**Exhibit10.86**

 

AGREEMENT

 

Agreement,dated as of April 9, 2004, between Russ Berrie and Company, Inc. (togetherwith its successors and assigns, the “Company”) and Andrew R. Gatto (the“Executive” and, together with the Company, the “Parties”).

 

Effectiveas of June 1, 2004 or such earlier date as the Parties may mutually agree(the “Commencement Date”), the Executive shall beemployed by the Company as its President and Chief Executive Officer, on theterms and conditions set forth herein. His employment by the Company shall be on an “at will” basis and shallbe subject to termination by the Company or the Executive, with or withoutCause or Good Reason (as defined below), with the consequences provided in thisAgreement.  Certain terms used in thisAgreement are defined in Section 8.

 

TheParties intending to be legally bound hereby agree as follows:

 

# 1.                                       POSITION; DUTIES

 

TheExecutive shall be employed as President and Chief Executive Officer of theCompany, commencing as of the Commencement Date.  He shall have the authorities andresponsibilities customarily associated with such status in a company of thesize and structure of the Company, including the right to approve the hiringand/or termination of any employee of the Company or its subsidiaries.  He shall report directly to the Board ofDirectors of the Company (the “Board”) and shall have ultimate responsibilityfor all the Company’s current and future operations in the U.S. and abroad,which currently include:

 

## •                                          Russ North America

 

## •                                          Russ International

 

## •                                          Russ Far East

 

## •                                          Sassy

 

## •                                          Bright of America

 

TheExecutive shall devote substantially all of his business time, effort andenergies to the business of the Company; provided, however, thatnotwithstanding the foregoing, he may (a) serve on the board of directors of areasonable number of trade associations and/or charitable organizations, (b)engage in charitable activities and community affairs, (c) accept and fulfill areasonable number of speaking engagements and (d) manage his personal investmentsand affairs, as long as such activities do not individually or in the aggregateinterfere with the proper performance of his duties and responsibilities forthe Company in any material respect; provided further, that he may serve on theboard of directors of any for-profit business entity, but only with the priorwritten consent of the Chairman of the Board or the Chairman of the ExecutiveCommittee of the Board, which consent will not be unreasonably withheld ordelayed if the Chairman of the Board or the Chairman of the Executive Committeeof the Board, as applicable,

 

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concludes in his discretion that such service will notinterfere with the proper performance of the Executive’s duties hereunder.

 

# 2.                                       COMPENSATION AND BENEFITS.                                               Subject in each case to theprovisions of Section 3 of this Agreement in the event that his employmenthereunder terminates, the Executive shall be entitled to the followingcompensation and benefits with respect to the period during which he isemployed hereunder:

 

### (A)                              Base Salary.  The Company shall pay the Executive an annualbase salary of $650,000 (“Base Salary”), payable in accordance with theCompany’s usual payroll practices.  TheCompensation Committee of the Board may consider an increase of Base Salaryannually in its discretion.  The BaseSalary shall not be decreased, at any time or for any purpose (including forthe purpose of determining entitlements under Section 3) during theExecutive’s employment hereunder.

 

### (B)                                Incentive Compensation.  The Executive shall participate in theCompany’s Incentive Compensation Program (the “IC Program”), on the terms andconditions set forth in Annex I hereto, which is incorporated by referenceherein.

 

### (C)                                Merit Bonus.  The Executive shall receive an annual MeritBonus in a maximum amount equal to 20% of his Base Salary (the “MB”), in theevent that a set of strategic objectives determined annually by theCompensation Committee in its discretion (after discussion with the Executive)are achieved. The amounts payable as the MB will be determined by theCompensation Committee in its discretion in good faith.  The MB for 2004, if any, will be pro-rated bymultiplying the amount otherwise payable by a fraction, the numerator of whichis the number of days from the Commencement Date through December 31, 2004(inclusive) and the denominator of which is 366.  The MB will be paid no later thanMarch 31st in the year following the year in respect of which the MB hasbeen earned.

 

### (D)                               Super-Bonus.  The Executive shall receive a one-time “super-bonus”(the “SB”), to the extent provided under the terms and conditions set forth inAnnex II hereto, which is incorporated by reference herein.

 

### (E)                                 Stock Options.  On the Commencement Date, the Company willgrant the Executive (i) a stock option under the Company’s 2004 Stock Option,Restricted and Non-Restricted Stock Plan (the “2004 Plan”) to purchase 100,000shares of Company stock and (ii) a stock option outside of the  2004 Plan to purchase 150,000 sharesof Company stock, in each case at the closing market price on the date of grant(collectively, the “Option”). The Option shall be evidenced by stock optionagreements in the form of Exhibit C. The number of shares underlying the Optionwill be adjusted to the extent appropriate under the principles set forth inSection 4 of the stock option agreements for relevant events occurring inbetween the date of this Agreement and the Commencement Date.  Additional option grants will be consideredby the Board no less frequently than triennially, in its discretion.

 

### (F)                                 Perquisites.  The Company shall reimburse the Executive forthe cost of leasing and operating an automobile selected by the Executive,subject to a maximum reimbursement of $1,400 per month.  The Company shall also bear or reimburse theExecutive

 

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### for the cost of insurance for that automobile.  The Executive shall also be entitled toreceive any other perquisites provided to other senior executives of theCompany, on terms no less favorable than those provided by the Company to anyother such executive.

 

### (G)                                Expense Reimbursement.

 

#### (1)                                  The Company shall reimbursethe Executive for business expenses reasonably incurred by him in theperformance of his duties with the Company, in accordance with the Company’susual practices.  Notwithstanding theforegoing, the limitations on travel expenses set forth in the Company EmployeeHandbook shall not be applicable to the Executive, provided, however, that inthe event that the Executive travels with other executives of the Company, hewill travel in the same class and, unless he determines that the difference iswarranted by business considerations, be provided with similar accommodations.

 

#### (2)                                  The Company shall promptlyreimburse the Executive for all legal fees and expenses incurred in negotiatingand documenting his employment arrangement with the Company (up to a maximumaggregate payment of $40,000).

 

### (H)                               Other Benefits.

 

##### (i)                                     *Group Health, Life, Accidentand Disability Insurance Plans.*

 

After90 days of continuous employment, the Executive will be entitled to participatein: (a) the Company’s contributory group health plan; and (b) the Company’snon-contributory life insurance plan, long term disability plan, businesstravel insurance plan, accidental death and dismemberment plan. In addition,the Company will pay any COBRA premiums payable by the Executive for coverageunder his prior employer’s health plans through the date he becomes entitled toparticipate in the Company’s health plan (i.e., the 90th day following theCommencement Date).  The Company willalso pay for an annual executive physical examination for the Executive.  In addition, in the event the Executive procuresan umbrella long term disability policy which pays the Executive up to 50% ofhis Base Salary through age 62, the Company will pay the lesser of (x) 50% ofthe premiums due on such policy prior to the termination of the Executive’semployment hereunder and (y) $6,000 per year.

 

##### (ii)                                  *Dental Insurance Plan.*

 

Aftertwelve months of continuous employment, the Executive will be entitled toparticipate in the Company’s contributory dental insurance plan.

 

##### (iii)                               *Employee Assistance Program.*

 

Commencingon the Commencement Date, the Executive will be entitled to participate in theCompany’s non-contributory Employee Assistance Program.

 

##### (iv)                              *Voluntary**Benefits Program.*

 

After90 days of continuous employment, the Executive will be entitled to participatein the Company’s voluntary benefits program which consists of the followingofferings: (a)

 

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Flexible Spending Account, (b)additional Short Term Disability coverage and (c) personal accident policy.

 

##### (v)                                 *401(k) Plan.*

 

Aftersix months of continuous employment, the Executive will be entitled toparticipate in the Company’s 401(k) plan based on its current provisions.  The Company’s contribution to the Executive’s401(k) account fully vests over a period of four years of employment.

 

##### (vi)                              *Executive Deferred  Compensation Plan.*

 

Within30 days of the Commencement Date, the Executive will be entitled to participatein the Company’s Executive Deferred Compensation Plan.

 

##### (vii)                           *Director’s and Officer’sInsurance and Indemnification.*  TheExecutive will be provided with director’s and officer’s liability insurancecoverage during his employment with the Company, and for six years thereafter,on terms and conditions (including scope, deductibles, etc.) no less favorableto the Executive than those then enjoyed by any other present, or former, directoror officer of the Company.  The Executiveshall also be entitled to prompt indemnification, and prompt advancement ofexpenses, with respect to any claim that arises out of, or relates to, hisemployment by (or services on behalf of) the Company, in each case to thefullest extent permissible under New Jersey law.

 

##### (viii)                        *Vacation.*

 

TheExecutive will be entitled to three weeks vacation annually to be taken attimes determined by the Executive which do not unreasonably interfere with theperformance of his duties hereunder.  Anyvacation time not taken during any year may be carried over to subsequent yearsonly if permitted by Company policy, and if so permitted, in accordance withany such policy.

 

##### (ix)                                *Life Insurance Benefit.*

 

TheCompany will supplement the Executive’s Company Life Insurance Benefit offeredto all executives with a Company-paid key man term life insurance policy (thebeneficiary of which is to be designated by the Executive) in an additionalamount equal to the lesser of (x) $3,500,000 and (y) the maximum amount thatcan be purchased for a premium of $15,000 annually.  The Executive will cooperate with thereasonable requirements of the insurer to obtain such coverage.

 

##### (x)                                   *General.*

 

TheExecutive will be entitled to participate in the plans and programs describedin clauses (i)-(vii) above, and any other employee benefit programs applicableto senior executives generally, in each case at a level, and on terms andconditions consistent with his position, and no less favorable than thoseprovided to other senior executives.

 

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### (I)                                    Additional Participation.  The Executive shall be eligible to receiveadditional equity and other long-term incentive awards during his employmenthereunder at the discretion of the Compensation Committee.

 

### (J)                                   Exclusion of Other Benefits.

 

Theterms of this Agreement are intended to be in lieu of, and not in addition to,the following benefits which the Company has made available to otherexecutives, and accordingly, the Executive shall not be entitled to (i)participate in the Company’s Change in Control Severance Plan, (ii) participatein the Company’s general severance policy applicable to domestic vicepresidents and above or (iii) receipt of a retention letter of the typecurrently outstanding with respect to eleven of its officers regarding a changein control of the Company.

 

# 3.                                       CONSEQUENCES OF TERMINATION

 

### (A)                              Termination for Cause orAbsence of Good Reason.

 

Ifthe Executive’s employment under this Agreement is at any time terminated bythe Company for Cause, or by the Executive without Good Reason (and not onaccount of death or Disability), the Executive will be entitled to receive thefollowing (promptly following such termination in the case of clause (i) andsubject to terms relating to the time of payment specified herein or in theannexes hereto in the case of clause (ii) below):

 

(i)                                     Base Salary earned throughthe date that the Executive’s employment hereunder terminates (the “TerminationDate”);

 

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

 

###### (iii)                               Other amounts and benefits, if any, in accordancewith the applicable terms of any applicable plan, program, corporate governancedocument, policy, agreement or arrangement of the Company (collectively,“Company Arrangements”).

 

Inaddition, any unvested portion of the Option shall immediately terminate andany unexercised, vested portion of the Option shall remain exercisable for theshorter of 30 days and the remainder of the ten-year term of such Option.

 

Asof the Termination Date, except as set forth above, the rights of the Executiveto the accrual, payment and/or receipt of any other compensation or benefitsdescribed under Section 2 of this Agreement, including, but not limitedto, any award under the IC Program, any Guaranteed Amount (as defined in AnnexI), or any payment of any MB or SB, shall immediately cease.

 

### (B)                                Termination without Cause orwith Good Reason

 

#### (1)                                  If the Executive’semployment under this Agreement is terminated by the Company without Cause orby reason of the Disability of the Executive, or by the Executive for GoodReason (whether or not in connection with a change of control), or by reason ofthe

 

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#### Executive’s death (each, a “Qualified Termination”), the Executiveshall be entitled to receive the following:

 

###### (i)                                     Base Salary earned through the TerminationDate;

 

###### (ii)                                  Bonus amounts earned for any prior year or periodand not yet paid;

 

###### (iii)                               Other benefits, if any, in accordance with theapplicable terms of any applicable Company Arrangement.

 

###### (iv)                              Prompt payment when due of an amount equal to 200% of hisannual Base Salary at the time of the Qualified Termination;

 

###### (v)                                 (x)  if aQualified Termination occurs on or prior to the second anniversary of theCommencement Date, payment of (A) an amount equal to the pro-rata portion(determined by multiplying the relevant amount by a fraction, the numerator ofwhich shall equal the number of days the Executive was employed in the year oftermination and the denominator of which is 365) of the IC Award (as defined inAnnex I) otherwise payable to the Executive for the year in which suchtermination occurs, determined using a Target Percentage (as defined in AnnexI) of 100% and (B) an amount equal to 200% of the IC Award (as defined in AnnexI) otherwise payable to the Executive for the full year in which suchtermination occurs, determined using a Target Percentage (as defined in AnnexI) of 100%, and (y) if a Qualified Termination occurs after the secondanniversary of the Commencement Date, payment of (A) an amount equal to thepro-rata portion (determined by multiplying the relevant amount by a fraction,the numerator of which shall equal the number of days the Executive wasemployed in the year of termination and the denominator of which is 365) of theIC Award (as defined in Annex I) otherwise payable to the Executive for theyear in which such termination occurs, determined using the actual TargetPercentage (as defined in Annex I) achieved in the year in which thetermination occurs and (B) an amount equal to 200% of the IC Award actuallypaid to the Executive with respect to the last full fiscal year of hisemployment hereunder.  Notwithstandingthe foregoing, if the Qualified Termination occurs during 2004, the amountpayable pursuant to clause (x)(A) above shall be no less than the 2004Guaranteed Amount, and if the Qualified Termination occurs during 2005, theamount payable pursuant to clause (x)(A) above shall be no less than the 2005Guaranteed Amount (each as defined in Annex I);

 

###### (vi)                              An amount equal to the MB that would have beenearned by the Executive for the year of termination had his employment notterminated, as determined by the Compensation Committee in its discretion ingood faith, but prorated (by multiplying that amount by a fraction, thenumerator of which shall equal the number of days the Executive was employed inthe

 

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###### year of termination and thedenominator of which is 365) to reflect his termination.

 

###### (vii)                           If a Qualified Termination occurs at any time duringor after the second year of any two year period in respect of which the SBwould have been earned had the Executive’s employment not terminated, theExecutive will be entitled to an amount equal to the SB amount otherwisepayable to the Executive multiplied by a fraction, the numerator of which shallequal the number of days the Executive was employed during the two years inrespect of which the SB would have been earned and the denominator of which is730.  For avoidance of doubt, if theemployment of the Executive is terminated for any reason prior to commencementof such second year, the Executive shall not be entitled to any portion of theSB.

 

Anyamounts payable pursuant to clause (i) of this paragraph (B) shall be paidpromptly after the Termination Date with respect to the Qualified Termination;and amounts payable pursuant to clause (ii) of this paragraph (B) shall be paidin accordance with the payment terms specified herein or in the annexes hereto;any amounts payable under clause (iii) of this paragraph (B) shall be paid,promptly when due; any amounts payable pursuant to clause (iv) of thisparagraph (B) shall be paid in 24 equal monthly installments, commencing themonth after the termination occurs; any amounts payable pursuant to clause(vii) of this paragraph (B) shall be paid as described in Annex II; any otheramounts payable under this paragraph (B) shall be payable no later thanMarch 31st in the year following the year in which the QualifiedTermination occurs.  In order to receiveany payments or benefits under Section 3(B) of this Agreement, theExecutive must execute and deliver to the Company a release in substantiallythe form of Exhibit A, which release shall become effective only if it iscountersigned by an authorized officer of the Company, and returned to theExecutive, within ten business days after it is received by the Company.  All amounts payable hereunder shall bewithout interest if paid when due.

 

Inaddition, in the event of a Qualified Termination, the unexercised portion ofthe Option whether or not vested, shall become vested and immediatelyexercisable for a period of two years from the Qualified Termination or theremainder of the ten-year term of the Option, whichever is shorter,notwithstanding anything to the contrary in the Company’s 2004 Stock Option,Restricted and Non-Restricted Stock Plan.

 

Asof the termination date, except as set forth above, the rights of the Executiveto the accrual, payment and/or receipt of any other compensation or benefitsdescribed under Section 2 of this Agreement shall immediately cease.

 

#### (2)                                  Benefits.

 

Notwithstandinganything to the contrary in paragraph (1) above, the Company shall, through thesecond anniversary of the Qualified Termination, continue to provide to theExecutive medical and other insurance benefits, in each case to the extent andon substantially the same basis as provided immediately prior to the QualifiedTermination (disregarding any reduction described in clause (B) of thedefinition of Good Reason)**.**

 

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#### (3)                                  Parachute Payments

 

Ifthe Executive’s receipt of any payment and/or non-monetary benefit under thisAgreement that constitutes a “parachute payment” for purposes of determiningthe amount of any excise tax due under Section 4999 of the InternalRevenue Code of 1986, as amended (the “Code”) (collectively, the “PlanPayments”) would cause him to become subject to any such excise tax, theCompany shall reduce the cash portion of his Plan Payments to the extentnecessary to avoid the application of such excise tax if (i) the requiredreduction does not exceed 10% of the aggregate amount of the Plan Payments and(ii) as a result of such reduction, the net benefits to the Executive of thePlan Payments as so reduced (after payment of applicable income, excise andother taxes thereon) exceeds the net benefit to the Executive of the PlanPayments without such reduction (after payment of applicable income taxes,excise and other taxes thereon). If a reduction in Plan Payments in the amountpermitted by clause (i) is insufficient to avoid the application of such excisetax, then the provisions of “Exhibit B,” attached hereto and incorporatedherein, shall apply to the Executive.

 

### (C)                                No Mitigation; No Offset

 

Inthe event of any termination of the employment of the Executive hereunder, theExecutive shall be under no obligation to seek other employment, and thereshall be no offset against any amounts due him (other than as expresslyprovided herein) on account of any remuneration attributable to any subsequentemployment that he may obtain or any claims the Company or any of itsaffiliates may have against him.

 

# 4.                                       CONFIDENTIALITY

 

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

 

Upontermination of his employment with the Company, the Executive shall return tothe Company all confidential, proprietary and non-public materials, and anyother property of the Company, in his possession.  The personal property of the Executive,including his rolodex,

 

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documents relating to his benefits, compensation, taxliabilities, personal obligations (e.g., restrictive covenants), and the like,shall not be subject to return pursuant to the preceding sentence.

 

# 5.                                       NON-COMPETE; NONSOLICITATION

 

TheExecutive agrees that during his employment by the Company and for two yearsthereafter he shall not personally (i) directly or indirectly, engage or beinterested in (as owner, partner, stockholder, employee, director, officer,agent, fiduciary, consultant or otherwise), with or without compensation, anybusiness engaged in the manufacture, distribution, promotion, design, marketing,merchandising or sale of gift, novelty, home décor or baby/infant products, or(ii) directly or indirectly, solicit the employment or retention of (orattempt, directly or indirectly, to solicit the employment or retention of orparticipate in or arrange the solicitation of the employment or retention of)any person who is to his knowledge then employed or retained by the Company, orby any of its subsidiaries or affiliates. Notwithstanding the foregoing, nothing in this Section 5 shallprohibit the Executive from (i) performing services, with or withoutcompensation, for any business or entity, that do not directly relate tobusiness activities that compete directly and materially with a materialbusiness of the Company or its subsidiaries or (ii) acquiring or holding notmore than five percent of any class of publicly-traded securities of anybusiness.

 

# 6.                                       NONDISPARAGEMENT

 

TheExecutive shall, after his employment with the Company has terminated, refrainfrom any action that could reasonably be expected to harm the reputation orgoodwill of the Company, its subsidiaries or affiliates, including, withoutlimitation, making derogatory comments about the character or ability of theCompany or its directors, officers, employees, agents or representatives.

 

TheCompany shall, after the employment of the Executive with the Company hasterminated, refrain from any action that could reasonably be expected to harmthe reputation of the Executive, including, without limitation, makingderogatory comments about the character or ability of the Executive.

 

# 7.                                       REMEDY FOR BREACH ANDMODIFICATION

 

TheExecutive acknowledges that the provisions of this Agreement are reasonable andnecessary for the protection of the Company and that the Company may beirreparably damaged if these provisions are not specifically enforced.  Accordingly, the Executive agrees that, inaddition to any other relief or remedies available to the Company, the Companyshall be entitled to seek appropriate temporary, preliminary and permanentinjunctive or other equitable relief for the purposes of restraining theExecutive from any actual or threatened breach of or otherwise enforcing theseprovisions and no bond or security will be required in connectiontherewith.  In addition, notwithstandingany provision in this Agreement to the contrary, if the Executive breaches anyof the provisions of Sections 4, 5 or 6 of this Agreement at any time and suchbreach is either (x) willful and not inconsequential or (y) in a materialrespect and not cured

 

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promptly after notice from the Company, he shall notthereafter be entitled to any payments or benefits under this Agreement,including any annexes hereto.

 

# 8.                                       DEFINITIONS

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“Cause”shall mean: (A) wrongful refusal, or repeated willful failure, by the Executiveto perform his duties hereunder as an employee of the Company; (B) in carryingout his duties, the Executive engages in conduct that constitutes willful grossneglect, willful gross misconduct, willful fraud with regard to the Company orits assets; or (C) conviction of, or the pleading of guilty or nolo contendereto, a felony.  No termination of theExecutive’s employment shall be treated as for “Cause” unless, prior to suchtermination: (i) the Executive has been provided written notice from the Boardor the Executive Committee of the Board setting forth the basis on which theBoard is considering terminating his employment for “Cause” (a “Cause Notice”);(ii) the Executive has been afforded a review by the Board, including a hearingbefore the Board within 14 days following his receipt of such Cause Notice,provided, that the Executive requests such hearing within 7 days of receipt ofsuch Cause Notice; and (iii) within 10 days after the later of such review andsuch hearing (if any), the Board confirms, by affirmative vote of a majority ofits members and on written notice to the Executive, that “Cause” exists.

 

“Disability”shall mean a physical or mental incapacity of the Executive which renders himtotally and permanently incapable of performing his duties for the Company,provided that proof of disability under the Federal Social Security Act shallbe conclusive evidence of Disability hereunder.

 

“GoodReason” shall mean the attainment by the Executive of his Normal Retirement Age(as defined on the date of his retirement under the Company’s 401(k) plan, orthe occurrence of any of the following events without the Executive’s expresswritten consent and without full cure by the Company on 15 days’ written noticefrom the Executive describing the “Good Reason” event he believes has occurredand requesting cure *(provided*, thatfor the avoidance of doubt, if full cure is made by the Company within 15 daysof such notice, a “Good Reason” event shall be deemed not to have occurred):(A) material diminution in the Executive’s position, status, responsibilitiesor authorities; (B) a material reduction in the Executive’s aggregatecompensation or benefits; (C) the Company’s requiring the Executive to relocatethe Executive’s office outside of the Northern New Jersey suburbs; (D) anyfailure to make the Executive a member of the Board no later than 15 days afterthe Commencement Date, or to thereafter maintain him as a member of the Boardduring his employment hereunder; (E) any material breach by the Company of anymaterial term of this Agreement (including its attachments**);**(F) the occurrence of a Change in Control of the type defined inclause (A) (except that for this purpose the reference to “25%” therein shall bedeemed to be “50.1%), clause (C) or clause (D) of the definition of Change ofControl in the Company’s Change of Control Severance Plan on the date of thisAgreement (provided that the Executive remains employed with the Company forsix months thereafter)**;** or (G) anyfailure to promptly obtain the assumption of this Agreement by any successor toall or substantially all of the business or assets of the Company.  A termination for “Good Reason” shall beeffected by the Executive giving at least 15 day’s written notice of suchtermination after a Good Reason event has occurred.

 

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Anydetermination that “Cause” or “Good Reason” exists shall be subject to de novoreview in arbitration pursuant to Section 11(B) below.

 

# 9.                                       SEVERABILITY

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Ifany provision of this Agreement is deemed invalid or unenforceable, suchprovision shall be deemed modified and limited to the extent necessary to makeit valid and enforceable.

 

# 10.                                 COUNTERPARTS; FACSIMILIES

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ThisAgreement may be executed in two or more counterparts, each of which shall beconsidered an original, but all of which together shall constitute the sameinstrument.  Signatures delivered byfacsimile shall be effective for all purposes.

 

# 11.                                 GOVERNING LAW; JURISDICTION; ARBITRATION

#  

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

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### (B)                                Any claim or dispute arisingout of or relating to this Agreement, or the breach, termination or validity ofthis Agreement, or the Executive’s employment with the Company or thetermination thereof (a “Dispute”), shall, except to the extent otherwiseprovided in Section 11(C) below with respect to certain claims forinjunctive relief, be submitted for de novo review in arbitration in accordancewith the procedures set forth in this Section 11(B).  A party that wishes to initiate thearbitration of a Dispute (the “Initiating Party”) shall give notice of itsdemand for arbitration to the other party (or parties); that notice mustinclude a description of the Dispute in reasonable detail and a specificdescription of the relief sought by the Initiating Party, including a proposedform of award by the arbitrator.  Withinten days after that notice is given, the other party or parties (each, a“Responding Party”) shall give notice to the Initiating Party including astatement as to whether it wishes to submit to the arbitration a Dispute thatvaries from, or is in addition to, the Dispute described in the InitiatingParty’s notice and a specific description of the relief sought by theResponding Party, including a proposed form of award by the arbitrator.  If a Responding Party’s notice describes aDispute that varies from, or is in addition to, the Dispute described in theInitiating Party’s notice, the Initiating Party may, by notice to theResponding Party within five days after the Responding Party’s notice is given,modify the description of its requested relief, including the proposed form ofaward by the arbitrator, to take account of the Dispute as described in theResponding Party’s notice.  Thearbitration shall be conducted in New Jersey before a single arbitrator inaccordance with the rules of the American Arbitration Association (at theoffices of the American Arbitration Association nearest to the principalexecutive offices of the Company), provided that all appropriately documentedcosts (including reasonable attorneys fees and expenses) of any sucharbitration are to be paid by the Company promptly as incurred, subject toprompt reimbursement to the Company by the Executive of the fees and expensesof his counsel to the extent that his claims and defenses are found by thearbitrator to lack reasonable basis.

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### (C)                                Notwithstanding theforegoing, either Party may seek to enforce, through injunctive or similarrelief, any provision of Sections 4, 5 or 6 of this Agreement in the courts of

 

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### the State of New Jersey, or if it has or can acquire jurisdiction, inthe United States District Court for the District of New Jersey, and each ofthe Parties hereby consents to the jurisdiction of such courts (and the appropriateappellate courts) and waives any objection to venue laid therein.  Process in any action or proceeding referredto in the preceding sentence may be served on either Party anywhere in theworld, whether within or without the State of New Jersey.

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# 12.                                 NOTICES

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

 
| To the Executive, at his  principal residence as reflected in  the records of the Company, with a copy to him at his  principal business office during his employment with the  Company: |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| with a simultaneous copy to:                                                                                                                                                             |
|                                                                                                                                                                                     |
| Morrison Cohen Singer &  Weinsten, LLP                                                                                                                                               |
| 750 Lexington Avenue                                                                                                                                                                     |
| New York, NY  10022                                                                                                                                                                 |
| Attention:                                                                                                                                                                               | Robert M. Sedgwick, Esq. |
| Fax No.: 212-735-8708                                                                                                                                                                    |
|                                                                                                                                                                                     |
| To the Company:                                                                                                                                                                          |
| 111 Bauer Drive                                                                                                                                                                          |
| Oakland, NJ 07436                                                                                                                                                                        |
| Attention:                                                                                                                                                                               | Arnold S. Bloom, Esq. |
|                                                                                                                                                                                     | General Counsel |
| Fax No.:(201)  405-7377                                                                                                                                                                  |
|                                                                                                                                                                                     |
| with a simultaneous copy to:                                                                                                                                                             |
|                                                                                                                                                                                     |
| Kaye Scholer LLP                                                                                                                                                                         |
| 425 Park Avenue                                                                                                                                                                          |
| New York, New York  10022                                                                                                                                                           |
| Attention:                                                                                                                                                                               | Joel I. Greenberg, Esq. |
| Fax No.: 212-836-8211                                                                                                                                                                    |

 

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# 13.                                 ENTIRE AGREEMENT; AMENDMENT

 

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

 

# 14.                                 WAIVER

 

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

 

# 15.                                 ASSIGNMENT

 

Except as otherwise provided in this Section 15,this Agreement shall inure to the benefit of and be binding upon the Partiesand their respective heirs, representatives, successors and assigns.  This Agreementshall not be assignable by the Executive, and shall be assignable by theCompany only to any corporation or other entity that succeeds to all, orsubstantially all, of the Company’s business or assets, and that expresslyassumes (or assumes by operation of law in any merger or consolidation) theCompany’s obligations hereunder.  In theevent of the Executive’s death or a judicial determination of his incapacity,references in this Agreement (including its attachments) to the “Executive”shall be deemed to include, as appropriate, his estate, heirs and/or legalrepresentatives.

 

# 16.                                 AUTHORITY

 

TheCompany represents and warrants that it has the power, authority and right toenter into this Agreement and to carry out and perform the terms, covenants andconditions hereof.  The Executiverepresents and warrants that to the best of his knowledge and belief, he is notsubject to any contractual or other commitment (including commitments relatingto notice of resignation) that he has not disclosed to the Company and thatwould be breached by the Executive by his performance of this Agreement.  Notwithstanding anything in this Agreement tothe contrary, this Agreement shall not become effective (x) until the Executive’spresent employer executes and delivers to him a waiver letter in the formpreviously provided to the Company or otherwise satisfactory to the Company andthe Executive provides the Company with a copy of such letter and (y) unlessthe condition specified in clause (x) is satisfied on or before June 1,2004.

 

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# 17.                                 CODES

#  

TheBoard has adopted a Code of Business Conduct and Ethics and a Code of Ethicsfor Principal Executive Officer and Senior Financial Officers.  The Executive is expected to requirecompliance with those codes by the employees covered thereby and to complyhimself.

 

# 18.                                 DEDUCTIONS

 

TheCompany may deduct from the compensation described herein any applicableFederal, state and/or city withholding taxes, any applicable social securitycontributions, and any other amounts which may be required to be deducted orwithheld by the Company pursuant to any Federal, state or city laws, rules orregulations or any election he shall have made.

 

# 19.                                 CAPTIONS

 

Thecaptions in this Agreement are for convenience of reference only and shall notbe given any effect in the interpretation of this Agreement.

 

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INWITNESS WHEREOF, the Executive and the Company have signed this Agreement as ofthe date first set forth above.

 
| RUSS  BERRIE AND COMPANY, INC. |
|--------------------------------|
|                           |
| By:                            | /s/  Josh Weston |   |
|                           |   |   |
|                           | Name: | Josh  Weston |   |
|                           |   |   |   |
|                           | Title: | Chairman |   |
|                           |
| THE  EXECUTIVE                 |
|                           |
|                           |
| /s/  Andrew R. Gatto      |   |
| Andrew  R. Gatto               |
|                                |  |  |  |  |  |  |

 

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**Exhibit A**

 

**GENERAL RELEASE**

 

# 1.                                       GENERAL RELEASE OF ALLCLAIMS

 

Theundersigned individual (the “Executive”) hereby irrevocably releases andforever discharges any and all known and unknown liabilities, debts,obligations, causes of action, demands, covenants, contracts, liens,controversies and any other claim of whatsoever kind or nature that theExecutive ever had, now has or may have in the future against Russ Berrie andCompany, Inc. (the “Company”), its stockholders, subsidiaries, affiliates,successors, assigns, officers, directors, attorneys, fiduciaries,representatives, employees, licensees, agents and assigns (the “Releasees”), tothe extent arising out of or related to the performance of any services to oron behalf of the Company or the termination of those services and other thanclaims for payments, benefits or entitlements preserved by Section 3 ofthe Employment Agreement dated as of April 9, 2004, between the Companyand the Executive (the “Employment Agreement”), including without limitation:  (i) any such claims arising out of or relatedto any federal, state and/or local labor or civil rights laws including,without limitation, the federal Civil Rights Acts of 1866, 1871, 1964, theEqual Pay Act, the Older Workers Benefit Protection Act, the RehabilitationAct, the Jury Systems Improvement Act, the Uniformed Services Employment andReemployment Rights Act, the Vietnam Era Veterans Readjustment Assistance Act,the National Labor Relations Act, the Worker Adjustment and RetrainingNotification Act, the Family and Medical Leave Act of 1993, the EmployeeRetirement Income Security Act of 1974, the Age Discrimination in EmploymentAct, the Americans with Disabilities Act of 1990, the Fair Labor Standards Actof 1938, the New York Human Rights Law, the New Jersey Law AgainstDiscrimination; the New Jersey wage and hour laws, and the New JerseyConscientious Employee Protection Act; the California Fair Employment andHousing Act, the California Labor Code, (ii) any and all other such claimsarising out of or related to any contract, any and all other federal, state orlocal constitutions, statutes, rules, regulations or executive orders; or (iii)any and all such claims arising from any common law right of any kindwhatsoever, including, without limitation, any claims for any kind of tortuousconduct, promissory or equitable estoppel, defamation, breach of the Company’spolicies, rules, regulations, handbooks or manuals, breach of express orimplied contract or covenants of good faith, wrongful discharge or dismissal,and/or failure to pay, in whole or part, any compensation of any kindwhatsoever (collectively, “Executive’s Claims”).

 

TheCompany, on its own behalf and on behalf of each of its affiliates, herebyirrevocably releases and forever discharges any and all known and unknownliabilities, debts, obligations, causes of action, demands, covenants,contracts, liens, controversies and any other claim of whatsoever kind ornature that the Company or any of its affiliates ever had, now has or may havein the future against the Executive, to the extent arising out of or related tothe performance of any services to or on behalf of the Company or thetermination of those services (excluding any claims arising under Federal orstate securities laws and claims arising under, or preserved by, Sections 4, 5and/or 6 of the Employment Agreement), including without limitation:  (i) any such claims arising out of or relatedto any federal, state and/or local labor or civil rights laws including,without limitation, the federal Civil Rights Acts of 1866, 1871, 1964, theEqual Pay Act, the Older Workers Benefit Protection Act, the RehabilitationAct, the Jury

 

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Systems Improvement Act, the Uniformed ServicesEmployment and Reemployment Rights Act, the Vietnam Era Veterans ReadjustmentAssistance Act, the National Labor Relations Act, the Worker Adjustment andRetraining Notification Act, the Family and Medical Leave Act of 1993, theEmployee Retirement Income Security Act of 1974, the Age Discrimination inEmployment Act, the Americans with Disabilities Act of 1990, the Fair LaborStandards Act of 1938, the New York Human Rights Law, the New Jersey LawAgainst Discrimination; the New Jersey wage and hour laws, and the New JerseyConscientious Employee Protection Act; the California Fair Employment andHousing Act, the California Labor Code, (ii) any and all other such claimsarising out of or related to any contract, any and all other federal, state orlocal constitutions, statutes, rules, regulations or executive orders; or (iii)any and all such claims arising from any common law right of any kindwhatsoever, including, without limitation, any claims for any kind of tortuousconduct, promissory or equitable estoppel, defamation, breach of the Company’spolicies, rules, regulations, handbooks or manuals, breach of express orimplied contract or covenants of good faith, wrongful discharge or dismissal,and/or failure to pay, in whole or part, any compensation of any kind whatsoever(collectively, “Company’s Claims”).

 

Executionof this Release by the Executive and the Company operates as a complete bar anddefense against any and all of the Executive’s Claims against the Companyand/or the other Releasees and any and all of the Company’s Claims against theExecutive, as applicable.  If theExecutive or the Company should hereafter assert any Executive’s Claims, orCompany’s Claims, as applicable, in any action or proceeding against the Companyor any of the Releasees or the Executive, as applicable, in any forum, thisRelease may be raised as and shall constitute a complete bar to any such actionor proceeding and the Company and/or the Releasees shall be entitled to recoverfrom the Executive, and the Executive shall be entitled to recover from theCompany, as applicable, all costs incurred, including attorneys’ fees, indefending against any such Executive’s Claims, or Company’s Claims, asapplicable.

 

Eachparty further waives and relinquishes any rights and benefits which he/it hasor may have under California Civil Code § 1542 to the fullest extent thathe may lawfully waive all such rights and benefits pertaining to the subjectmatter of this Release.  Civil Code§ 1542 provides that a general release does not extend to claims which thecreditor does not know or suspect to exist in his/its favor at the time ofexecuting the release, which if known by him/it must have materially affectedhis/its settlement with the debtor.  Eachparty acknowledges that he/it is aware that he/it may later discover facts inaddition to or different from those which he/it now knows or believes to betrue with respect to the subject matter of this Release, but it is his/itsintention to fully and finally forever settle and release any and all claims,matters, disputes, and differences, known or unknown, suspected andunsuspected, which now exist, may later exist or may previously have existedbetween the parties to the extent set forth in the first paragraph hereof, andthat in furtherance of this intention, the releases given in this Release shallbe and remain in effect as full and complete general releases to the extent setforth in the first paragraph herein, notwithstanding discovery or existence ofany such additional or different facts.

 

# 2.                                       OPPORTUNITY FOR REVIEW

 

TheExecutive acknowledges that he has had a reasonable opportunity to review andconsider the terms of this Release for a period of at least 21 days, that heunderstands and has had the opportunity to receive counsel regarding his/ herrespective rights, obligations and

 

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liabilities under this Release and that to the extentthat the Executive has taken less than 21 days to consider this Release, theExecutive acknowledges that he has had sufficient time to consider this Releaseand to consult with counsel and that he does not desire additional time toconsider this Release.

 

# 3.                                       BINDING EFFECT

 

ThisRelease is binding on the Executive’s heirs and personal representative and onthe successors and assigns of the Company.

 

# 4.                                       GOVERNING LAW; ARBITRATION;MISCELLANEOUS

 

Theprovisions of Sections 9, 10, 11(A), 12, 14, 16, and 19 of the EmploymentAgreement shall be deemed incorporated into this Agreement as if fully setforth herein.  Any claim or disputearising under or relating to this Release, or the breach, termination orvalidity of this Release, shall be deemed a “Dispute” subject toSection 11(B) of the Employment Agreement.

 

ThisRelease shall become effective only if countersigned by an authorized officerof the Company, and returned to the Executive, no later than ten business daysafter it is executed and delivered to the Company by the Executive.

 
|   | RUSS BERRIE AND COMPANY, INC. |
|--------|-------------------------------|
|   |                          |   |
|   |                          |   |
|   | By:                           | /s/  Josh Weston |
|   |                          |
|   |                          |
|   | /s/  Andrew R. Gatto     |
|   | Andrew R. Gatto               |

 

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**Exhibit B**

 

This Exhibit Bshall apply only as provided by the last sentence of Section 3(B)(3) ofthe Employment Agreement, dated as of April 9, 2004 (the EmploymentAgreement”) to which it is attached.

 

(a)                                  For purposes of this Exhibit B, the following termsshall have the following meanings:

 

“Payment”shall mean any payment or distribution (or acceleration of benefits) by theCompany to or for the benefit of the Executive (whether paid or payable ordistributed or distributable (or accelerated) pursuant to the terms of theEmployment Agreement or otherwise, but determined without regard to anyadditional payments required under this Exhibit B).  In addition, “Payment” shall also include theamount of income deemed to be received by the Executive as a result of theacceleration of the exercisability of any of the Executive’s options topurchase stock of the Company, the acceleration of the lapse of  restrictions on restricted stock ofthe Company held by the Executive or the acceleration of payment from anydeferral plan.

 

“ExciseTax” shall mean the excise tax imposed by Section 4999 of the Code,together with any interest or penalties incurred by the Executive with respectto such excise tax.

 

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

 

(b)                                 In the event it shall be determined in accordancewith this Exhibit B that a Payment is subject to an Excise Tax, then theExecutive shall be entitled to receive an additional payment (a “Gross-UpPayment”) in an amount such that after payment by the Executive of Income Taxand Excise Tax imposed upon or resulting from the Gross-Up Payment, theExecutive retains an amount of the Gross-Up Payment equal to the Excise Taximposed upon the Payment.

 

(c)                                  All determinations required to be made under thisExhibit B, including whether and when a Gross-Up Payment is required and theamount of such Gross-Up Payment and the assumptions to be utilized in arrivingat such determination, shall be made by the public accounting firm that isretained by the Company as of the date immediately prior to a Change in Controlor, if such accounting firm fails to agree to perform the functionscontemplated by this Exhibit B, an accounting firm of national reputationdesignated by the Company (in either case, the “Accounting Firm”), which shallprovide detailed supporting calculations both to the Company and to theExecutive within 20 business days of the receipt of notice from the Executivethat there has been a Plan Payment, or such earlier time as is requested by theCompany (collectively, the “Determination”). All fees and expenses of the Accounting Firm with respect to the matterscontemplated by this Exhibit B shall be borne by the Company.  Any Gross-Up Payment, as determined pursuantto this Exhibit B, shall be paid by the Company to the Executive within tendays of the Determination, but in no event later than the date that the

 

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Excise Tax payment to which it relates is due(through withholding or otherwise).  Ifthe Accounting Firm determines that no Excise Tax is payable, the Executive mayrequest the Accounting Firm to furnish the Executive with a written opinionthat there is a reasonable basis for that determination.  The Determination by the Accounting Firmshall be binding upon the Company and the Executive, except as provided inparagraph (d) below.  As a result of theuncertainty in the application of Section 4999 of the Code at the time ofthe Determination, it is possible that Gross-Up Payments which will not havebeen made by the Company should have been made (“Underpayment”).  In the event that the Company exhausts itsremedies pursuant to paragraph (d) below and the Executive is thereafterrequired to make payment of any Excise Tax or Income Tax, the Accounting Firmshall determine the amount of the Underpayment that has occurred and any suchUnderpayment shall be promptly paid by the Company to or for the benefit of theExecutive.

 

(d)                                 The Executive shall notify the Company in writing ofany claim by the Internal Revenue Service that, if successful, would requirethe payment by the Company of a Gross-Up Payment or any Underpayment.  Such notification shall be given as soon aspracticable but no later than five business days after the Executive is informedin writing of such claim and shall include copies of all communicationsreceived from the Internal Revenue Service and apprize the Company of thenature of such claim and the date on which such claim is requested to bepaid.  The Executive shall not pay suchclaim prior to the expiration of the 30-day period following the date on whichsuch notice is given to the Company.  Ifthe Company notifies the Executive in writing prior to the expiration of suchperiod that it desires to contest such claim, the Executive shall not pay suchclaim unless directed to do so by the Company and shall:

 

(i)                                     give the Company any information reasonablyrequested by the Company relating to such claim and provide the Company withcopies of all communications received from the Internal Revenue Service orother taxing authority with respect to such claim, or served on him in anyrelated litigation, upon receipt,

 

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

 

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

 

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

 

provided,however, that the Company shall bear and pay directly all costs and expenses(including additional interest and penalties) incurred in connection with suchcontest and shall indemnify and hold the Executive harmless, on an after-taxbasis, for any Excise Tax or Income Tax imposed as a result of suchrepresentation and payment of costs and expenses.  Without limitation on the foregoingprovisions of this paragraph (d), the Company shall control all proceedingstaken in connection with such contest and, at its sole option, may pursue orforego any and all administrative appeals, proceedings, hearings andconferences with the taxing authority in respect to such claim and may, at itssole option, either direct the Executive to pay

 

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thetax claimed and sue for a refund or contest the claim in any permissiblemanner, and the Executive shall prosecute such contest to a determinationbefore any administrative tribunal, in a court of initial jurisdiction and inone or more appellate courts, as the Company shall determine; provided further,that if the Company directs the Executive to pay such claim and sue for arefund, the Company shall advance the amount of such payment to the Executiveon an interest-free basis and shall indemnify and hold the Executive harmless,on an after-tax basis, from any Excise Tax or Income Tax imposed with respectto such advance or with respect to any imputed income with respect to suchadvance.  Furthermore, the Company’scontrol of the contest shall be limited to issues with respect to which aGross-Up Payment would be payable hereunder or an Underpayment and theExecutive shall be entitled to settle or contest, as the case may be, any otherissue raised by the Internal Revenue Service or any other taxing authority,provided that such action by the Executive does not affect the Company’sability to settle or contest issues with respect to which a Gross-Up Paymentwould be payable or an Underpayment.

 

(e)                                  If, after the receipt by the Executive of an amountadvanced by the Company pursuant to paragraph (d) above, the Executive receivesany refund with respect to such claim, the Executive shall promptly pay to theCompany the amount of such refund (together with any interest paid or creditedthereon after payment of taxes applicable thereto).  If, after the receipt by the Executive of anamount advanced by the Company pursuant to paragraph (d) above, the proceedingscontemplated by paragraph (d) above, result in a final determination notsubject to further review or appeal to the effect that the Executive is not beentitled to any refund with respect to such claims then such advance shall beforgiven and shall not be required to be repaid.

 

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**Annex IIRUSS BERRIE AND COMPANY, INC.SUPER BONUS PROGRAMANDREW R. GATTO**

 

Subjectin all cases to the provisions of the Employment Agreement, dated as ofApril 9, 2004 to which this Annex II relates (including, without limitation,the provisions of Section 3 thereof), the Executive shall receive aone-time bonus based on attainment of operating income targets by the Companyin two consecutive calendar years, to the extent, if any, described below.

 

TheExecutive shall receive a one time “super bonus” (the “SB”) of $500,000 in theevent that (x) the Company achieves operating income or EBITDA in excess oftargets (to be agreed by the Executive and the Board of Directors as promptlyas reasonably practicable after the Executive’s employment with the Companycommences) in each of two consecutive calendar years prior to January 2009and (y) consolidated net sales of the Company for the second of those yearsequals or exceeds consolidated net sales for the previous year.

 

Ifthe SB is earned, it will be paid in three installments, without interest.  The first installment will be paid no laterthan March 31 in the year following the second year of the two year periodin respect of which the SB has been earned. The second installment will be paid no later than 12 months, and thethird installment will be paid no later than 24 months, after the firstinstallment is due.

 

Incompliance with the law, payments under this agreement are subject towithholding taxes and deductions for contributions to the Company’s 401(k) andExecutive Deferred Compensation plans.

 

Thisprogram **confers no right to continued employment.  Employment remains “at will”, does notrepresent a specific guarantee and may be terminated by the Company with orwithout cause at any time.**

 

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**Annex IRUSS BERRIE AND COMPANY, INC.INCENTIVE COMPENSATION PROGRAMANDREW R. GATTO**

 

TheIncentive Compensation (“IC”) Program provides a select group of executives ofthe Company and its subsidiaries with an opportunity each year to earnsubstantial extra cash remuneration (an “IC Award”) based on attainment ofoperating income targets by the Company. The description of the eligibility of the Executive to participate inthe IC Program and to receive any IC Award (including the Guaranteed Amountdescribed below) is in all cases subject to the provisions of the EmploymentAgreement, dated as of April 9, 2004 to which this Annex I relates(including, without limitation, the provisions of Section 3 thereof).

 

Eachparticipant in this IC Program has been assigned an individual participationpercentage (IC%) based, among other things, on theparticipant’s responsibilities and past performance as determined by the Boardof Directors or a committee thereof (the “Board”).  Your IC% is 40% (and your IC% will not bedecreased during your employment with the Company although an increase in yourIC % may be considered by the Board in its discretion). Further, annualoperating income targets for the business segment in which the participant ismost involved, in your case the entire Company, will be established annually bythe Board.  The targets for each businesssegment will be assigned percentages (a “Target Percentage”) ranging from 20%for the lowest acceptable amount of operating income to 200% at and above thehighest “stretch” goal.  Except asprovided below, there will be no IC Award payout if the 20% target is missed.

 

Theamount of an IC Award is the product of (x) then current annual Base Salary,(y) the participant’s IC% and (z) the Target Percentage achieved by his or herbusiness segment, in your case, the entire Company.  For example, a divisional executive with asalary of $120,000 per annum and an IC% of 40% would receive $9,600 if the 20%target is met by the relevant business segment and $57,600 if the 120% targetis met.  The Target Percentage achievedby the Company will be determined by the Compensation Committee of the Board ofDirectors, whose determination shall be binding on you if made reasonably andin good faith.

 

ICAward payouts for achievement of results between 20% and 100% and between 100%and 200%, respectively, will be determined by a straight line interpolation.The IC Award payable with respect to 2004 shall be pro-rated to reflect thedate on which your employment commences by multiplying the amount otherwisepayable by a fraction (the “2004 Factor”) the numerator of which is the numberof days from the date on which your employment commences throughDecember 31, 2004 (inclusive) and the denominator of which is 366.

 

Notwithstandingthe foregoing, your IC Award with respect to 2004 will not be less than$300,000 multiplied by the 2004 Factor (the “2004 Guaranteed Amount”) and yourIC Award with respect to 2005 will not be less than the excess, if any, of$300,000 over your IC Award with respect to 2004 (the “2005 GuaranteedAmount”).

 

Incompliance with the law, IC Awards are subject to withholding taxes anddeductions for contributions to the Company’s 401(k) and Executive DeferredCompensation plans.

 

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TheCompany has the legal right to cancel the entire program without notice for anyreason without incurring any liability, provided, however, that the Companyshall not have the right to cancel such program (in whole or in part) as itapplies to you without your consent, which shall not be unreasonably withheldor delayed.  IC Awards will be paid nolater than March 31st in the year following the year in respect of whichthe IC Award has been earned.

 

**Participation in the IC Program confers no right to continuedemployment.  Employment remains “atwill”, does not represent a specific guarantee and may be terminated with orwithout cause at any time by the Company, without any entitlement to futurepayment of IC Awards.**

 

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**RUSS BERRIE AND COMPANY, INC.STOCK OPTION AGREEMENT**

 

**Date of Grant:                , 2004**

 

Inaccordance with the Employment Agreement (the “Employment Agreement”), dated asof April 9, 2004 between Russ Berrie and Company, Inc., a New Jerseycorporation (together with its successors and assigns, the “Company”) andAndrew R. Gatto (the “Executive”), the Company does hereby grant to theExecutive, as of the grant date set forth above, pursuant to the 2004 RussBerrie and Company, Inc. Stock Option, Restricted and Non-Restricted Stock Plan(the “Plan”), a stock option (the “Option”) to purchase an aggregate of 100,000shares of its Common Stock (stated value $.10 per share) (the “Shares”) at theprice of $       per share (the “Option Price”),upon the following terms and conditions. Unless otherwise indicated, capitalized terms used but undefined hereinshall have the meanings ascribed to them in the Plan.

 

1.                                       (a)                                  This Option is intended to be a non-qualified stockoption.

 

(b)                                 Exceptas provided in Sections 2 and 4 below, this Option shall vest and becomeexercisable ratably over five years (20% per year) from the Date of Grant, andhave a term of ten years from the Date of Grant, provided, however, the term ofexercisability of a vested portion of the Option shall be subject to theprovisions of Section 2 below.

 

2.                                       (a)                                  If the employment of the Executive under theEmployment Agreement is terminated by the Company without Cause or by reason ofthe Disability of the Executive, or by the Executive for Good Reason (each asdefined in the Employment Agreement), whether or not in connection with achange in control, or by reason of the Executive’s death, any outstandingunexercised portion of this Option, whether or not vested and/or exercisable onthe Termination Date, shall be deemed fully vested and exercisable and may beexercised for two years after the Termination Date or the remainder of theten-year term of the Option, whichever period is shorter.  The “Termination Date” is the date on whichthe Executive’s employment under the Employment Agreement ceases.

 

(b)                                 Uponany Change in Control (as defined in the definition of Good Reason in theEmployment Agreement), any outstanding unexercised portion of this Option,whether or not vested and/or exercisable on the date of such Change in Control,shall be deemed fully vested and exercisable. In the event that holders of Shares receive cash, securities or other propertyin respect of their Shares in connection with a Change in Control, the Companyshall use reasonable efforts, to the extent permissible under the Plan, toenable the Executive (if he so elects) to exercise this Option at a time and ina fashion that will entitle him to receive in exchange

 

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for any Shares thus acquired the same consideration as isreceived in such Change in Control by other holders of Shares.

 

(c)                                  Ifthe employment of the Executive under the Employment Agreement is terminated bythe Company for Cause or by the Executive without Good Reason (each as definedin the Employment Agreement), and not due to death or Disability, anyoutstanding unexercised unvested portion of this Option will be cancelled anddeemed terminated as of the Termination Date and any unexercised, vestedportion of this Option may be exercised through the earlier of (x) 30 daysafter the Termination Date or (y) the 10th anniversary of the Dateof Grant.

 

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

 

(a)                                  Methodof Exercise.  In order to exercise thisOption in whole or in part, the Executive shall submit to the Company a writingspecifying the whole number of Shares in respect of which the Option is beingexercised and accompanied by payment in full (or an arrangement for payment infull) in accordance with Section 3(b) below of the aggregate Option Priceof the Shares in respect of which the Option is being exercised.  The number of Shares for which the Option hasthus been exercised shall then promptly be issued by the Company (the “OptionShares”) and a certificate for such Shares shall be promptly delivered to theExecutive.

 

(b)                                 Methodof Payment.  Payment of the aggregateOption Price for Option Shares may be made (i) by delivery to the Company ofcash or a check to the order of the Company and backed by sufficient funds inan amount equal to the aggregate Option Price of such Shares; (ii) to theextent that use of this procedure will not result in any incremental accountingcharges to the Company, by authorizing the Company to withhold Shares thatwould otherwise be delivered to the Executive having an aggregate Market Priceon the date of exercise equal to the aggregate Option Price of the OptionShares; (iii) by delivery to the Company of Shares then owned by the Executivehaving an aggregate Market Price on the date of delivery equal to the aggregateOption Price of the Option Shares; or (iv) by any combination of (i), (ii) or(iii), in each case to the fullest extent permissible under the Plan.  The Company shall also from time to time makeavailable to the Executive any “cashless exercise” procedure that it then makesavailable to other option holders who are directors and executive officers ofthe Company.

 

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(c)                                  Delivery of Shares in Payment of Option Price.  Payment by delivery of Shares may be effectedby delivering one or more stock certificates or by otherwise delivering Sharesto the Company’s reasonable satisfaction, in each case accompanied by suchendorsements, stock powers, signature guarantees or other documents or assurancesas may reasonably be required by the Company. If a certificate or certificates or other documentation representingShares in excess of the amount required are delivered, a certificate (or othersatisfactory evidence of ownership) representing the excess number of Sharesshall be returned by the Company.  TheCompany need not accept fractional Shares.

 

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

 

(a)                                  Inthe event of any dissolution or liquidation of the Company, sale of all orsubstantially all of the assets of the Company, merger or consolidation of theCompany with or into any other corporation if the Company is the survivingcorporation, statutory share exchange involving capital stock of the Company,reorganization, recapitalization, reclassification, stock dividend,extraordinary dividend, stock split, reverse stock split, stock combination,rights offering, spin-off or other relevant change, the Committee may adjustthe aggregate number of shares of Stock available for awards of options underthe Plan, the Option price of the Option, and any or all other matters deemedappropriate by the Committee in good faith, including, without limitation,accelerating the vesting and/or exercise period pertaining to the Option; suchadjustment shall be made on a basis that is no less favorable to the Executivethan the adjustment, if any, made in respect of such event to options held bypersons who are directors and executive officers of the Company is to suchholders.

 

(b)                                 Inconnection with a Business Combination, the Committee, in its sole discretion,may provide for (i) the continuation of the Plan and/or the assumption of theOption by a successor corporation (or a parent or subsidiary thereof), (ii) thesubstitution for the Option of new awards covering the stock of a successorcorporation (or a parent or subsidiary thereof), with appropriate adjustmentsas to the number and kind of shares and exercise prices, (iii) upon 10 days’advance notice from the Committee to the Executive, the acceleration of thevesting and/or exercise period pertaining to the Option or (iv) upon 10 days’advance notice from the Committee to the Executive, (x) the cancellation of anyoutstanding portion of the Option that is then exercisable and the payment tothe holder thereof, in cash or stock, or any combination thereof, of the valueof such portion based upon the price per share of Stock received or to bereceived by other stockholders of the Company in connection

 

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with the Business Combination, and (y) the cancellation ofthe portion of the Option that is not then exercisable.  In the event of any continuation, assumptionor substitution contemplated by the foregoing clauses, the Option shallcontinue in the manner and under the terms so provided.

 

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

 

5.                                       This Option shall not be assignable ortransferable except by will or by the laws of descent or distribution provided,however, that the Executive may transfer all or any portion of the Option to amember of his Immediate Family, a trust for the benefit of the Executive or anymember of his Immediate Family, partnerships in which the Executive or hisImmediate Family members and/or trusts are the only partners, and/or anyorganization exempt under Section 501(c) of the Internal Revenue Code of1986, as amended (the “Code”).  Subjectto the provisions of Section 2, this Option shall be exercisable only bythe Executive or his permitted assignee or transferee.

 

6.                                       Subject to the limitations set forth in thePlan, the Committee is vested with absolute discretion and authority tointerpret the Plan and make all determinations necessary or advisable for theadministration thereof.  Anydetermination of the Committee in the administration of the Plan, as describedtherein, shall be final, conclusive and binding upon the Executive and anyperson claiming under or through the Executive, including, without limitation,as to any adjustments pursuant to Section 4 hereof.

 

7.                                       Nothing contained in the Plan or thisAgreement shall confer upon the Executive any right with respect to continuanceof employment by any Participating Company nor limit in any way the right ofthe Company to terminate or modify his employment at any time, with or withoutcause.

 

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

 

9.                                       The Company shall not be required to issue ordeliver a certificate for Option Shares unless the issuance and delivery ofsuch certificate complies with all applicable legal requirements including,without limitation, compliance with the provisions of applicable statesecurities laws, the Securities Act of 1933, as amended (the “Securities Act”),the Securities Exchange Act of 1934, as amended, and the requirements of theexchanges, if

 

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any, on which the Company’sshares of Common Stock may, at that time, be listed; *provided,* however,that the Company shall use reasonable efforts to satisfy, as promptly aspossible, any condition (other than those in the Executive’s control) thatwould permit such issuance or delivery.

 

10.                                 Notwithstanding anything contained in the Plan orherein to the contrary, in the event that the disposition of Option Shares isnot covered by a then current registration statement under the Securities Act,and is not otherwise exempt from such registration, such Option Shares shall berestricted against transfer to the extent required by the Securities Act andRule 144 or other regulations thereunder. The certificates evidencing any of such Option Shares shall beappropriately amended or have an appropriate legend placed thereon to reflecttheir status as restricted securities as aforesaid.

 

11.                                 The provisions of Sections 9, 10, 11(A), 12, 14, 16,and 19 of the Employment Agreement shall be deemed incorporated into thisAgreement as if fully set forth herein. Any claims or disputes arising out of, or relating to, this Agreementshall be deemed “Disputes” to which Section 11(B) of the EmploymentAgreement applies.

 

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

 

13.                                 The Company shall, upon and to the extent of anywritten request from the Executive, use reasonable efforts to assure that allOption Shares shall upon issuance and delivery, be (i) fully registered (at theCompany’s expense) under the Securities Act, for both issuance and resale, (ii)registered or qualified (at the Company’s expense) under such state securitieslaws as the Executive may reasonably request, for issuance and resale and (iii)listed on a national securities exchange or eligible for sale on the NASDAQNational Market and that all such shares, upon issuance, shall be validlyissued, fully paid and nonassessable. The Company shall at all times reserve and keep available sufficientShares to satisfy the requirements of this Agreement and shall pay all originalissue taxes with respect to the issuance of Option Shares upon exercise of theOption and all other fees and expenses incurred in connection therewith.

 

14.                                 “Market Price”, when used with respect to the priceof a Share on a particular day, shall mean the closing price for which a Shareis purchased that day (or, if no purchases have been made on such day, on themost recent preceding day on which such a purchase occurred) on the principalnational securities exchange or national market system on which Shares are thenlisted or eligible for sale (or, if Shares are not then listed or eligible forsale on any such exchange or market system, the price as determined byagreement between the Parties or, in the absence of such agreement, the priceas determined reasonably, and in good faith, by the Board).

 

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|                              | RUSS BERRIE AND COMPANY, INC. |
|-----------------------------------|-------------------------------|
|                              |                          |
|                              |                          |
|                              |                          |   |   |
|                              |                          |
|                              |                          |
| AGREED TO AND ACCEPTED AS OF  THE |                          |
| DATE OF GRANT SET FORTH ABOVE:    |                          |
|                              |                          |
|                              |                          |
|                              |                          |   |
| ANDREW R. GATTO                   |                          |
|                                   |                               |  |  |  |

 

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**RUSS BERRIE AND COMPANY, INC.STOCK OPTION AGREEMENT**

 

**Date of Grant:                , 2004**

 

Inaccordance with the Employment Agreement (the “Employment Agreement”) dated asof April 9, 2004, between Russ Berrie and Company, Inc., a New Jerseycorporation (together with its successors and assigns, the “Company”) andAndrew R. Gatto (the “Executive”), the Company does hereby grant to theExecutive, as of the grant date set forth above, a stock option (the “Option”)to purchase an aggregate of [150,000] shares of its Common Stock (stated value$.10 per share) (“Shares”) at the price of $     per share(the “Option Price”), upon the following terms and conditions.  Capitalized terms used but undefined hereinshall have the meanings ascribed to them in the Employment Agreement.

 

1.                                       (a)                                  This Option is intended to be a non-qualified stockoption.

 

(b)                                 Exceptas provided in Sections 2 and 4 below, this Option shall vest and becomeexercisable ratably over five years (20% per year) from the Date of Grant andhave a term of ten years from the Date of Grant, provided, however, the term ofexercisability of a vested portion of the Option shall be subject to theprovisions of Section 2 below.

 

2.                                       (a)                                  If the employment of the Executive under the EmploymentAgreement is terminated by the Company without Cause or by reason of theDisability of the Executive, or by the Executive for Good Reason, whether ornot in connection with a change in control, or by reason of the Executive’sdeath, any outstanding unexercised portion of this Option, whether or notvested and/or exercisable on the Termination Date, shall be deemed fully vestedand exercisable and may be exercised for two years after the Termination Dateor the remainder of the ten-year term of the Option, whichever period isshorter.  The “Termination Date” is thedate on which the Executive’s employment under the Employment Agreement ceases.

 

(b)                                 Uponany Change in Control (as defined in the definition of Good Reason in theEmployment Agreement), any outstanding unexercised portion of this Option,whether or not vested and/or exercisable on the date of such Change in Control,shall be deemed fully vested and exercisable. In the event that holders of Shares receive cash, securities or otherproperty in respect of their Shares in connection with a Change in Control, theCompany shall use reasonable efforts to enable the Executive (if he so elects)to exercise this Option at a time and in a fashion that will entitle him toreceive in exchange for any Shares thus acquired the same consideration as isreceived in such Change in Control by other holders of Shares.

 

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(c)                                  Ifthe employment of the Executive under the Employment Agreement is terminated bythe Company for Cause or by the Executive without Good Reason, and not due todeath or Disability, any outstanding unexercised unvested portion of thisOption will be cancelled and deemed terminated as of the Termination Date andany unexercised, vested portion of this Option may be exercised through theearlier of (x) 30 days after the Termination Date or (y) the 10thanniversary of the Date of Grant.

 

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

 

(a)                                  Methodof Exercise.  In order to exercise thisOption in whole or in part, the Executive shall submit to the Company a writingspecifying the whole number of Shares in respect of which the Option is beingexercised and accompanied by payment in full (or an arrangement for payment infull) in accordance with Section 3(b) below of the aggregate Option Priceof the Shares in respect of which the Option is being exercised.  The number of Shares for which the Option hasthus been exercised shall then promptly be issued by the Company (the “OptionShares”) and a certificate for such Shares shall be promptly delivered to theExecutive.

 

(b)                                 Methodof Payment.  Payment of the aggregateOption Price for Option Shares may be made (i) by delivery to the Company ofcash or a check to the order of the Company and backed by sufficient funds inan amount equal to the aggregate Option Price of such Shares; (ii) to theextent that use of this procedure will not result in any incremental accountingcharges to the Company, by authorizing the Company to withhold Shares thatwould otherwise be delivered to the Executive having an aggregate Market Priceon the date of exercise equal to the aggregate Option Price of the OptionShares; (iii) by delivery to the Company of Shares then owned by the Executivehaving an aggregate Market Price on the date of delivery equal to the aggregateOption Price of the Option Shares; or (iv) by any combination of (i), (ii) or (iii).  The Company shall also from time to time makeavailable to the Executive any “cashless exercise” procedure that it then makesavailable to other option holders who are directors and executive officers ofthe Company.

 

(c)                                  Deliveryof Shares in Payment of Option Price. Payment by delivery of Shares may be effected by delivering one or morestock certificates or by otherwise delivering Shares to the Company’sreasonable satisfaction, in each case accompanied by such endorsements, stockpowers, signature guarantees or other documents or assurances as may reasonablybe required by the

 

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Company.  If acertificate or certificates or other documentation representing Shares inexcess of the amount required are delivered, a certificate (or othersatisfactory evidence of ownership) representing the excess number of Sharesshall be returned by the Company.  TheCompany need not accept fractional Shares.

 

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

 

(a)                                  Inthe event of any dissolution or liquidation of the Company, sale of all orsubstantially all of the assets of the Company, merger or consolidation of theCompany with or into any other corporation if the Company is the survivingcorporation, statutory share exchange involving capital stock of the Company,reorganization, recapitalization, reclassification, stock dividend,extraordinary dividend, stock split, reverse stock split, stock combination,rights offering, spin-off or other relevant change, the Committee (as definedin the Company’s 2004 Stock Option, Restricted and Non-Restricted Stock Plan(the “2004 Plan”)) may adjust the Option Price of the Option and may make anyor all other adjustments deemed appropriate by the Committee in good faith,including, without limitation, accelerating the vesting and/or exercise periodpertaining to the Option; such adjustment shall be made on a basis that is noless favorable to the Executive than the adjustment, if any, made in respect ofsuch event to options held by persons who are directors and executive officersof the Company is to such holders.

 

(b)                                 Inconnection with a Business Combination (as defined in the 2004 Plan), theCommittee (as defined in the 2004 Plan), in its sole discretion, may providefor (i) the assumption of the Option by a successor corporation (or a parent orsubsidiary thereof), (ii) the substitution for the Option of new awardscovering the stock of a successor corporation (or a parent or subsidiarythereof), with appropriate adjustments as to the number and kind of shares andexercise prices, (iii) upon 10 days’ advance notice from the Committee to theExecutive, the acceleration of the vesting and/or exercise period pertaining tothe Option or (iv) upon 10 days’ advance notice from the Committee to theExecutive, (x) the cancellation of any outstanding portion of the Option thatis then exercisable and the payment to the holder thereof, in cash or stock, orany combination thereof, of the value of such portion based upon the price pershare of Stock received or to be received by other stockholders of the Companyin connection with the Business Combination, and (y) the cancellation of theportion of the Option that is not then exercisable.  In the event of any

 

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continuation, assumption or substitution contemplated by theforegoing clauses, the Option shall continue in the manner and under the termsso provided.

 

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

 

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

 

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

 

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

 

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

 

9.                                       The Company shall not be required to issue ordeliver a certificate for Option Shares unless the issuance and delivery ofsuch certificate complies with all applicable legal requirements including,without limitation, compliance with the provisions of applicable statesecurities laws, the Securities Act of 1933, as amended (the “Securities Act”),the Securities Exchange Act of 1934, as amended, and the requirements of theexchanges, if any, on which the Company’s shares of Common Stock may, at thattime, be listed; *provided,* however, that the Company shall usereasonable efforts to satisfy, as promptly as possible, any condition (otherthan those in the Executive’s control) that would permit such issuance ordelivery.

 

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10.                                 Notwithstanding anything contained herein to thecontrary, in the event that the disposition of Option Shares is not covered bya then current registration statement under the Securities Act, and is nototherwise exempt from such registration, such Option Shares shall be restrictedagainst transfer to the extent required by the Securities Act and Rule 144 orother regulations thereunder.  Thecertificates evidencing any of such Option Shares shall be appropriatelyamended or have an appropriate legend placed thereon to reflect their status asrestricted securities as aforesaid.

 

11.                                 The provisions of Sections 9, 10, 11(A), 12, 14, 16,and 19 of the Employment Agreement shall be deemed incorporated into thisAgreement as if fully set forth herein. Any claims or disputes arising out of, or relating to, this Agreementshall be deemed “Disputes” to which Section 11(B) of the EmploymentAgreement applies.

 

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

 

13.                                 The Company shall, upon and to the extent of anywritten request from the Executive, use reasonable efforts to assure that allOption Shares shall upon issuance and delivery, be (i) fully registered (at theCompany’s expense) under the Securities Act, for both issuance and resale, (ii)registered or qualified (at the Company’s expense) under such state securitieslaws as the Executive may reasonably request, for issuance and resale and (iii)listed on a national securities exchange or eligible for sale on the NASDAQNational Market and that all such shares, upon issuance, shall be validlyissued, fully paid and nonassessable. The Company shall at all times reserve and keep available sufficientShares to satisfy the requirements of this Agreement and shall pay all originalissue taxes with respect to the issuance of Option Shares upon exercise of theOption and all other fees and expenses incurred in connection therewith.

 

14.                                 “Market Price”, when used with respect to the priceof a Share on a particular day, shall mean the closing price for which a Shareis purchased that day (or, if no purchases have been made on such day, on themost recent preceding day on which such a purchase occurred) on the principalnational securities exchange or national market system on which Shares are thenlisted or eligible for sale (or, if Shares are not then listed or eligible forsale on any such exchange or market system, the price as determined byagreement between the Parties or, in the absence of such agreement, the priceas determined reasonably, and in good faith, by the Board).

 
|   | RUSS BERRIE AND COMPANY, INC. |
|--------|-------------------------------|
|   |                          |
|   |                          |
|   | BY:                           |   |

 

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| AGREED  TO AND ACCEPTED AS OF THE |   |
|-----------------------------------|--------|
| DATE  OF GRANT SET FORTH ABOVE:   |   |
|                              |   |
|                              |   |
|                              |   |   |
| ANDREW  R. GATTO                  |   |
|                                   |        |  |

 

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