the
policy under which such coverage is provided.

 

(c)           Schedule 3.21(c) sets forth, by year, for the current policy year
and each of the three preceding policy years:  (i) a summary of the loss
experience under each policy of insurance; (ii) a statement describing each
claim under a policy of insurance for an amount in excess of $10,000, which sets
forth:  (A) the name of the claimant; (B)  a description of the policy by
insurer, type of insurance and period of coverage; and (C) the amount and a
brief description of the claim; and (iii) a statement describing the loss
experience for all claims that were self–insured, including the number and
aggregate cost of such claims.

 

(d)           Except as set forth on Schedule 3.21(d):  (i) all policies of
insurance to which Seller is a party or that provide coverage to Seller: 
(A) are valid, outstanding and

 

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enforceable; (B) are issued by an insurer that is financially sound and
reputable; (C) to Seller’s Knowledge, when taken together, provide adequate
insurance coverage for the Assets and the operations of Seller for all risks
normally insured against by a Person carrying on the same business or businesses
as Seller in the same location; and (D) are sufficient for compliance with all
Seller Contracts, and to the Knowledge of the Seller and Shareholders, all Legal
Requirements; (ii) Seller has not received (A) any refusal of coverage or any
notice that a defense will be afforded with reservation of rights or (B) any
notice of cancellation or any other notice that any policy of insurance is no
longer in full force or effect or that the issuer of any policy of insurance is
not willing or able to perform its obligations thereunder; and (iii) Seller has
paid all premiums due, and has otherwise performed all of its obligations, under
each policy of insurance to which it is a party or that provides coverage to
Seller.

 

3.22.       Environmental Matters. This Section contains the sole and exclusive
representations and warranties of Seller and Shareholders relating to
Environmental Law.  Except as disclosed on Schedule 3.22:

 

(a)           Seller is in material compliance with, and is not in material
violation of any Environmental Law.  Neither Seller nor any Shareholder has any
Knowledge of, nor has any of them received, any actual or threatened order,
notice or other communication from (i) any Governmental Body or private citizen
acting in the public interest or (ii) the current or prior owner or operator of
any Facility, of any actual or potential violation or failure to materially
comply with any Environmental Law, or of any actual or impending material
obligation to undertake or bear the cost of any Environmental, Health and Safety
Liabilities with respect to any Facility or other property or asset (whether
real, personal or mixed) in which Seller has or had an interest, or with respect
to any property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used or processed by Seller or any
other Person for whose conduct it is or may be held responsible, or from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled or received.

 

(b)           There are no pending or, to the Knowledge of Seller, threatened
claims, Encumbrances, or other restrictions of any nature against Seller
resulting from any Environmental, Health and Safety Liabilities or arising under
or pursuant to any Environmental Law with respect to or affecting any Facility
or any other property or asset (whether real, personal or mixed) in which Seller
has or had an interest.

 

(c)           Neither Seller nor any Shareholder has any Knowledge of, nor has
any of them received, any citation, directive, inquiry, notice, Order, summons,
warning or other communication directed to Seller or any Shareholder that
relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or
potential material violation or failure to comply with any Environmental Law, in
each instance attributable to Seller, or of any alleged, actual, or potential
obligation of Seller or any Shareholder to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to any Facility or
property or asset (whether real, personal or mixed) in which Seller has or had
an interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used or
processed by Seller or any other Person for whose conduct it is or may be held

 

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responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled or received.

 

(d)           Neither Seller, nor to the Knowledge of Seller, any other Person
for whose conduct it is or may be held responsible has any material
Environmental, Health and Safety Liabilities with respect to any Facility or, to
the Knowledge of Seller, with respect to any other property or asset (whether
real, personal or mixed) in which Seller (or any predecessor) has or had an
interest or at any property geologically or hydrologically adjoining any
Facility or any such other property or asset.

 

(e)           There are no Hazardous Materials present on or in the Environment
at any current Facility or, to the Knowledge of Seller, at any former Facility,
or at any geologically or hydrologically adjoining property, including any
Hazardous Materials contained in barrels, aboveground or underground storage
tanks, landfills, land deposits, dumps, equipment (whether movable or fixed) or
other containers, either temporary or permanent, and deposited or located in
land, water, sumps, or any other part of the Facility or such adjoining
property, or incorporated into any structure therein or thereon in material
violation of all applicable Environmental Laws.

 

(f)            There has been no Release or, to the Knowledge of Seller, Threat
of Release, in material violation of Environmental Law of any Hazardous
Materials at or from any Facility or, to the Knowledge of Seller, from any
former Facility, or at any other location where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used, or
processed from or by any Facility.

 

(g)           Seller has delivered to Buyer true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by Seller pertaining to Hazardous Materials or Hazardous Activities in, on, or
under the Facilities, or concerning compliance, by Seller with Environmental
Laws.

 

3.23.       Employees.

 

(a)           Schedule 3.23(a) contains a complete and accurate list of the
following information for each employee and director of Seller, including each
employee on leave of absence or layoff status:  employee’s name; job title;
bargaining unit status; date of hire; current compensation paid for those
earning $50,000 a year or more; sick and vacation leave that is accrued but
unused; and service credited for purposes of vesting and eligibility to
participate under any Employee Plan, or any other employee or director benefit
plan.

 

(b)           Schedule 3.23(b) contains a complete and accurate list of the
following information for each employee of Seller who has been terminated or
laid off, or whose hours of work have been reduced by more than fifty percent
(50%) by Seller, in the six (6) months prior to the date of this Agreement: 
(i) the date of such termination, layoff or reduction in hours; (ii) the reason
for such termination, layoff or reduction in hours; and (iii) the location to
which the employee was assigned.

 

(c)           To the Knowledge of Seller, no officer, director, agent, employee,
consultant, or contractor of Seller is bound by any Contract that purports to
limit the ability of

 

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such officer, director, agent, employee, consultant, or contractor (i) to engage
in or continue or perform any conduct, activity, duties or practice relating to
the business of Seller or (ii) to assign to Seller or to any other Person any
rights to any invention, improvement, or discovery.  To the Knowledge of Seller,
no former or current employee of Seller is a party to, or is otherwise bound by,
any Contract that in any way adversely affected, affects, or will affect the
ability of Seller or Buyer to conduct the business as heretofore carried on by
Seller.

 

3.24.       Labor Disputes; Compliance.

 

(a)           Seller has complied in all material respects with all applicable
Legal Requirements relating to employment practices, terms and conditions of
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar Taxes and occupational safety and health, including, but not limited to,
the WARN Act.  Seller is not liable for the payment of any Taxes, fines,
penalties, or other amounts, however designated, in excess of $5,000, for
failure to comply with any of the foregoing Legal Requirements.

 

(b)           Except as disclosed on Schedule 3.24(b), (i) Seller has not been,
and is not now, a party to any collective bargaining agreement or other labor
contract; (ii) since January 1, 2000, there has not been, there is not presently
pending or existing, and to Seller’s Knowledge there is not threatened, any
strike, slowdown, picketing, work stoppage or employee grievance process
involving Seller; (iii) to Seller’s Knowledge no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute; (iv) there is not pending or, to Seller’s Knowledge, threatened
against or affecting Seller any Proceeding relating to the alleged violation of
any Legal Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed with the National Labor Relations Board
or any comparable Governmental Body, and there is no organizational activity or
other labor dispute against or affecting Seller or the Facilities; (v) no
application or petition for an election of or for certification of a collective
bargaining agent is pending; (vi) no grievance or arbitration Proceeding (a) has
been instituted since January 1, 2000 or (b) exists, that might have an adverse
effect upon Seller or the conduct of its business; (vii) there is no lockout of
any employees by Seller, and no such action is contemplated by Seller; and
(viii) to Seller’s Knowledge there has been no charge of discrimination filed
against or threatened against Seller with the Equal Employment Opportunity
Commission or similar Governmental Body.

 

3.25.       Intellectual Property Assets.

 

(a)           The term “Intellectual Property Assets” means all intellectual
property owned or licensed (as licensor or licensee) by Seller in which Seller
has a proprietary interest, anywhere in the world, including:

 

(i)            all trademarks, service marks, trade names, corporate names,
company names, business names, assumed or fictional business names, trade dress,
trade styles, logos, or other indicia of origin or source identification,
trademark and service mark registrations, and applications for trademark or
service mark registrations and any renewals thereof, together in each case with
the

 

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goodwill of the business connected with the use of, and symbolized by, each of
the above (collectively, the “Marks”);

 

(ii)           (1) all patents, patent applications and patentable inventions or
discoveries, (2) all inventions and improvements whether or not described and
claimed therein, and (3) all reissues, divisions, continuations,
continuations-in-part, substitutes, renewals, and extensions thereof, and all
improvements thereon (collectively, the “Patents”);

 

(iii)          (1) all registered and unregistered copyrights in both published
and unpublished works, and all works of authorship, including, but not limited
to all copyrights of works based on or derived from works covered by such
copyrights, all right, title and interest to make and exploit all derivative
works based on or adopted from works covered by such copyrights, all moral
rights, and all copyright registrations and copyright applications, and any
renewals or extensions thereof, and (2) the rights to print, publish and
distribute any of the foregoing (collectively, the “Copyrights”);

 

(iv)          all trade secrets, confidential and proprietary information,
including know-how, manufacturing and production processes and techniques,
inventions, research and development information, technical data, financial,
marketing and business data, pricing and cost information, business and
marketing plans, process technology, plans, drawings, and blue prints, and
customer and supplier lists and information (collectively, the “Trade Secrets”);

 

(v)           all rights in, including but not limited to, all registrations
for, Internet web sites and Internet domain names presently used or owned by
Seller (collectively, the “Net Names”);

 

(vi)          all written licenses or agreements providing for the grant by or
to Seller of:  (A) any right to use any Mark or Trade Secret, (B) any right
under any Patent, (C) any right under any Copyright, and (D) any right under any
Net Name (collectively, the “Intellectual Property Licenses”);

 

(vii)         the right to sue or otherwise recover for any and all past,
present and future infringements and misappropriations of any of the assets
described in this Section 3.25(a); and

 

(viii)        all income, royalties, damages and other payments now and
hereafter due and/or payable with respect thereto (including, without
limitation, payments under all licenses entered into in connection therewith,
and damages and payments for past, present or future infringements thereof).

 

(b)           (i)            Schedule 3.25(b) contains a complete and accurate
list and summary description, including any royalties paid or received by Seller
in the last five years, and Seller has delivered to Buyer accurate and complete
copies, of all Seller Contracts expressly relating to the Intellectual Property
Assets, including Intellectual Property Licenses, except for any license implied
by the sale of a product and perpetual, paid-up licenses for commonly

 

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available software programs with a value of less than $1,000 under which Seller
is the licensee. There are no outstanding and, to Seller’s Knowledge, no
threatened disputes or disagreements with respect to any such Contract.

 

(ii)           All Seller Contracts are, by their express terms or by written
agreement assignable by Seller to Buyer for the purposes intended by this
Agreement.

 

(c)           (i)            Except as set forth on Schedule 3.25(c), the
Intellectual Property Assets are all those necessary for the operation of
Seller’s business as it is currently conducted.  Seller is the owner or licensee
of all right, title and interest in and to each of the Intellectual Property
Assets, other than with respect to the licenses listed on Schedule 3.25(b), free
and clear of all Encumbrances, and has the right to use without payment to a
Third Party all of the Intellectual Property Assets, other than in respect of
licenses listed on Schedule 3.25(c).  Seller is the owner of, or holds valid
licenses to use, with respect to each of its computers, all software used by the
Seller in the conduct of its business.

 

(ii)           Except as set forth on Schedule 3.25(c), all former and current
employees, independent contractors, consultants and agents of Seller have
executed written Contracts with Seller that assign to Seller all rights to any
inventions, improvements, discoveries, Intellectual Property Assets or
information relating to the business of Seller.

 

(d)           (i)            Schedule 3.25(d) contains a complete and accurate
list and summary description of all Patents.

 

(ii)           All of the issued Patents are currently in force and are not
subject to any maintenance fees or taxes falling due within ninety (90) days
after the Closing Date or actions falling due within 30 days after the Closing
Date.

 

(iii)          No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition Proceeding.  To Seller’s Knowledge, there
is no potentially interfering prior art, patent or patent application of any
Third Party.

 

(iv)          Except as set forth on Schedule 3.25 (d), (A) to Seller’s
Knowledge, no Patent is infringed or has been challenged or threatened in any
way and (B) none of the products manufactured or sold, nor any process or
know-how used, by Seller infringes or is alleged to infringe any patent or other
proprietary right of any other Person.

 

(v)           Except as set forth on Schedule 3.25(d), all products made, used,
offered for sale or sold under the Patents have been marked with the proper
patent notice.

 

(e)           (i) Schedule 3.25(e)(i) contains a complete and accurate list and
summary description of all Marks; (ii) all registered Marks or applications for
registration of Marks are currently in force and are not subject to actions
falling due within ninety (90) days after the Closing Date; (iii) except as set
forth on Schedule 3.25(e)(iii), no Mark has been or is now

 

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involved in any opposition, invalidation, concurrent use or cancellation
Proceeding and, to Seller’s Knowledge, no such action is threatened with respect
to any of the Marks; (iv) except as set forth on Schedule 3.25(e)(iv) and to
Seller’s Knowledge, no Mark is infringed or has been challenged or threatened in
any way; (v) except as set forth in Schedule 3.25(e)(v) and to Seller’s
Knowledge, none of the Marks used by Seller infringes or is alleged to infringe
any trade name, trademark or service mark of any other Person; and (vi) within
Seller’s reasonable business judgment, all products and materials containing a
Mark bear the trade dress and notices as shown in the samples provided, such
provided samples are listed on Schedule 3.25(e)(vi).

 

(f)            (i) Schedule 3.25(f) contains a complete and accurate list and
summary description of all registered Copyrights; (ii) all of the registered
Copyrights are currently in force; (iii) except as set forth on Schedule 3.25(f)
and to Seller’s Knowledge, no Copyright is infringed or has been challenged or
threatened in any way; (iv) to Seller’s Knowledge, none of the subject matter of
any of the Copyrights infringes or is alleged to infringe any copyright of any
Third Party or is a derivative work based upon the work of any other Person; and
(v) all works encompassed by the Copyrights have been marked to the extent shown
in the samples provided, such provided samples are listed on Schedule
3.25(f)(v).

 

(g)           (i) Schedule 3.25(g) contains a complete and accurate list and
summary description (without disclosing the Trade Secret) of all itemizable
Trade Secrets.  To the best of Seller’s Knowledge, the Trade Secrets are not
part of the public knowledge or literature and, to Seller’s Knowledge, have not
been used, divulged or appropriated either for the benefit of any Person (other
than Seller) or to the detriment of Seller and (ii) to Seller’s Knowledge, no
Trade Secret is subject to any adverse claim or has been challenged or
threatened in any way or infringes any intellectual property right of any other
Person.

 

(h)           (i) Schedule 3.25(h) contains a complete and accurate list and
summary description of all Net Names; (ii) all Net Names have been registered in
the name of Seller; (iii) no Net Name has been or is now involved in any
dispute, opposition, invalidation, infringement, dilution or cancellation
Proceeding and, to Seller’s Knowledge, no such action is threatened with respect
to any Net Name; (iv) to Seller’s Knowledge, there is no domain name application
in existence or pending of any other person which would or would potentially
interfere with or infringe any Net Name; (v) to Seller’s Knowledge, no Net Name
is infringed or has been challenged, interfered with or threatened in any way;
and (vi) no Net Name infringes, interferes with or is alleged to interfere with
or infringe the Mark or domain name of any other Person.

 

3.26.       Compliance With the Foreign Corrupt Practices Act and Export Control
and Anti–boycott Laws.

 

(a)           Neither Seller nor any Shareholder has, nor has Seller or any
Shareholder permitted or authorized any Representative, to obtain or retain
business, directly or indirectly offered, paid or promised to pay, or authorized
the payment of, any money or other thing of value (including any fee, gift,
sample, travel expense or entertainment with a value in excess of one hundred
dollars ($100.00) in the aggregate to any one individual in any year) or any
commission payment in excess of levels consistent with industry norms, to: 
(i) any person who is an official, officer, agent, employee or representative of
any Governmental Body or of any

 

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existing or prospective customer (whether government owned or nongovernment
owned); (ii) any political party or official thereof; (iii) any candidate for
political or political party office; or (iv) any other individual or entity;
while knowing or having reason to believe that all or any portion of such money
or thing of value would be offered, given, or promised, directly or indirectly,
to any such official, officer, agent, employee, representative, political party,
political party official, candidate, individual, or any entity affiliated with
such customer, political party or official or political office.

 

(b)           Except as set forth on Schedule 3.26(b), Seller has made all
payments to Third Parties by check mailed to such Third Parties’ principal place
of business or by wire transfer to a bank located in the same jurisdiction as
such party’s principal place of business.

 

(c)           Each transaction is properly and accurately recorded on the books
and records of Seller, and each document upon which entries in Seller’s books
and records are based is complete and accurate in all material respects.  Seller
maintains a system of internal accounting controls adequate to insure that
Seller maintains no off-the-books accounts and that Seller’s assets are used
only in accordance with Seller’s management directives.

 

(d)           Seller has at all times been in substantial compliance with all
Legal Requirements relating to export control and trade embargoes.

 

(e)           Except as set forth on Schedule 3.26(e), Seller has not violated
the antiboycott prohibitions contained in 50 U.S.C. sect. 2401 et seq. or taken
any action that can be penalized under Section 999 of the Code.  Except as set
forth on Schedule 3.26(e), during the last five (5) years, Seller has not been a
party to, is not a beneficiary under and has not performed any service or sold
any product under any Seller Contract under which a product has been sold to
customers in countries to which any such sale or service is prohibited by any
domestic Legal Requirement, and to the Knowledge of Seller and Shareholders, any
foreign Legal Requirement.

 

3.27.       Euro-Affected Products and Services.  To the extent that Seller’s
software, hardware, systems, products and services receive, recognize, use or
process financial information from any European Union member that has changed
its currency to the Euro (collectively, the “Euro-Affected Products and
Services”), all of Seller’s Euro–Affected Products and Services will
(a) substantially operate without errors, problems, delays or the need for any
further modifications as a result of the introduction of the Euro in whole or in
part as a European currency or currency unit and (b) continue to receive,
recognize, use and process both national currency units and Euro units (and
permit conversions from national currency units to Euro units and vice–versa)
without material errors, problems, delays or the need for any further
modifications.

 

3.28.       Relationships With Related Persons.  Except as disclosed on
Schedule 3.28, no Seller nor any Shareholder nor any Related Person of any of
them has, or since January 1, 1999, has had, any interest in any property
(whether real, personal or mixed and whether tangible or intangible) used in or
pertaining to Seller’s business.  Neither Seller nor any Shareholder nor any
Related Person of any of them owns, has owned, of record or as a beneficial
owner, an equity interest or any other financial or profit interest in any
Person that has (a) had business dealings or a material financial interest in
any transaction with Seller other than business dealings or

 

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transactions disclosed on Schedule 3.28, each of which has been conducted in the
ordinary course of business with Seller, consistent with past practice at
substantially prevailing market prices and on substantially prevailing market
terms or (b) engaged in competition with Seller with respect to any line of the
products or services of Seller (a “Current Competing Business”) in any market
presently served by Seller, except for ownership of less than one percent (1%)
of the outstanding capital stock of any Current Competing Business that is
publicly traded on any recognized exchange or in the over–the–counter market. 
Except as set forth on Schedule 3.28, neither Seller nor any Shareholder nor any
Related Person of any of them is a party to any Contract with, or has any claim
or right against, Seller.

 

3.29.       Brokers or Finders.  Other than Duff & Phelps, LLC, neither Seller,
any Shareholder nor any of its Representatives have incurred any obligation or
liability, contingent or otherwise, for brokerage or finders’ fees or agents’
commissions or other similar payments in connection with the sale of Seller’s
business or the Assets or the Contemplated Transactions.  Seller shall pay all
fees and expenses of Duff & Phelps.

 

3.30.       Solvency.

 

(a)           Seller is not now insolvent and will not be rendered insolvent by
any of the Contemplated Transactions.  As used in this section, “insolvent”
means that the sum of the debts and other probable Liabilities of Seller exceeds
the present fair saleable value of Seller’s assets.

 

(b)           Immediately after giving effect to the consummation of the
Contemplated Transactions:  (i) Seller will be able to pay its Liabilities as
they become due in the usual course of its business; (ii) Seller will not have
unreasonably small capital with which to conduct its present or proposed
business; (iii) Seller will have assets (calculated at fair market value) that
exceed its Liabilities; and (iv) taking into account all pending and threatened
Proceedings, final judgments against Seller in actions for money damages are not
reasonably anticipated to be rendered at a time when, or in amounts such that,
Seller will be unable to satisfy any such judgments promptly in accordance with
their terms (taking into account the maximum probable amount of such judgments
in any such actions and the earliest reasonable time at which such judgments
might be rendered) as well as all other obligations of Seller.  The cash
available to Seller, after taking into account all other anticipated uses of the
cash, will be sufficient to pay all such debts and judgments promptly in
accordance with their terms.

 

3.31.       Disclosure.

 

(a)           No representation or warranty or other statement made by Seller or
any Shareholder in this Agreement, the schedules hereto, any supplement to the
schedules hereto, the certificates delivered pursuant to Section 2.7(a) or
otherwise in connection with the Contemplated Transactions contains any untrue
statement or omits to state a material fact necessary to make any of them, in
light of the circumstances in which it was made, not misleading.

 

(b)           Seller does not have Knowledge of any fact that has specific
application to Seller (other than general economic or industry conditions) that,
in the opinion of Seller, is likely

 

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to materially adversely affect the assets, business, prospects, financial
condition or results of operations of Seller that has not been set forth in this
Agreement or the schedules attached hereto.

 

3.32.       Collective Bargaining Agreement.  Seller represents and warrants
that it has duly complied with all relevant provisions of the Collective
Bargaining Agreement in respect of the Contemplated Transactions, including
giving timely notice under such agreement to effectively assign such agreement
to Buyer.

 

3.33.       Addition.  The addition to the Kentwood facility completed in 2002
was constructed substantially in accordance with the plans provided to the
Buyer.

 

3.34.       Procter & Gamble.  Seller represents and warrants that it no longer
sells the products that are the subject of the accusation of infringement by
Procter & Gamble described in Schedule 3.25(d).

 

3.35.       I-9 Forms.  Seller represents and warrants that it has I-9 forms for
all Active Employees.

 

4.             REPRESENTATIONS AND WARRANTIES OF BUYER.

 

Buyer represents and warrants to Seller and Shareholders as follows:

 

4.1. Organization and Good Standing.  Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full corporate power and authority to conduct its business as it is now
conducted.

 

4.2. Authority; No Conflict.

 

(a)           This Agreement constitutes the legal, valid and binding obligation
of Buyer (and of Russ Berrie and Company, Inc. (“RB”) only with respect to the
guarantee (the “Guarantee”) set forth herein), enforceable against Buyer (and RB
with respect to the Guarantee) in accordance with its terms, in each case except
to the extent that enforceability is limited by the laws of bankruptcy,
insolvency or similar laws affecting creditors’ rights and remedies, or by
equitable principles.  Upon the execution and delivery by Buyer of the
Assignment and Assumption Agreement, the Employment Agreements and each other
agreement to be executed or delivered by Buyer at Closing (collectively, the
“Buyer’s Closing Documents”), each of the Buyer’s Closing Documents will
constitute the legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its respective terms, except to the extent that
enforceability is limited by the laws of bankruptcy, insolvency or similar laws
affecting creditors’ rights and remedies, or by equitable principles.  Buyer has
the absolute and unrestricted right, power and authority to execute and deliver
this Agreement and the Buyer’s Closing Documents to which it is a party and to
perform its obligations under this Agreement and the Buyer’s Closing Documents,
and on the Closing Date, such action will have been duly authorized by all
necessary corporate action.  RB has the absolute and unrestricted right, power
and authority to execute and deliver the Guarantee and to perform its
obligations under the

 

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Guarantee, and on the Closing Date, such action will have been duly authorized
by all necessary corporate action.

 

(b)           Neither the execution and delivery of this Agreement by Buyer nor
the consummation or performance of any of the Contemplated Transactions by Buyer
will give any Person the right to prevent, delay or otherwise interfere with any
of the Contemplated Transactions pursuant to:  (i) any provision of Buyer’s
Governing Documents; (ii) any resolution adopted by the board of directors or
the shareholders of Buyer; (iii) any Legal Requirement or Order to which Buyer
may be subject; or (iv) any material Contract to which Buyer is a party or by
which Buyer may be bound.

 

4.3. Certain Proceedings.  There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
Contemplated Transactions.  To Buyer’s Knowledge, no such Proceeding has been
threatened.

 

4.4. Operation of Buyer.  Buyer is a direct or indirect wholly-owned subsidiary
of RB, and was formed solely for the purpose of consummating the Contemplated
Transactions.

 

4.5. Sufficient Resources.  Buyer, at the Closing, will have sufficient
resources to consummate the Contemplated Transactions.  RB has sufficient
resources to perform the Guarantee.

 

4.6. Brokers or Finders.  Neither Buyer nor any of its Representatives have
incurred any obligation or liability, contingent or otherwise, for brokerage or
finders’ fees or agents’ commissions or other similar payment in connection with
the Contemplated Transactions.

 

5.             COVENANTS OF SELLER PRIOR TO CLOSING.

 

5.1. Access and Investigation.  Between the date of this Agreement and the
Closing Date, and upon reasonable advance notice received from Buyer, Seller
shall (and Shareholders shall cause Seller to) (a) afford Buyer and its
Representatives and prospective lenders and their Representatives (collectively,
“Buyer Group”) full and free access, during regular business hours, to Seller’s
personnel, properties (including subsurface testing), Contracts, Governmental
Authorizations, books and records and other documents and data, such rights of
access to be exercised in a manner that does not unreasonably interfere with the
operations of Seller; (b) furnish Buyer Group with copies of all such Contracts,
Governmental Authorizations, books and records and other existing documents and
data as Buyer may reasonably request; (c) furnish Buyer Group with such
additional financial, operating and other relevant data and information as Buyer
may reasonably request; and (d) otherwise cooperate and assist, to the extent
reasonably requested by Buyer, with Buyer’s investigation of the properties,
assets and financial condition related to Seller.  In addition, Buyer shall have
the right to have the Real Property and Tangible Personal Property inspected by
Buyer Group, at Buyer’s sole cost and expense, for purposes of determining the
physical condition and legal characteristics of the Real Property and Tangible
Personal Property.  In the event subsurface or other destructive testing is
recommended by any of Buyer Group, Buyer shall be permitted to have the same
performed.

 

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5.2. Operation of the Business of Seller.  Between the date of this Agreement
and the Closing, Seller shall (and Shareholders shall cause Seller to):

 

(a)           conduct its business only in the ordinary course of business
consistent with past practice;

 

(b)           except as otherwise directed by Buyer in writing, and without
making any commitment on Buyer’s behalf, use its Best Efforts to preserve intact
its current business organization, keep available the services of its officers,
employees and agents and maintain its relations and good will with suppliers,
customers, landlords, creditors, employees, agents and others having business
relationships with it;

 

(c)           confer with Buyer prior to implementing operational decisions of a
material nature;

 

(d)           make no material changes in management personnel without prior
consultation with Buyer;

 

(e)           maintain the Assets in a state of repair and condition that
complies with Legal Requirements and is consistent with the requirements and
normal conduct of Seller’s business and in accordance with past practice;

 

(f)            keep in full force and effect, without amendment, all material
rights relating to Seller’s business;

 

(g)           comply with all Legal Requirements and contractual obligations
applicable to the operations of Seller’s business;

 

(h)           continue in full force and effect the insurance coverage under the
policies set forth on Schedule 3.21 or substantially equivalent policies;

 

(i)            except as required to comply with ERISA or to maintain
qualification under Section 401(a) of the Code, not amend, modify or terminate
any Employee Plan without the express written consent of Buyer;

 

(j)            cooperate with Buyer and assist Buyer in identifying the
Governmental Authorizations required by Buyer to operate the business from and
after the Closing Date and either transferring existing Governmental
Authorizations of Seller to Buyer, where permissible, or obtaining new
Governmental Authorizations for Buyer;

 

(k)           upon request from time to time, execute and deliver all documents,
make all truthful oaths, testify in any Proceedings and do all other acts that
may be reasonably necessary or desirable in the reasonable opinion of Buyer to
consummate the Contemplated Transactions, all without further consideration; and

 

(l)            maintain all books and records of Seller relating to Seller’s
business in the ordinary course of business, consistent with past practice.

 

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5.3. Negative Covenant.  Except as otherwise expressly permitted herein, between
the date of this Agreement and the Closing Date, Seller shall not, and
Shareholders shall not permit Seller to, without the prior written Consent of
Buyer, (a) take any affirmative action, or fail to take any reasonable action
within its control, as a result of which any of the changes or events listed in
Sections 3.15 or 3.19 would be likely to occur; (b) make any modification to any
material Contract or Governmental Authorization; (c) allow the levels of raw
materials, supplies or other materials included in the Inventories to vary
materially from the levels customarily maintained; or (d) enter into any
compromise or settlement of any litigation, Proceeding or investigation of any
Governmental Body relating to the Assets, the business of Seller or the Assumed
Liabilities.

 

5.4. Required Approvals.  As promptly as practicable after the date of this
Agreement, Seller shall make all filings required by Legal Requirements to be
made by it in order to consummate the Contemplated Transactions (including all
filings under the HSR Act). Seller and Shareholders also shall cooperate with
Buyer and its Representatives with respect to all filings that Buyer elects to
make or, pursuant to Legal Requirements, shall be required to make in connection
with the Contemplated Transactions.  Seller and Shareholders also shall
cooperate with Buyer and its Representatives in obtaining all Material Consents.

 

5.5. Notification.  Between the date of this Agreement and the Closing, Seller
and Shareholders shall promptly notify Buyer in writing if any of them obtains
Knowledge of (a) any fact or condition that causes or constitutes a breach of
any of Seller’s representations and warranties made as of the date of this
Agreement or (b) the occurrence after the date of this Agreement of any fact or
condition that would or be reasonably likely to (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had that representation or warranty been made as of
the time of the occurrence of, or Seller’s or either Shareholders’ discovery of,
such fact or condition.  Should any such fact or condition require any change to
the schedules hereto, Seller shall promptly deliver to Buyer a supplement to the
schedules hereto specifying such change.  Such delivery shall not affect any
rights of Buyer under Section 9.2 and Article 11.  During the same period,
Seller and Shareholders also shall promptly notify Buyer of the occurrence of
any breach of any covenant of Seller or Shareholders in this Article 5 or of the
occurrence of any event that may make the satisfaction of the conditions in
Article 7 impossible or unlikely.

 

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5.6. No Negotiation.  Until such time as this Agreement shall be terminated
pursuant to Section 9.1, neither Seller nor any Shareholder shall directly or
indirectly solicit, initiate, encourage or entertain any inquiries or proposals
from, discuss or negotiate with, provide any nonpublic information to or
consider the merits of any inquiries or proposals from any Person (other than
Buyer) relating to any business combination transaction involving Seller,
including the sale by Shareholders of Seller’s stock, the merger or
consolidation of Seller or the sale of Seller’s business or any of the Assets
(other than in the ordinary course of business, consistent with past practice). 
Seller and Shareholders shall notify Buyer of any such inquiry or proposal
within twenty–four (24) hours of receipt of Knowledge of the same by Seller or
any Shareholder.

 

5.7. Best Efforts.  Seller and Shareholders shall use their Best Efforts to
cause the conditions in Article 7 (other than those set forth in Sections 7.8,
7.9 and 7.11) to be satisfied and the Contemplated Transactions to be
consummated.

 

5.8. Payment of Liabilities.  Seller shall pay or otherwise satisfy when due all
of its Liabilities and obligations consistent with past practice.  Buyer and
Seller hereby waive compliance with the bulk–transfer provisions of the Uniform
Commercial Code (or any similar law) (“Bulk Sales Laws”) in connection with the
Contemplated Transactions.

 

5.9. Change of Name.  On the Closing Date, Seller shall (a) amend its Governing
Documents and take all other actions necessary to change its name to one
sufficiently dissimilar to Seller’s present name, in Buyer’s judgment, to avoid
confusion and (b) take all actions requested by Buyer to enable Buyer to change
its name to Seller’s present name.

 

5.10.       Current Evidence of Title.

 

(a)           As soon as is reasonably possible, and in no event later than five
Business Days after the date of this Agreement, Seller shall furnish to Buyer,
at Seller’s expense, for each parcel, tract or subdivided land lot of Real
Property:

 

(i)            from the First American Title Insurance Company (the “Title
Insurer”):

 

(A)          title commitments issued by the Title Insurer to insure title to
all Land, Improvements, insurable Appurtenances, if any, and Ground Lease
Property in the amount of $2,561,306, covering such Real Property, naming Buyer
as the proposed insured and having an effective date after the date of this
Agreement, wherein the Title Insurer shall agree to issue an ALTA 1992 form
owner’s policy of title insurance (each a “Title Commitment”); and

 

(B)           complete and legible copies of all recorded documents listed as
Schedule B–1 matters to be terminated or satisfied in order to issue the policy
described in the Title Commitment or as special Schedule B–2 exceptions
thereunder (the “Recorded Documents”); and

 

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(ii)           a survey of the Real Property made after the date of this
Agreement by a land surveyor licensed by the state in which the Facility is
located and bearing a certificate, signed and sealed by the surveyor, certifying
to Buyer and the Title Insurer that:

 

(A)          such survey was made (1) in accordance with “Minimum Standard
Detail Requirements for ALTA/ACSM Land Title Surveys,” jointly established and
adopted by ALTA and ACSM in 1999, and includes Items 1-4, 6, 7(a), 7(b)(1),
7(c), 10 and 11(a) of Table A thereof, and (2) pursuant to the Accuracy
Standards (as adopted by ALTA and ACSM and in effect on the date of said
certificate) of an “Urban” survey; and

 

(B)           such survey reflects the locations of all building lines,
easements and areas affected by any Recorded Documents affecting such Real
Property as disclosed in the Title Commitment (identified by issuer, commitment
number, and an effective date after the date hereof) as well as any
encroachments onto the Real Property or by the Improvements onto any easement
area or adjoining property (each a “Survey”); and

 

(iii)          complete and current searches in the name of Seller and other
appropriate parties of all Uniform Commercial Code Financing Statements records
maintained by the Secretary of State of the state in which Seller is
incorporated, the state in which Seller maintains its principal place of
business, each state in which a Facility is located, each jurisdiction in which
a filing would be required in order to perfect a security interest in the
Assets, the clerk or recorder of deeds (or other governmental office where real
property documents are filed for recording) of each county in which any Facility
is located and wherever else Seller or Buyer, based upon its investigation, is
aware that a Uniform Commercial Code Financing Statement has been filed,
together with such releases, termination statements and other documents as may
be necessary to provide reasonable evidence that all items of intangible
personal property, Tangible Personal Property and fixtures to be sold under this
Agreement are free and clear of Encumbrances, other than as permitted under this
Agreement.

 

(b)           Each Title Commitment shall include the Title Insurer’s
requirements for issuing its title policy, which requirements shall be met by
Seller on or before the Closing Date (including those requirements that must be
met by releasing or satisfying monetary Encumbrances, but excluding Encumbrances
that will remain after Closing and those requirements that are to be met solely
by Buyer).

 

(c)           If any of the following shall occur (collectively, a “Title
Objection”):

 

(i)            any Title Commitment or other evidence of title or search of the
appropriate real estate records discloses that any party other than Seller has
title to the insured estate covered by the Title Commitment;

 

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(ii)           any title exception is disclosed in Schedule B to any Title
Commitment that is not one of the Permitted Real Estate Encumbrances or one that
Seller specifies when delivering the Title Commitment to Buyer as one that
Seller will cause to be deleted from the Title Commitment concurrently with the
Closing, including (A) any exceptions that pertain to Encumbrances securing any
loans that do not constitute an Assumed Liability and (B) any exceptions that
Buyer reasonably believes could materially and adversely affect Buyer’s use and
enjoyment of the Real Property described therein; or

 

(iii)          any Survey discloses any matter that Buyer reasonably believes
could materially and adversely affect Buyer’s use and enjoyment of the Real
Property described therein;

 

then Buyer shall notify Seller in writing (“Buyer’s Notice”) of such matters
within ten (10) Business Days after receiving all of the Title Commitment,
Survey and copies of Recorded Documents for the Facility covered thereby.

 

(d)           Seller shall use its Best Efforts to cure each Title Objection and
take all steps required by the Title Insurer to eliminate each Title Objection
as an exception to the Title Commitment.  Any Title Objection that the Title
Insurer is willing to insure over on terms acceptable to Seller and Buyer is
herein referred to as an “Insured Exception.”  The Insured Exceptions, together
with any title exception or matters disclosed by the Survey not objected to by
Buyer in the manner aforesaid shall be deemed to be acceptable to Buyer.

 

(e)           Nothing herein waives Buyer’s right to claim a breach of
Section 3.9(a) or to claim a right to indemnification as provided in
Section 11.2 if Buyer suffers Damages as a result of a misrepresentation with
respect to the condition of title to the Real Property.

 

(f)            The parties hereto agree that the purchase price for the Real
Property used in compliance with this Section shall in no way be binding on the
parties in determining the allocation of the Purchase Price with respect thereto
under Section 2.5 hereof.

 

6.             COVENANTS OF BUYER PRIOR TO CLOSING.

 

6.1. Required Approvals.  As promptly as practicable after the date of this
Agreement, Buyer shall make, or cause to be made, all filings required by Legal
Requirements (including all filings under the HSR Act) to be made by it to
consummate the Contemplated Transactions.  Buyer also shall cooperate, and cause
its Related Persons to cooperate, with Seller (a) with respect to all filings
Seller shall be required by Legal Requirements to make and (b) in obtaining all
Consents identified on Schedule 3.2(c), provided, however, that Buyer shall not
be required to dispose of or make any change to its business, expend any
material funds or incur any other burden in order to comply with this
Section 6.1.

 

6.2. Notification.  Between the date of this Agreement and the Closing, Buyer
shall promptly notify Seller in writing if it obtains Knowledge of (a) any fact
or condition that causes or constitutes a breach of any of Buyer’s
representations and warranties made as of the date of this Agreement or (b) the
occurrence after the date of this Agreement of any fact or condition

 

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that would or be reasonably likely to (except as expressly contemplated by this
Agreement) cause or constitute a breach of any such representation or warranty
had that representation or warranty been made as of the time of the occurrence
of, or Buyer’s discovery of, such fact or condition.  Should any such fact or
condition require any change to the schedules hereto, Buyer shall promptly
deliver to Seller a supplement to the schedules hereto specifying such change.
Such delivery shall not affect any rights of Seller under Section 9.2 and
Article 11.  During the same period, Buyer shall promptly notify Seller of the
occurrence of any breach of any covenant of Buyer in this Article 6 or of the
occurrence of any event that may make the satisfaction of the conditions in
Article 8 impossible or unlikely.

 

6.3. Best Efforts.  Buyer shall use its Best Efforts to cause the conditions in
Section 7.8 and Article 8 to be satisfied, and to cause the consummation of the
Contemplated Transactions.

 

7.             CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE.

 

Buyer’s obligation to purchase the Assets and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):

 

7.1. Accuracy of Representations.

 

(a)           All of Seller’s and Shareholders’ representations and warranties
in this Agreement (considered collectively), and each of these representations
and warranties (considered individually), shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the time of the Closing as if then made, without giving
effect to any supplement to the schedules.

 

(b)           Each of the representations and warranties in Sections 3.2(a) and
3.4, and each of the representations and warranties in this Agreement that
contains an express materiality qualification, shall have been accurate in all
respects as of the date of this Agreement, and shall be accurate in all respects
as of the time of the Closing as if then made, without giving effect to any
supplement to the schedules.

 

7.2. Seller’s Performance.  All of the covenants and obligations that Seller and
Shareholders are required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and each of
these covenants and obligations (considered individually), shall have been duly
performed and complied with in all material respects.

 

7.3. Consents.  Each of the Consents (the “Material Consents”) required to
consummate the Contemplated Transactions with respect to the Seller Contracts,
other than the Non Material Consents identified in Exhibit 7.3, shall have been
obtained and shall be in full force and effect, including, but not limited to, a
Consent to the assignment to the Buyer of the MAM Agreement on terms
satisfactory to Buyer.

 

7.4. Additional Documents.  Seller and Shareholders shall have caused the
documents and instruments required by Section 2.7(a) and the following documents
to be delivered (or tendered subject only to Closing) to Buyer:

 

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(a)           an opinion of (i) Vedder, Price, Kaufman & Kammholz, dated the
Closing Date, in the form of Exhibit 7.4(a)(i), and (ii) an opinion of Dick &
Harris, dated the Closing Date, in the form of Exhibit 7.4(a)(ii) with respect
to intellectual property matters;

 

(b)           a letter of credit (the “Letter of Credit”) from Cole Taylor Bank
and each Shareholder, in form and amount satisfactory to Buyer, must be in full
force and effect on and as of the Closing Date;

 

(c)           a valid certificate of insurance with Buyer as the named insured
for each insurance policy set forth on Schedule 7.4(c), in form satisfactory to
Buyer;

 

(d)           The articles of incorporation and all amendments thereto of
Seller, duly certified as of a recent date by the Secretary of State of the
jurisdiction of Seller’s incorporation;

 

(e)           If requested by Buyer, any Consents or other instruments that may
be required to permit Buyer’s qualification in each jurisdiction in which Seller
is licensed or qualified to do business as a foreign corporation under the name
“Sassy, Inc.” or any derivative thereof;

 

(f)            Releases of all Encumbrances on the Assets, other than Permitted
Encumbrances and the release of the mortgage under the Kentwood facility,
including releases of each mortgage of record and reconveyances of each deed of
trust with respect to each parcel of real property included in the Assets;

 

(g)           Certificates dated as of a date not earlier than the fifth
Business Day prior to the Closing as to the good standing of Seller and, to the
extent consistent with routine practice of each relevant state, payment of all
applicable state Taxes by Seller, executed by the appropriate officials of the
State of Illinois and each jurisdiction in which Seller is licensed or qualified
to do business as a foreign corporation as specified on Schedule 3.1(a); and

 

(h)           Such other documents as Buyer may reasonably request for the
purpose of:  (i) evidencing the accuracy of any of Seller’s representations and
warranties; (ii) evidencing the performance by Seller or any Shareholder of, or
the compliance by Seller or any Shareholder with, any covenant or obligation
required to be performed or complied with by Seller or such Shareholder;
(iii) evidencing the satisfaction of any condition referred to in this
Article 7; or (iv) otherwise facilitating the consummation or performance of any
of the Contemplated Transactions.

 

7.5. No Proceedings.  Since the date of this Agreement, there shall not have
been commenced or threatened against Buyer, or against any Related Person of
Buyer, any Proceeding (a) involving any challenge to, or seeking Damages or
other relief in connection with, any of the Contemplated Transactions or
(b) that may have the effect of preventing, delaying, making illegal, imposing
limitations or conditions on or otherwise interfering with any of the
Contemplated Transactions.

 

7.6. No Conflict.  Neither the consummation nor the performance of any of the
Contemplated Transactions will, directly or indirectly (with or without notice
or lapse of time),

 

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contravene or conflict with or result in a violation of or cause Buyer or any
Related Person of Buyer to suffer any adverse consequence under (a) any
applicable Legal Requirement or Order or (b) any Legal Requirement or Order that
has been published, introduced or otherwise proposed by or before any
Governmental Body, excluding Bulk Sales Laws.

 

7.7. Title Insurance.  Buyer shall have received unconditional and binding
commitments to issue policies of title insurance consistent with Section 5.10,
dated the Closing Date, in an aggregate amount equal to the amount of the
Purchase Price allocated to the Real Property, deleting all requirements listed
in ALTA Schedule B–1, amending the effective date to the date and time of
recordation of the deed transferring title to the Real Property to Buyer with no
exception for the gap between closing and recordation, deleting or insuring over
Title Objections as required pursuant to Section 5.10, attaching all
endorsements required by Buyer in order to ensure provision of all coverage
required pursuant to Section 5.10 and otherwise in form satisfactory to Buyer
insuring Buyer’s interest in each parcel of Real Property or interest therein to
the extent required by Section 5.10.

 

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7.8. Governmental Authorizations.  Buyer shall have received such Governmental
Authorizations as are necessary or desirable to allow Buyer to operate the
Assets from and after the Closing.

 

7.9. Environmental Report.  Buyer shall have received an environmental Phase I
report with respect to Seller’s Facilities, which report shall be acceptable in
form and substance to Buyer in its sole discretion.

 

7.10.       Employees.

 

(a)           Those key employees of Seller identified on Exhibit 7.10, or
substitutes therefor who shall be acceptable to Buyer, in its sole discretion,
shall have accepted employment with Buyer with such employment to commence on
and as of the Closing Date.

 

(b)           All other Active Employees of Seller (as defined in Section
10.1(b) hereof) shall be available for hiring by Buyer on and as of the Closing
Date.

 

7.11.       Due Diligence Review.  Buyer shall have completed its business,
accounting and legal due diligence review of the business of the Seller and
shall be satisfied with the results thereof in its sole discretion.

 

7.12.       Required Approvals.  Seller shall have obtained the approval of its
board of directors and its shareholders, if required, to execute, deliver and
perform this Agreement and the Contemplated Transactions.

 

7.13.       Resignation.  Hirsch, Rotblatt and Douglas shall have terminated
their employment with and/or ownership of RBK Management Company.

 

7.14.       Notice.

 

  Buyer shall not have received notice from MAM under paragraph 15 of the
Agreement Regarding Assignment of Distribution Agreement among MAM, RB and
Buyer, other than notice provided on July 17, 2002.

 

7.15.       MAM Agreement.

 

Seller shall not have agreed to any method of calculation of any amounts under
the MAM Agreement without the prior written consent of Buyer.

 

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7.16.       Intellectual Property Forms.

 

All employees of Sassy involved in product development who have not signed the
Invention, Patents and Confidential Information Agreement, including those
identified in the attachment to Schedule 3.25(c), shall have executed such
agreement, in form and with language satisfactory to Buyer.

 

8.             CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE.

 

Seller’s obligation to sell the Assets and to take the other actions required to
be taken by Seller at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
Seller in whole or in part):

 

8.1. Accuracy of Representations.  All of Buyer’s representations and warranties
in this Agreement (considered collectively), and each of these representations
and warranties (considered individually), shall have been accurate in all
material respects as of the date of this Agreement and shall be accurate in all
material respects as of the time of the Closing as if then made.

 

8.2. Buyer’s Performance.  All of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), shall have been duly performed and
complied with in all material respects.

 

8.3. Additional Documents.  Buyer shall have caused the documents and
instruments required by Section 2.7(b) and the following documents to be
delivered (or tendered subject only to Closing) to Seller and Shareholders:

 

(a)           an opinion of Kaye, Scholer LLP, dated the Closing Date, in the
form of Exhibit 8.3(a);

 

(b)           Buyer will adopt a management retention plan and an EBITDA earnout
in the form set forth in Exhibits 8.3(b)(i) and (ii); and

 

(c)           such other documents as Seller may reasonably request for the
purpose of  (i) evidencing the accuracy of any representation or warranty of
Buyer, (ii) evidencing the performance by Buyer of, or the compliance by Buyer
with, any covenant or obligation required to be performed or complied with by
Buyer or (iii) evidencing the satisfaction of any condition referred to in this
Article 8.

 

8.4. No Injunction.  There shall not be in effect any Legal Requirement or any
injunction or other Order that (a) prohibits the consummation of the
Contemplated Transactions and (b) has been adopted or issued, or has otherwise
become effective, since the date of this Agreement.

 

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9.             TERMINATION.

 

9.1. Termination Events.  By notice given prior to or at the Closing, subject to
Section 9.2, this Agreement may be terminated as follows:

 

(a)           by Buyer if a material breach of any provision of this Agreement
has been committed by Seller or Shareholders and such breach has not been waived
by Buyer;

 

(b)           by Seller if a material breach of any provision of this Agreement
has been committed by Buyer and such breach has not been waived by Seller;

 

(c)           by Buyer if any condition in Article 7 has not been satisfied as
of the date specified for Closing in the first sentence of Section 2.6 or if
satisfaction of such a condition by such date is or becomes impossible (other
than through the failure of Buyer to comply with its obligations under this
Agreement), and Buyer has not waived such condition on or before such date;

 

(d)           by Seller if any condition in Article 8 has not been satisfied as
of the date specified for Closing in the first sentence of Section 2.6 or if
satisfaction of such a condition by such date is or becomes impossible (other
than through the failure of Seller or the Shareholders to comply with their
obligations under this Agreement), and Seller has not waived such condition on
or before such date;

 

(e)           by mutual consent of Buyer and Seller;

 

(f)            by Buyer if the Closing has not occurred on or before July 26,
2002 or such later date as the parties may agree upon, unless the Buyer is in
material breach of this Agreement; or

 

(g)           by Seller if the Closing has not occurred on or before July 26,
2002 or such later date as the parties may agree upon, unless the Seller or
Shareholders are in material breach of this Agreement.

 

9.2. Effect of Termination.  Each party’s right of termination under Section 9.1
is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of such right of termination will not be an election
of remedies.  If this Agreement is terminated pursuant to Section 9.1, all
obligations of the parties under this Agreement will terminate, except that the
obligations of the parties in this Section 9.2 and Articles 12 and 13 (except
for those in Section 13.5) will survive, provided, however, that, if this
Agreement is terminated because of a breach of this Agreement by the
nonterminating party or because one or more of the conditions to the terminating
party’s obligations under this Agreement is not satisfied as a result of the
other party’s failure to comply with its obligations under this Agreement, the
terminating party’s right to pursue all legal remedies will survive such
termination unimpaired.

 

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10.          ADDITIONAL COVENANTS.

 

10.1.       Employees and Employee Benefits.

 

(a)           Information on Active Employees.  For the purpose of this
Agreement, the term “Active Employees” shall mean all employees employed on the
Closing Date by Seller for its business who are:  (i) Bargaining Unit employees
currently covered by the Collective Bargaining Agreement or (ii) employed in
Seller’s business as currently conducted, including employees on layoff with
recall rights granted by law or the Collective Bargaining Agreement or on
temporary leave of absence, including family medical leave, military leave,
temporary disability or sick leave, but excluding employees on long–term
disability leave.

 

(b)           Employment of Active Employees by Buyer.

 

(i)            Buyer will offer employment to all Active Employees as of the
Closing Date on terms substantially similar to those under which they were
employed by Seller prior to the Closing Date.  Buyer agrees to credit Active
Employees with all service such Employees have been credited with pursuant to
corresponding plans maintained by Seller as of the Closing Date prior to the
Closing Date for purposes of vesting and eligibility under any employee benefit
plan maintained by Buyer or any of its Related Persons in which the Active
Employees participate after the Closing.  Buyer will permit Active Employees to
carry over and take paid vacation or other paid time-off benefits which were
accrued but unused as of the Closing Date in accordance with applicable policies
of Seller as of the Closing Date.  Buyer waives any limitations regarding
preexisting conditions, and will give full credit for any co-payments made and
deductibles fully or partially satisfied prior to the Closing Date with respect
to any welfare benefit plans maintained by Buyer or any of its Related Persons
in which Active Employees participate after the Closing Date.  From and after
the Closing Date, Buyer shall be solely responsible for all termination and
severance benefits, costs, charges and liabilities of any nature incurred with
respect to the termination of an Active Employee by Buyer or any of its Related
Persons on or after the Closing Date.  Seller will provide access to the
Facilities and personnel records of Seller upon reasonable prior notice during
normal business hours.  Effective immediately before the Closing, Seller will
terminate the employment of all of its Active Employees.

 

(ii)           Except upon the consent of Buyer, neither Seller nor any
Shareholder nor their Related Persons shall solicit the continued employment of
any Active Employee or the employment of any Active Employee for a period of
five years after the Closing.

 

(iii)          It is understood and agreed that employment offered by Buyer is
“at will” and may be terminated by Buyer or by an employee at any time for any
reason (subject to the Collective Bargaining Agreement, any written commitments
to the contrary made by Buyer or an employee and Legal Requirements).  Subject
only to the provisions of this Section 10.1, nothing in this Agreement shall be
deemed to prevent or restrict in any way the right of Buyer to terminate,
reassign, promote or demote any of the Active Employees after the Closing or to
change adversely or favorably the title, powers, duties, responsibilities,
functions,

 

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locations, salaries, other compensation or terms or conditions of employment of
such employees.

 

(c)           Salaries and Benefits.

 

(i)            To the extent not accrued as a current liability on the Closing
Balance Sheet or set forth on Schedule 2.4(b)(vii), Seller shall be responsible
for (A) the payment of all wages and other remuneration due to Active Employees
with respect to their services as employees of Seller through the close of
business on the Closing Date, including pro rata bonus payments and all vacation
pay earned prior to the Closing Date; (B) the payment of any termination or
severance payments and the provision of health plan continuation coverage in
accordance with the requirements of COBRA; and (C) any and all payments to
employees required under the Worker Adjustment and Retraining Notification Act
(the “WARN Act”) for the period prior to the Closing Date.  Notwithstanding the
foregoing, Buyer shall pay all cash bonuses reflected on the Closing Balance
Sheet accrued to any Active Employees in accordance with their terms, when due,
and Buyer shall be responsible for any and all obligations arising under the
continuation coverage requirements of COBRA for any Active Employees and their
qualified beneficiaries who experience a qualifying event on or following the
Closing Date.

 

(ii)           Seller shall be liable for any claims made or incurred by Active
Employees and their beneficiaries through the Closing Date under the Employee
Plans.  For purposes of the immediately preceding sentence, a charge will be
deemed incurred, in the case of hospital, medical or dental benefits, when the
services that are the subject of the charge are performed and, in the case of
other benefits (such as disability or life insurance), when an event has
occurred or when a condition has been diagnosed that entitles the employee to
the benefit.

 

(d)           Seller’s Retirement and Savings Plans.  All Active Employees who
are participants in Seller’s Employee Plans that are “employee pension benefit
plans” under Section 3(1) of ERISA shall become fully vested in their accrued
benefits under such plans as of the Closing Date, and such plans (and Seller, in
the case of non-qualified plans) shall retain sole liability for the payment of
such benefits as and when such Active Employees become eligible therefor under
such plans.

 

(e)           No Transfer of Assets.  Neither Seller nor Shareholders nor their
respective Related Persons will make any transfer of pension or other employee
benefit plan assets to Buyer.

 

(f)            Collective Bargaining Matters.  Certain of Seller’s employees
(the “Bargaining Unit Employees”) are represented by General Teamsters Union,
Local No. 406 (the “Union”) under the terms of a collective bargaining agreement
(the “Collective Bargaining Agreement”), effective from February 1, 2000 through
January 31, 2004.  Buyer agrees to assume the Collective Bargaining Agreement
and offer employment to all Bargaining Unit Employees on the Closing Date on the
terms they were employed prior to the Closing Date.  Any

 

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bargaining obligations of Buyer with the Union with respect to Bargaining Unit
Employees subsequent to the Closing, whether such obligations arise before or
after the Closing, shall be the sole responsibility of Buyer.

 

(g)           General Employee Provisions.

 

(i)            Seller and Buyer shall reasonably cooperate as to the giving of
any notices required by Legal Requirements and take whatever other actions with
respect to the plans, programs and policies described in this Section 10.1 as
may be necessary to carry out the arrangements described in this Section 10.1.

 

(ii)           Seller and Buyer shall provide each other with such plan
documents and summary plan descriptions, employee data or other information as
may be reasonably required to carry out the arrangements described in this
Section 10.1.

 

(iii)          If any of the arrangements described in this Section 10.1 are
determined by the IRS or other Governmental Body to be prohibited by law, Seller
and Buyer shall modify such arrangements to as closely as possible reflect their
expressed intent and retain the allocation of economic benefits and burdens to
the parties contemplated herein in a manner that is not prohibited by law.

 

(iv)          At Closing, Seller shall provide Buyer with completed I–9 forms
and attachments with respect to all Active Employees, except for such employees
as Seller certifies in writing to Buyer are exempt from such requirement.

 

(v)           Buyer shall not have any responsibility, liability or obligation,
whether to Active Employees, former employees, their beneficiaries or to any
other Person, with respect to any employee benefit plans, practices, programs or
arrangements (including the establishment, administration, operation or
termination thereof or any other reason and the notification and provision of
COBRA coverage extension) or the trusts related to such plans maintained by
Seller.

 

(vi)          Except as set forth herein, Buyer will set its own initial terms
and conditions of employment for the Active Employees and others it may hire,
including work rules, benefits and salary and wage structure, all as permitted
by law.

 

10.2.       Payment of All Taxes Resulting From Sale of Assets by Seller. 
Subject to the portion of any Taxes contested by Seller in good faith, Seller
shall pay in a timely manner all Taxes resulting from or payable in connection
with the sale of the Assets pursuant to this Agreement imposed by Legal
Requirements on Seller.

 

10.3.       Payment of Other Retained Liabilities.  In addition to payment of
Taxes pursuant to Section 10.2, Seller shall pay, or make adequate provision for
the payment, in full all of the Retained Liabilities and other Liabilities of
Seller under this Agreement.

 

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10.4.       Restrictions on Seller Dissolution and Distributions.  Seller shall
not dissolve, or make any distribution of the proceeds received pursuant to this
Agreement, until Seller has made adequate provision for the payment of all of
its obligations pursuant to Sections 2.9, 10.2 and 10.3.

 

10.5.       Removing Excluded Assets.  On or before the Closing Date, Seller
shall remove all Excluded Assets from all Facilities and other Real Property to
be occupied by Buyer.  Such removal shall be done in such manner as to avoid any
damage to the Facilities and other properties to be occupied by Buyer and any
disruption of the business operations to be conducted by Buyer after the
Closing.  Any damage to the Assets or to the Facilities resulting from such
removal shall be paid by Seller at the Closing.

 

10.6.       Reports and Returns.  Seller shall promptly after the Closing
prepare and file all reports and returns required by Legal Requirements relating
to the business of Seller as conducted using the Assets, to and including the
Closing Date.

 

10.7.       Assistance in Proceedings.  Seller will cooperate with Buyer and its
counsel in the contest or defense of, and make available its personnel and
provide any testimony and access to its books and Records in connection with,
any Proceeding involving or relating to (a) any Contemplated Transaction or
(b) any action, activity, circumstance, condition, conduct, event, fact, failure
to act, incident, occurrence, plan, practice, situation, status or transaction
on or before the Closing Date involving Seller or its business or any
Shareholder.

 

10.8.       Noncompetition, Nonsolicitation and Nondisparagement.

 

(a)           Noncompetition.  For a period of five years after the Closing
Date, Seller shall not, anywhere in the United States or in any other
jurisdiction in which Buyer offers products for sale, directly or indirectly
invest in, own, manage, operate, finance, control, advise, render services to or
guarantee the obligations of any Person engaged in or planning to become engaged
in the gift or juvenile products (including, but not limited to, baby products)
business (“Competing Business”), provided, however, that Seller may purchase or
otherwise acquire up to (but not more than) two percent of any class of the
securities of any Person (but may not otherwise participate in the activities of
such Person) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended.

 

(b)           Nonsolicitation.  For a period of five years after the Closing
Date, Seller shall not, directly or indirectly:  (i) solicit the business of any
Person who is a customer of Buyer; (ii) cause, induce or attempt to cause or
induce any customer, supplier, licensee, licensor, franchisee, employee,
consultant or other business relation of Buyer to cease doing business with
Buyer, to deal with any competitor of Buyer or in any way interfere with its
relationship with Buyer; (iii) cause, induce or attempt to cause or induce any
customer, supplier, licensee, licensor, franchisee, employee, consultant or
other business relation of Seller on the Closing Date or within the year
preceding the Closing Date to cease doing business with Buyer, to deal with any
competitor of Buyer or in any way interfere with its relationship with Buyer; or
(iv) hire, retain or attempt to hire or retain any employee or independent
contractor of Buyer or in any way

 

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interfere with the relationship between Buyer and any of its employees or
independent contractors.

 

(c)           Nondisparagement.  After the Closing Date, Seller will not
disparage Buyer or any of Buyer’s shareholders, directors, officers, employees
or agents.

 

(d)           Modification of Covenant.  If a final judgment of a court or
tribunal of competent jurisdiction determines that any term or provision
contained in Section 10.8(a) through (c) is invalid or unenforceable, then the
parties agree that the court or tribunal will have the power to reduce the
scope, duration or geographic area of the term or provision, to delete specific
words or phrases or to replace any invalid or unenforceable term or provision
with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision. 
This Section 10.8 will be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.  This Section 10.8 is reasonable
and necessary to protect and preserve Buyer’s legitimate business interests and
the value of the Assets and to prevent any unfair advantage conferred on Seller.

 

10.9.       Customer and Other Business Relationships.  After the Closing,
Seller and Shareholders will cooperate (in the case of Kaplan, such cooperation
shall not exceed 40 hours per year, require him to travel, or extend beyond the
second anniversary of the Closing Date) with Buyer in its efforts to continue
and maintain for the benefit of Buyer those business relationships of Seller
existing prior to the Closing and relating to the business of Seller to be
operated by Buyer after the Closing, including relationships with lessors,
employees, regulatory authorities, licensors, licensees, customers, suppliers
and others, and Seller will satisfy all Retained Liabilities as and when due,
unless a good faith dispute exists with respect thereto (Seller will give Buyer
written notice of any such dispute if so requested by Buyer).  Seller will refer
to Buyer all inquiries relating to such business.  Neither Seller nor any of its
officers, employees, agents or Shareholders shall take any action that would
tend to diminish the value of the Assets after the Closing or that would
interfere with the business of Buyer to be engaged in after the Closing,
including disparaging the name or business of Buyer.

 

10.10.     Retention of and Access to Records.  After the Closing Date, Buyer
shall retain those records of Seller delivered to Buyer until the seventh
anniversary of the Closing Date.  Buyer also shall provide Seller and
Shareholders and their Representatives reasonable access thereto, during normal
business hours and on at least three days’ prior written notice, for any
reasonable business purpose (as mutually agreed by the Buyer and Seller)
specified by Seller or Shareholders in such notice.  After the Closing Date,
Seller shall provide Buyer and its Representatives reasonable access to records
that are Excluded Assets, during normal business hours and on at least three
days’ prior written notice, for any reasonable business purpose specified by
Buyer in such notice.

 

10.11.     Kentwood Operations.  Buyer agrees not to move the Kentwood
Operations out of the Kentwood facility after the Closing Date until the third
anniversary of the Closing Date without the consent of Hirsch, if he is employed
on a full-time basis with Buyer at the time of determination (if Hirsch is not
so employed, the consent of either Rotblatt or Douglas shall be required, if
they are employed on a full-time basis with Buyer at the time of determination).

 

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Buyer agrees to consult with Hirsch prior to the termination by Buyer of any
non-Union Active Employee of the Kentwood Operations.

 

10.12.     Insurance.  As of the Closing Date, and for a period of six years
thereafter, Buyer shall maintain all insurance policies listed on Schedule 10.12
or policies providing substantially similar coverage (“Product Liability
Insurance Policies”), naming the Seller as a co-insured on each such Product
Liability Insurance Policy.  As of the Closing Date, and for a period of three
years thereafter, Buyer shall maintain all insurance policies listed on Schedule
7.4(c) or policies providing substantially similar coverage, naming the Seller
as an additional insured on each such policy

 

10.13.     Further Assurances.  Subject to the proviso in Section 6.1, the
parties shall cooperate reasonably with each other and with their respective
Representatives in connection with any steps required to be taken as part of
their respective obligations under this Agreement, and shall (a) furnish upon
request to each other such further information; (b) execute and deliver to each
other such other documents; and (c) do such other acts and things, all as the
other party may reasonably request for the purpose of carrying out the intent of
this Agreement and the Contemplated Transactions, including, but not limited to,
execution of forms of assignment and related documents suitable for recordation
in foreign jurisdictions to effect the transfer of the Intellectual Property
Assets.

 

10.14.     Post-Closing Payments.  In the event that Seller or any Shareholder
should, following the Closing, receive any payments or other property with
respect to accounts receivable or other assets constituting Assets hereunder,
Seller or Shareholders, as the case may be, shall promptly remit and transfer
such funds or other property to Buyer.

 

10.15.     MAM Agreement.

 

Seller shall not agree to any method of calculation of any amounts under the MAM
Agreement without the prior written consent of Buyer.

 

10.16.     Escrow.

 

To the extent any claim for Damages is pending under the Letter of Credit 45
days prior to the expiration thereof, Seller and each Shareholder agree to apply
for a new letter of credit, with the same terms as the Letter of Credit, for an
additional one-year period.  If no renewed letter of credit can be obtained
prior to the expiration of the Letter of Credit (or any renewal thereof) while a
claim thereunder is still pending, Seller and each Shareholder agree to execute
an escrow agreement, in the form of Exhibit 10.16, for the amount in dispute,
such escrow agreement to remain in effect until such claim is finally resolved
thereunder.  Seller, Shareholders and Buyer shall draw down an amount under the
Letter of Credit (or any renewal thereof) an amount equal to the amount in
dispute, and deposit such amount with the escrow agent under the escrow
agreement.

 

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10.17.     Straub Assignments.

 

Seller and Shareholders agree to use reasonable efforts, as soon as practicable
after the Closing, to obtain a confirmatory patent assignment from Mark
Greenwood to Mariann Straub with respect to the following patents:  D369,934,
D369,054, 5,341,531, D385,143 and D408,676.

 

10.18.     K-Mart.Buyer agrees to (i) pay for legal expenses incurred by Buyer
or Seller in connection with the defense of any preference claim allegations
with respect to the K-Mart bankruptcy and (ii) remit to Seller one-third of the
net amount recovered with respect to accounts receivable which were written off
as a direct result of the K-Mart bankruptcy.  Seller agrees that Buyer shall
control any such defense, including the settlement thereof.

 

10.19.     Escrow Trust Instructions.With respect to the Real Property
identified on Schedule 3.7, Buyer and Seller will jointly execute Escrow Trust
Instructions (the “Instructions”), in form attached hereto as Exhibit 10.19.

 

10.20.     Letter of Credit.

 

With respect to the Letter of Credit, Seller agrees that (i) the terms and
remedies available under the Letter of Credit in no way limit the Buyer’s
ability to seek out or enforce any other remedies it may have available under
the terms of this Agreement or under law or equity, including, without
limitation, the pursuit of, under Article 11 or otherwise, amounts in excess of
the amount of Damages claimed thereunder with respect to any state of facts
underlying any Damages claimed thereunder, (ii) Buyer may make more than one
claim with respect to any underlying state of facts giving rise to a request for
funds under the Letter of Credit, and (iii) if the Seller has not provided an
objection notice to Buyer to any claim made by Buyer under the Letter of Credit
within 75 days of receipt of notice from Buyer, Seller and each Shareholder
shall be deemed to acknowledge the validity of such claim.

 

11.          INDEMNIFICATION; REMEDIES.

 

11.1.       Survival.  All representations, warranties, covenants and
obligations in this Agreement, the schedules hereto, the supplements to the
schedules hereto, the certificates delivered pursuant to Section 2.7 and any
other certificate or document delivered pursuant to this Agreement shall survive
the Closing and the consummation of the Contemplated Transactions, subject to
Section 11.7.  The right to indemnification, reimbursement or other remedy based
upon such representations, warranties, covenants and obligations shall not be
affected by any investigation (including any environmental investigation or
assessment) conducted with respect to, or any Knowledge acquired (or capable of
being acquired) at any time, whether before or after the execution and delivery
of this Agreement or the Closing Date, with respect to the accuracy or
inaccuracy of or compliance with any such representation, warranty, covenant or
obligation.  The waiver of any condition based upon the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification,
reimbursement or other remedy based upon such representations, warranties,
covenants and obligations.

 

11.2.       Indemnification and Reimbursement by Seller and Shareholders. 
Seller and each Shareholder, jointly and severally with respect to Seller and
severally with respect to each

 

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Shareholder, will indemnify and hold harmless Buyer, and its Representatives,
shareholders, subsidiaries and Related Persons (collectively, the “Buyer
Indemnified Persons”), and will reimburse the Buyer Indemnified Persons for any
loss, liability, claim, damage, expense (including costs of investigation and
defense and reasonable attorneys’ fees and expenses) or diminution of value,
whether or not involving a Third-Party Claim (collectively, “Damages”), arising
from or in connection with:

 

(a)           any breach of any representation or warranty made by Seller or any
Shareholder in (i) this Agreement (without giving effect to any supplement to
the schedules hereto), (ii) the schedules hereto, (iii) the supplements to the
schedules hereto, (iv) the certificates delivered pursuant to Section 2.7 (for
this purpose, each such certificate will be deemed to have stated that Seller’s
and Shareholders’ representations and warranties in this Agreement fulfill the
requirements of Section 7.1 as of the Closing Date as if made on the Closing
Date without giving effect to any supplement to the schedules hereto, unless the
certificate expressly states that the matters disclosed in a supplement have
caused a condition specified in Section 7.1 not to be satisfied), (v) any
transfer instrument or (vi) any other certificate, document, writing or
instrument delivered by Seller or any Shareholder pursuant to this Agreement;

 

(b)           any breach of any covenant or obligation of Seller or any
Shareholder in this Agreement or in any other certificate, document, writing or
instrument delivered by Seller or any Shareholder pursuant to this Agreement
provided, however, that with respect to any Shareholder breach of his own
Employment Agreement or Non Competition Agreement, such Shareholder shall be
solely responsible for such breach and any related Damages;

 

(c)           any Liability arising out of the ownership or operation of the
Assets prior to the Closing Date other than the Assumed Liabilities;

 

(d)           any brokerage or finder’s fees or commissions or similar payments
based upon any agreement or understanding made, or alleged to have been made, by
any Person with Seller or any Shareholder (or any Person acting on their behalf)
in connection with any of the Contemplated Transactions;

 

(e)           subject to Section 11.4(g), any product or component thereof
manufactured by or shipped, or any services provided by, Seller, in whole or in
part, prior to the Closing Date, or any Inventories purchased by Buyer
hereunder, to the extent not covered under the Product Liability Insurance
Policies;

 

(f)            any matter disclosed on Schedule 3.25(d) hereto;

 

(g)           any noncompliance with any Bulk Sales Laws or fraudulent transfer
law in respect of the Contemplated Transactions;

 

(h)           any liability under the WARN Act or any similar state or local
Legal Requirement that may result from an “Employment Loss”, as defined by 29
U.S.C. sect. 2101(a)(6), caused by any action of Seller prior to or as a result
of the Closing;

 

(i)            any Employee Plan established or maintained by Seller;

 

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(j)            any Liability arising with respect to the ownership of or right
to any Intellectual Property Assets from former and current employees,
independent contractors, consultants and agents of seller;

 

(k)           any Retained Liabilities; and

 

(l)            any Liability arising out of the failure to obtain a Consent at
the Closing to the assignment to Buyer of any Real Property Leases.

 

11.3.       Indemnification and Reimbursement by Seller and Shareholders —
Environmental Matters.  In addition to the other indemnification provisions in
this Article 11, Seller jointly and severally, and each Shareholder, severally,
will indemnify and hold harmless Buyer and the other Buyer Indemnified Persons,
and will reimburse Buyer and the other Buyer Indemnified Persons, for any
Damages (including costs of cleanup, containment or other remediation) arising
from or in connection with:

 

(a)           any Environmental, Health and Safety Liabilities arising out of or
relating to:  (i) the ownership or operation by any Person at any time on or
prior to the Closing Date of any of the Facilities, Assets or the business of
Seller, or (ii) any Hazardous Materials or other contaminants that were present
on the Facilities or Assets at any time on or prior to the Closing Date; or

 

(b)           any bodily injury (including illness, disability and death,
regardless of when any such bodily injury occurred, was incurred or manifested
itself), personal injury, property damage (including trespass, nuisance,
wrongful eviction and deprivation of the use of real property) or other damage
of or to any Person or any Assets in any way arising from or allegedly arising
from any Hazardous Activity conducted by any Person with respect to the business
of Seller or the Assets prior to the Closing Date or from any Hazardous Material
that was (i) present on or before the Closing Date on or at the Facilities (or
present or suspected to be present on any other property, if such Hazardous
Material emanated or allegedly emanated from any Facility and was present or
suspected to be present on any Facility, on or prior to the Closing Date) or
(ii) Released or allegedly Released by any Person on or at any Facilities or
Assets at any time on or prior to the Closing Date.

 

Buyer will be entitled to control any Remedial Action and any Proceeding
relating to an Environmental Claim for any Facility occupied by Buyer at the
time of the Remedial Action or Proceeding.  Seller will be entitled, but not
required, to control any other Remedial Action or Proceeding with respect to
which indemnity may be sought under this Section 11.3 with respect to an
environmental claim.

 

11.4.       Indemnification and Reimbursement by Buyer.  Buyer will indemnify
and hold harmless Seller and each Shareholder, and their respective
Representatives, stockholders, subsidiaries and Related Persons (collectively,
the “Seller Indemnified Persons”), and will reimburse Seller and Seller
Indemnified Persons, for any Damages arising from or in connection with:

 

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(a)           any breach of any representation or warranty made by Buyer in this
Agreement or in any certificate, document, writing or instrument delivered by
Buyer pursuant to this Agreement;

 

(b)           any breach of any covenant or obligation of Buyer in this
Agreement or in any other certificate, document, writing or instrument delivered
by Buyer pursuant to this Agreement;

 

(c)           any claim by any Person for brokerage or finder’s fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on
Buyer’s behalf) in connection with any of the Contemplated Transactions;

 

(d)           any obligations of Buyer with respect to bargaining with the
collective bargaining representatives of Active Employees subsequent to the
Closing;

 

(e)           any Assumed Liabilities;

 

(f)            any Liability arising out of the ownership or operation of the
Assets by Buyer after the Closing Date other than the Retained Liabilities; or

 

(g)           any product or component thereof manufactured by or shipped or any
services provided by Seller, in whole or in part, prior to the Closing Date, or
any Inventories purchased by Buyer hereunder, but only to the extent of the
deductible under the Product Liability Insurance Policies.

 

11.5.       Limitations on Amount — Seller and Shareholders. 
(a)                            Seller and Shareholders shall have no liability
(for indemnification or otherwise) with respect to claims under Section 11.2(a)
until the total of all Damages with respect to such matters exceeds $250,000
(the “Basket”), in which case Seller shall be liable for the amount of all
Damages from or the first dollar thereof, up to a maximum liability of
$30,000,000 (the “Cap”).  Notwithstanding the foregoing, the Basket shall not
apply to matters arising in respect of Sections 3.14, 3.28, 3.29, or 11.2(b)-(j)
or 11.2(l), but the Cap shall apply, and neither the Basket nor the Cap will
apply to any breach of any of Seller’s and Shareholders’ representations and
warranties of which the Seller had Knowledge at any time prior to the date on
which such representation and warranty is made or any intentional breach by
Seller or any Shareholder of any covenant or obligation, and Seller will be
jointly and severally liable and the Shareholders will be severally liable for
all Damages with respect to such breaches.  Notwithstanding the foregoing, with
respect to claims under Section 11.2(k), (i) for direct claims against the
Seller, neither the Basket nor the Cap shall apply and (ii) for direct claims
against the Shareholders, the Basket shall not apply, but the Cap shall apply
except for claims under which the plaintiff can establish personal liability on
the part of any Shareholder.  The Basket shall apply to claims arising under
Section 11.3.

 

(b)           All indemnification payments from Shareholders as a group to Buyer
pursuant to this Article 11 shall be in the proportions set forth on Schedule
11.5.

 

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(c)           Notwithstanding anything herein to the contrary, with respect to
the claims described on Schedule 3.25(d), except for the accusation of
infringement by Procter & Gamble (for which Buyer Indemnified Parties will be
indemnified without qualification), the Basket shall not apply, provided that
Buyer shall pay up to the first $50,000 of the aggregate costs associated with
the defense of such matters.  In connection therewith, the parties agree that
the provisions of Section 11.8 shall govern  with respect to such matters.

 

11.6.       Limitations on Amount — Buyer.  Buyer will have no liability (for
indemnification or otherwise) with respect to claims  under Section 11.4(a)
until the total of all Damages with respect to such matters exceeds the Basket,
in which case Buyer shall be liable for the amount of all Damages from the first
dollar thereof up to a maximum equal to the Cap.  However, this Section 11.6
will not apply to claims under Section 11.4(b) through (f) or matters arising in
respect of Section 4.4 or to any breach of any of Buyer’s representations and
warranties of which Buyer had Knowledge at any time prior to the date on which
such representation and warranty is made or any intentional breach by Buyer of
any covenant or obligation, and Buyer will be liable for all Damages with
respect to such breaches.  The Basket will not apply to claims under Section
11.4(g).

 

11.7.       Time Limitations.

 

(a)           If the Closing occurs, Seller and Shareholders will have liability
(for indemnification or otherwise) with respect to any breach of (i) a covenant
or obligation to be performed or complied with prior to the Closing Date (other
than those in Sections 2.1 and 2.4(b) and Articles 10 and 12, as to which a
claim may be made at any time) or (ii) a representation or warranty (other than
those in Sections 3.9, 3.14, 3.16, 3.22, 3.29 or 3.30, as to which a claim may
be made at any time), only if on or before the second anniversary of the Closing
Date, Buyer notifies Seller or Shareholders of a claim specifying the factual
basis of the claim in reasonable detail to the extent then known by Buyer. 
Notwithstanding anything herein to the contrary, a claim under Section 11.2(f)
or 11.2(j) may be made at any time.

 

(b)           If the Closing occurs, Buyer will have liability (for
indemnification or otherwise) with respect to any breach of (i) a covenant or
obligation to be performed or complied with prior to the Closing Date (other
than those in Article 12, as to which a claim may be made at any time) or (ii) a
representation or warranty (other than that set forth in Section 4.4, as to
which a claim may be made at any time), only if on or before the second
anniversary of the Closing Date, Seller or Shareholders notify Buyer of a claim
specifying the factual basis of the claim in reasonable detail to the extent
then known by Seller or Shareholders.

 

11.8.       Third-Party Claims.

 

(a)           Promptly after receipt by a Person entitled to indemnity under
Section 11.2, 11.3 (to the extent provided in the last sentence of Section 11.3)
or 11.4 (an “Indemnified Person”) of notice of the assertion of a Third-Party
Claim against it, such Indemnified Person shall give notice to the Person
obligated to indemnify under such Section (an “Indemnifying Person”) of the
assertion of such Third-Party Claim, provided that the failure to notify the
Indemnifying Person will not relieve the Indemnifying Person of any liability
that it may have to any Indemnified Person, except to the extent that the
Indemnifying Person

 

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demonstrates that the defense of such Third–Party Claim is prejudiced by the
Indemnified Person’s failure to give such notice.

 

(b)           If an Indemnified Person gives notice to the Indemnifying Person
pursuant to Section 11.9(a) of the assertion of a Third-Party Claim, the
Indemnifying Person shall be entitled to participate in the defense and
settlement of such Third-Party Claim and, to the extent that it wishes (unless
(i) the Indemnifying Person is also a Person against whom the Third-Party Claim
is made and the Indemnified Person determines in good faith that joint
representation would be inappropriate or (ii) the Indemnifying Person fails to
provide reasonable assurance to the Indemnified Person of its financial capacity
to defend such Third-Party Claim and provide indemnification with respect to
such Third-Party Claim), to assume the defense, including settlement, of such
Third-Party Claim with counsel satisfactory to the Indemnified Person.  After
notice from the Indemnifying Person to the Indemnified Person of its election to
assume the defense of such Third-Party Claim, the Indemnifying Person shall not,
so long as it diligently conducts such defense, be liable to the Indemnified
Person under this Article 11 for any fees of other counsel or any other expenses
with respect to the defense of such Third-Party Claim, in each case subsequently
incurred by the Indemnified Person in connection with the defense of such
Third-Party Claim, other than reasonable costs of investigation.  If the
Indemnifying Person assumes the defense of a Third-Party Claim, (i) such
assumption will conclusively establish for purposes of this Agreement that the
claims made in that Third-Party Claim are within the scope of and subject to
indemnification, (ii) no compromise or settlement of such Third-Party Claims may
be effected by the Indemnifying Person without the Indemnified Person’s Consent
unless (A) there is no finding or admission of any violation of Legal
Requirement or any violation of the rights of any Person; (B) the sole relief
provided is monetary damages that are paid in full by the Indemnifying Person;
and (iii) the Indemnifying Person shall have no liability with respect to any
compromise or settlement of such Third-Party Claims effected without its
Consent.  If notice is given to an Indemnifying Person of the assertion of any
Third-Party Claim and the Indemnifying Person does not, within thirty days after
the Indemnified Person’s notice is given, give notice to the Indemnified Person
of its election to assume the defense of such Third-Party Claim, the
Indemnifying Person will be bound by any determination made in such Third-Party
Claim or any compromise or settlement effected by the Indemnified Person.

 

(c)           Notwithstanding the foregoing, if an Indemnified Person determines
in good faith that there is a reasonable probability that a Third-Party Claim
may adversely affect it or its Related Persons other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the Indemnified Person may, by notice to the Indemnifying Person,
assume the exclusive right to defend, compromise or settle such Third-Party
Claim, but the Indemnifying Person will not be bound by any determination of any
Third-Party Claim so defended for the purposes of this Agreement or any
compromise or settlement effected without its Consent (which may not be
unreasonably withheld).

 

(d)           Notwithstanding the provisions of Section 13.4, Seller and each
Shareholder hereby consent to the nonexclusive jurisdiction of any court in
which a Proceeding in respect of a Third-Party Claim is brought against any
Buyer Indemnified Person for purposes of any claim that a Buyer Indemnified
Person may have under this Agreement with respect to such Proceeding or the
matters alleged therein and agree that process may be served on Seller and
Shareholders with respect to such a claim anywhere in the world.

 

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(e)           With respect to any Third-Party Claim subject to indemnification
under this Article 11:  (i) both the Indemnified Person and the Indemnifying
Person, as the case may be, shall keep the other Person fully informed of the
status of such Third-Party Claim and any related Proceedings at all stages
thereof where such Person is not represented by its own counsel, and (ii) the
parties agree to render to each other such assistance as they may reasonably
require of each other and to cooperate in good faith with each other in order to
ensure the proper and adequate defense of any Third-Party Claim.  The party
requesting assistance hereunder shall be responsible for the out-of-pocket
expenses of the other party.

 

(f)            With respect to any Third-Party Claim subject to indemnification
under this Article 11, the parties agree to cooperate in such a manner as to
preserve in full (to the extent possible) the confidentiality of all
Confidential Information and the attorney-client and work-product privileges. 
In connection therewith, each party agrees that:  (i) it will use its Best
Efforts, in respect of any Third-Party Claim in which it has assumed or
participated in the defense, to avoid production of Confidential Information
(consistent with applicable law and rules of procedure), and (ii) all
communications between any party hereto and counsel responsible for or
participating in the defense of any Third-Party Claim shall, to the extent
possible, be made so as to preserve any applicable attorney-client or
work–product privilege.

 

11.9.       Other Claims.  A claim for indemnification for any matter not
involving a Third-Party Claim may be asserted by notice to the party from whom
indemnification is sought and shall be paid promptly after such notice.

 

12.          CONFIDENTIALITY.

 

12.1.       Definition of Confidential Information.

 

(a)           As used in this Article 12, the term “Confidential Information”
includes any and all of the following information of Seller, Buyer or
Shareholders that has been or may hereafter be disclosed in any form, whether in
writing, orally, electronically or otherwise, or otherwise made available by
observation, inspection or otherwise by either party (Buyer on the one hand or
Seller and Shareholders, collectively, on the other hand) or its Representatives
(collectively, a “Disclosing Party”) to the other party or its Representatives
(collectively, a “Receiving Party”):

 

(i)            all information that is a trade secret under applicable trade
secret or other law;

 

(ii)           all information concerning product specifications, data,
know–how, formulae, compositions, processes, designs, sketches, photographs,
graphs, drawings, samples, inventions and ideas, past, current and planned
research and development, current and planned manufacturing or distribution
methods and processes, customer lists, current and anticipated customer
requirements, price lists, market studies, business plans, computer hardware,
software and computer software and database technologies, systems, structures
and architectures;

 

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(iii)          all information concerning the business and affairs of the
Disclosing Party (which includes historical and current financial statements,
financial projections and budgets, tax returns and accountants’ materials,
historical, current and projected sales, capital spending budgets and plans,
business plans, strategic plans, marketing and advertising plans, publications,
client and customer lists and files, contracts, the names and backgrounds of key
personnel and personnel training techniques and materials, however documented),
and all information obtained from review of the Disclosing Party’s documents or
property or discussions with the Disclosing Party regardless of the form of the
communication; and

 

(iv)          all notes, analyses, compilations, studies, summaries and other
material prepared by the Receiving Party to the extent containing or based, in
whole or in part, upon any information included in the foregoing.

 

(b)           Any trade secrets of a Disclosing Party shall also be entitled to
all of the protections and benefits under applicable trade secret law and any
other applicable law.  If any information that a Disclosing Party deems to be a
trade secret is found by a court of competent jurisdiction not to be a trade
secret for purposes of this Article 12, such information shall still be
considered Confidential Information of that Disclosing Party for purposes of
this Article 12 to the extent included within the definition.  In the case of
trade secrets, each of Buyer, Seller and Shareholders hereby waives any
requirement that the other party submit proof of the economic value of any trade
secret or post a bond or other security.

 

12.2.       Restricted Use of Confidential Information.

 

(a)           Each Receiving Party acknowledges the confidential and proprietary
nature of the Confidential Information of the Disclosing Party and agrees that
such Confidential Information (i) shall be kept confidential by the Receiving
Party; (ii) shall not be used for any reason or purpose other than to evaluate
and consummate the Contemplated Transactions; and (iii) without limiting the
foregoing, shall not be disclosed by the Receiving Party to any Person, except
in each case as otherwise expressly permitted by the terms of this Agreement or
with the prior written consent of an authorized representative of Seller with
respect to Confidential Information of Seller or Shareholders (each, a “Seller
Contact”) or an authorized representative of Buyer with respect to Confidential
Information of Buyer (each, a “Buyer Contact”).  Each of Buyer and Seller and
Shareholders shall disclose the Confidential Information of the other party only
to its Representatives who require such material for the purpose of evaluating
the Contemplated Transactions and are informed by Buyer, Seller or Shareholders,
as the case may be, of the obligations of this Article 12 with respect to such
information.  Each of Buyer, Seller and Shareholders shall (iv) enforce the
terms of this Article 12 as to its respective Representatives; (v) take such
action to the extent necessary to cause its Representatives to comply with the
terms and conditions of this Article 12; and (vi) be responsible and liable for
any breach of the provisions of this Article 12 by it or its Representatives.

 

(b)           Unless and until this Agreement is terminated, Seller and each
Shareholder shall maintain as confidential any Confidential Information
(including for this purpose any information of Seller or Shareholders of the
type referred to in Sections 12.1(a)(i),

 

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(ii) and (iii), whether or not disclosed to Buyer) of the Seller or Shareholders
relating to any of the Assets or the Assumed Liabilities.  Notwithstanding the
preceding sentence, Seller may use any Confidential Information of Seller before
the Closing in the ordinary course of business in connection with the
transactions permitted by Section 5.2.

 

(c)           From and after the Closing, the provisions of Section 12.2(a)
above shall not apply to or restrict in any manner Buyer’s use of any
Confidential Information of the Seller or Shareholders relating to any of the
Assets or the Assumed Liabilities.

 

12.3.       Exceptions.  Sections 12.2(a) and (b) do not apply to that part of
the Confidential Information of a Disclosing Party that a Receiving Party
demonstrates (a) was, is or becomes generally available to the public other than
as a result of a breach of this Article 12 or any other agreements that pertain
to confidentiality executed by the Buyer, Seller, the Shareholders or any of the
Related Parties of each, by the Receiving Party or its Representatives; (b) was
or is developed by the Receiving Party independently of and without reference to
any Confidential Information of the Disclosing Party; or (c) was, is or becomes
available to the Receiving Party on a nonconfidential basis from a Third Party
not bound by a confidentiality agreement or any legal, fiduciary or other
obligation restricting disclosure.  Neither Seller nor either Shareholder shall
disclose any Confidential Information of Seller or Shareholders relating to any
of the Assets or the Assumed Liabilities in reliance on the exceptions in
clauses (b) or (c) above.

 

12.4.       Legal Proceedings.  If a Receiving Party becomes compelled in any
Proceeding or is requested by a Governmental Body having regulatory jurisdiction
over the Contemplated Transactions to make any disclosure that is prohibited or
otherwise constrained by this Article 12, that Receiving Party shall provide the
Disclosing Party with prompt notice of such compulsion or request so that it may
seek an appropriate protective order or other appropriate remedy or waive
compliance with the provisions of this Article 12.  In the absence of a
protective order or other remedy, the Receiving Party may disclose that portion
(and only that portion) of the Confidential Information of the Disclosing Party
that, based upon advice of the Receiving Party’s counsel, the Receiving Party is
legally compelled to disclose or that has been requested by such Governmental
Body, provided, however, that the Receiving Party shall use reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded by any
Person to whom any Confidential Information is so disclosed.  The provisions of
this Section 12.4 do not apply to any Proceedings between the parties to this
Agreement.

 

12.5.       Return or Destruction of Confidential Information.  If this
Agreement is terminated, each Receiving Party shall (a) destroy all Confidential
Information of the Disclosing Party prepared or generated by the Receiving Party
without retaining a copy of any such material; (b) promptly deliver to the
Disclosing Party all other Confidential Information of the Disclosing Party,
together with all copies thereof, in the possession, custody or control of the
Receiving Party or, alternatively, with the written consent of a Seller Contact
or a Buyer Contact (whichever represents the Disclosing Party) destroy all such
Confidential Information; and (c) certify all such destruction in writing to the
Disclosing Party, provided, however, that the Receiving Party may retain a list
that contains general descriptions of the information it has returned or
destroyed to facilitate the resolution of any controversies after the Disclosing
Party’s Confidential Information is returned.

 

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12.6.       Attorney-Client Privilege.  The Disclosing Party is not waiving, and
will not be deemed to have waived or diminished, any of its attorney work
product protections, attorney-client privileges or similar protections and
privileges as a result of disclosing its Confidential Information (including
Confidential Information related to pending or threatened litigation) to the
Receiving Party, regardless of whether the Disclosing Party has asserted, or is
or may be entitled to assert, such privileges and protections.  The parties
(a) share a common legal and commercial interest in all of the Disclosing
Party’s Confidential Information that is subject to such privileges and
protections; (b) are or may become joint defendants in Proceedings to which the
Disclosing Party’s Confidential Information covered by such protections and
privileges relates; (c) intend that such privileges and protections remain
intact should either party become subject to any actual or threatened Proceeding
to which the Disclosing Party’s Confidential Information covered by such
protections and privileges relates; and (d) intend that after the Closing the
Receiving Party shall have the right to assert such protections and privileges. 
No Receiving Party shall admit, claim or contend, in Proceedings involving
either party or otherwise, that any Disclosing Party waived any of its attorney
work-product protections, attorney-client privileges or similar protections and
privileges with respect to any information, documents or other material not
disclosed to a Receiving Party due to the Disclosing Party disclosing its
Confidential Information (including Confidential Information related to pending
or threatened litigation) to the Receiving Party.

 

13.          GENERAL PROVISIONS.

 

13.1.       Expenses.  Except as otherwise provided in this Agreement, each
party to this Agreement will bear its respective fees and expenses incurred in
connection with the preparation, negotiation, execution and performance of this
Agreement and the Contemplated Transactions, including all fees and expense of
its Representatives.  Seller will pay all amounts payable to the Title Insurer
in respect of the Title Commitments, copies of exceptions and the Title Policy,
including premiums (including premiums for endorsements) and search fees.  Buyer
will pay the HSR Act filing fee.  Buyer will pay the fees and expenses of
conducting the Phase I environmental assessment described in Section 7.9
hereof.  Buyer will pay one-half and Seller will pay one-half of any fees and
expenses incurred in connection with any further environmental review,
assessment or report deemed necessary, appropriate or desirable in the sole
discretion of Buyer.  If this Agreement is terminated, the obligation of each
party to pay its own fees and expenses will be subject to any rights of such
party arising from a breach of this Agreement by another party.

 

13.2.       Public Announcements.  Except as required by law, Buyer will not
make any public announcement, press release or similar publicity with respect to
this Agreement or the Contemplated Transactions prior to Closing, and Buyer
agrees to show any such announcement to Seller prior to its publication.  Except
with the prior consent of Buyer or as permitted by this Agreement, neither
Seller, Shareholders nor any of their Representatives shall disclose to any
Person (a) the fact that any Confidential Information of Seller or Shareholders
has been disclosed to Buyer or its Representatives, that Buyer or its
Representatives have inspected any portion of the Confidential Information of
Seller or Shareholders, that any Confidential Information of Buyer has been
disclosed to Seller, Shareholders or their Representatives or that Seller,
Shareholders or their Representatives have inspected any portion of the
Confidential Information

 

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of Buyer or (b) any information about the Contemplated Transactions, including
the status of such discussions or negotiations, the execution of any documents
(including this Agreement) or any of the terms of the Contemplated Transactions
or the related documents (including this Agreement).  Seller and Buyer will
consult with each other concerning the means by which Seller’s employees,
customers, suppliers and others having dealings with Seller will be informed of
the Contemplated Transactions, and Buyer will have the right to be present for
any such communication.

 

13.3.       Notices.  All notices, Consents, waivers and other communications
required or permitted by this Agreement may be given by counsel, shall be in
writing and shall be deemed given to a party 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 the following
addresses or facsimile numbers and marked to the attention of the person (by
name or title) designated below (or to such other address or facsimile number or
person as a party may designate by notice to the other parties):

 

Seller/Shareholders (before the Closing):

 

Sassy, Inc.

2101 Waukegan Rd., Suite 203

Bannockburn, Illinois  60015

Attention:  Fritz Hirsch

Fax no.:  (847)267-0210

 

with a mandatory copy to:

 

Vedder, Price, Kaufman & Kammholz

222 N. LaSalle Street, Suite 2400

Chicago, Illinois  60601

Attention:  Guy E. Snyder

Fax no.:  (312) 609-5005

 

Seller (after the Closing):

c/o Vedder, Price, Kaufman & Kammholz

222 N. LaSalle Street, Suite 2400

Chicago, Illinois  60601

Attention:  Guy E. Snyder

Fax no.:  (312) 609-5005

 

Shareholders (after Closing):

Robert B, Kaplan

357 County Road 58

Ten Sleep, Wyoming  82442

Fax no.:  (307) 366-2341

 

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Fritz Hirsch

Sassy, Inc.

2101 Waukegan Rd, Suite 203

Bannockburn, Illinois  60015

Fax no.:  (847)267-0210

 

Homer Douglas

2305 Brenton Industrial Park Dr., SE

Kentwood, Michigan  49508

Fax:  (616) 243-1042

 

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Stephen L. Rotblatt

Sassy, Inc.

2101 Waukegan Rd, Suite 203

Bannockburn, Illinois  60015

Fax no.:  (847)267-0210

 

with a mandatory copy to:

Vedder, Price, Kaufman & Kammholz

222 N. LaSalle Street, Suite 2400

Chicago, Illinois  60601

Attention:  Guy E. Snyder

Fax no.:  (312) 609-5005

 

Buyer: c/o Russ Berrie and Company, Inc.

111 Bauer Drive

Oakland, NJ  07436

Attention:  Chief Operating Officer

Fax no.:  201-405-2579

 

with a mandatory copy to: Russ Berrie and Company, Inc.

111 Bauer Drive

Oakland, NJ  07436

Attention:  General Counsel

Fax no.:  201-405-7377

 

and

 

Kaye Scholer LLP

425 Park Avenue

New York, NY  10022

Attention:  Joel Greenberg, Esq.

Fax no.:  212-836-7149

 

13.4.       Jurisdiction; Service of Process.  Any Proceeding arising out of or
relating to this Agreement or any Contemplated Transaction may be brought in the
courts of the State of Delaware, or, if it has or can acquire jurisdiction, in
the United States District Court for the District of Delaware, and each of the
parties irrevocably submits to the exclusive jurisdiction of each such court in
any such Proceeding, waives any objection it may now or hereafter have to venue
or to convenience of forum, agrees that all claims in respect of the Proceeding
shall be heard and determined only in any such court and agrees not to bring any
Proceeding arising out of or relating to this Agreement or any Contemplated
Transaction in any other court.  The parties agree that either or both of them
may file a copy of this paragraph with any court as written evidence of the
knowing, voluntary and bargained agreement between the parties irrevocably to
waive any objections to venue or to convenience of forum.  Process in any
Proceeding referred to in the first sentence of this Section may be served on
any party anywhere in the world.

 

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13.5.       Enforcement of Agreement.

 

(a)           Seller and Shareholders acknowledge and agree that Buyer would be
irreparably damaged if any of the provisions of this Agreement are not performed
in accordance with their specific terms and that any breach of this Agreement by
Seller or Shareholders could not be adequately compensated in all cases by
monetary damages alone.  Accordingly, in addition to any other right or remedy
to which Buyer may be entitled, at law or in equity, it shall be entitled to
enforce any provision of this Agreement by a decree of specific performance and
to temporary, preliminary and permanent injunctive relief to prevent breaches or
threatened breaches of any of the provisions of this Agreement, without posting
any bond or other undertaking.

 

(b)           Buyer acknowledges and agrees that Seller and Shareholders would
be irreparably damaged if any of the provisions of this Agreement are not
performed in accordance with their specific terms and that any breach of this
Agreement by Buyer could not be adequately compensated in all cases by monetary
damages alone.  Accordingly, in addition to any other right or remedy to which
Seller or Shareholders may be entitled, at law or in equity, such parties shall
be entitled to enforce any provision of this Agreement by a decree of specific
performance and to temporary, preliminary and permanent injunctive relief to
prevent breaches or threatened breaches of any of the provisions of this
Agreement, without posting any bond or other undertaking

 

13.6.       Waiver; Remedies Cumulative.  The rights and remedies of the parties
to this Agreement are cumulative and not alternative.  Neither any failure nor
any delay by any party in exercising any right, power or privilege under this
Agreement or any of the documents referred to in this Agreement will operate as
a waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege or the exercise of any other right, power or
privilege.  To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement or any of the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of that party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to in
this Agreement.

 

13.7.       Entire Agreement and Modification.  This Agreement supersedes all
prior agreements, whether written or oral, between the parties with respect to
its subject matter (including any letter of intent and any confidentiality
agreement between Buyer and Seller) and constitutes (along with the schedules
hereto, Exhibits and other documents delivered pursuant to this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter.  This Agreement may not be amended,
supplemented, or otherwise modified except by a written agreement executed by
the party to be charged with the amendment.

 

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13.8.       Schedules.

 

(a)           The information in the schedules constitutes (i) exceptions to
particular representations, warranties, covenants and obligations of Seller and
Shareholders as set forth in this Agreement or (ii) descriptions or lists of
assets and liabilities and other items referred to in this Agreement.  If there
is any inconsistency between the statements in this Agreement and those in the
schedules (other than an exception expressly set forth as such in such schedules
with respect to a specifically identified representation or warranty), the
statements in this Agreement will control.

 

(b)           The statements in the schedules hereto, and those in any
supplement to such schedules, relate only to the provisions in the Section of
this Agreement to which they expressly relate (and also to those provisions to
which their relevance is manifest on its face) and not to any other provision in
this Agreement.

 

13.9.       Assignments, Successors and No Third-Party Rights.  No party may
assign any of its rights or delegate any of its obligations under this Agreement
or the Guarantee without the prior written consent of the other parties, except
that Buyer may assign any of its rights under this Agreement to any Subsidiary
of Buyer without the consent of any party, provided, however, that no such
assignment shall relieve the Buyer of its obligations hereunder (or RB of its
obligations under the Guarantee).  Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon and inure to the
benefit of the successors and permitted assigns of the parties.  Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy or
claim under or with respect to this Agreement or any provision of this Agreement
(including the Guarantee), except such rights as shall inure to a successor or
permitted assignee pursuant to this Section 13.9.

 

13.10.     Severability.  If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect.  Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.

 

13.11.     Construction.  The headings of Articles and Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation.  All references to “Articles” and “Sections” refer to the
corresponding Articles and Sections of this Agreement.

 

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13.12.     Governing Law.  This Agreement will be governed by and construed
under the laws of the State of Delaware without regard to conflicts-of-laws
principles that would require the application of any other law.

 

13.13.     Execution of Agreement.  This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.  The exchange of copies of this Agreement and of
signature pages by facsimile transmission shall constitute effective execution
and delivery of this Agreement as to the parties and may be used in lieu of the
original Agreement for all purposes.  Signatures of the parties transmitted by
facsimile shall be deemed to be their original signatures for all purposes.

 

13.14.     Shareholder Obligations.  Where in this Agreement provision is made
for any action to be taken or not taken by Seller, Shareholders each severally
undertake to cause Seller to take or not take such action, as the case may be.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

 

RBSACQ, INC.

 

Shareholders:

 

 

 

By:

/s/ Thomas Bowles

 

 

 

 

 

ROBERT KAPLAN

 

 

 

SASSY, INC.

 

 

 

 

 

FRITZ HIRSCH

By:

 

 

 

 

 

 

 

 

 

STEVE ROTBLATT

 

 

 

 

 

 

 

 

 

HOMER DOUGLAS

 

GUARANTEE

 

The undersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of
(i) the Cash Consideration to Seller in accordance with the terms and provisions
hereof, as adjusted pursuant to the terms hereof; (ii) any payments required
under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments required under the
Employment Agreements; (iv) Liabilities described in Section 2.4 (a)(i); (v)
amounts required to maintain the insurance policies set forth in Schedule 7.4(c)
until the third anniversary of the Closing Date and fulfill the covenant set
forth in Section 10.12 and (vi) amounts required under Section 11.4(g).  This
guarantee is of payment and not performance.

 

Dated: July 26, 2002

RUSS BERRIE AND COMPANY, INC.

 

 

 

 

By:

/s/ Thomas Bowles

 

 

 

Name: Thomas Bowles

 

 

Title: COO

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

 

RBSACQ, INC.

 

Shareholders:

 

 

 

By:

 

 

/s/ Robert Kaplan

 

 

 

ROBERT KAPLAN

 

 

 

SASSY, INC.

 

 

 

 

 

FRITZ HIRSCH

By:

 

 

 

 

 

 

 

 

 

STEVE ROTBLATT

 

 

 

 

 

 

 

 

 

HOMER DOUGLAS

 

GUARANTEE

 

The undersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of
(i) the Cash Consideration to Seller in accordance with the terms and provisions
hereof, as adjusted pursuant to the terms hereof; (ii) any payments required
under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments required under the
Employment Agreements; (iv) Liabilities described in Section 2.4 (a)(i); (v)
amounts required to maintain the insurance policies set forth in Schedule 7.4(c)
until the third anniversary of the Closing Date and fulfill the covenant set
forth in Section 10.12 and (vi) amounts required under Section 11.4(g).  This
guarantee is of payment and not performance.

 

Dated:                  , 2002

RUSS BERRIE AND COMPANY, INC.

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

 

RBSACQ, INC.

 

Shareholders:

 

 

 

By:

 

 

 

 

 

 

ROBERT KAPLAN

 

 

 

SASSY, INC.

 

/s/ Fritz Hirsch

 

 

 

FRITZ HIRSCH

By:

/s/ Fritz Hirsch

 

 

 

 

/s/ Steve Rotblatt

 

 

 

STEVE ROTBLATT

 

 

 

 

 

 

 

 

 

HOMER DOUGLAS

 

GUARANTEE

 

The undersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of
(i) the Cash Consideration to Seller in accordance with the terms and provisions
hereof, as adjusted pursuant to the terms hereof; (ii) any payments required
under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments required under the
Employment Agreements; (iv) Liabilities described in Section 2.4 (a)(i); (v)
amounts required to maintain the insurance policies set forth in Schedule 7.4(c)
until the third anniversary of the Closing Date and fulfill the covenant set
forth in Section 10.12 and (vi) amounts required under Section 11.4(g).  This
guarantee is of payment and not performance.

 

Dated:                  , 2002

RUSS BERRIE AND COMPANY, INC.

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

 

RBSACQ, INC.

 

Shareholders:

 

 

 

By:

 

 

 

 

 

 

ROBERT KAPLAN

 

 

 

SASSY, INC.

 

 

 

 

 

FRITZ HIRSCH

By:

 

 

 

 

 

 

 

 

 

STEVE ROTBLATT

 

 

 

 

 

/s/ Homer Douglas

 

 

 

HOMER DOUGLAS

 

GUARANTEE

 

The undersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of
(i) the Cash Consideration to Seller in accordance with the terms and provisions
hereof, as adjusted pursuant to the terms hereof; (ii) any payments required
under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments required under the
Employment Agreements; (iv) Liabilities described in Section 2.4 (a)(i); (v)
amounts required to maintain the insurance policies set forth in Schedule 7.4(c)
until the third anniversary of the Closing Date and fulfill the covenant set
forth in Section 10.12 and (vi) amounts required under Section 11.4(g).  This
guarantee is of payment and not performance.

 

Dated:                  , 2002

RUSS BERRIE AND COMPANY, INC.

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

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