**EXHIBIT 2.1**

 

**ASSET PURCHASE AGREEMENT**

** **

**by and among**

** **

**RBSACQ, INC.**

** **

**and**

** **

**SASSY, INC. and its SHAREHOLDERS**

** **

**Dated July 26, 2002**

 

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TABLE OF CONTENTS

 
| 1.     | DEFINITIONS AND USAGE                                       |
|--------|-------------------------------------------------------------|
|   | 1.1.                                                        | Definitions. |
|   | 1.2.                                                        | Usage. |
|   |                                                        |   |
| 2.     | SALE AND TRANSFER OF ASSETS; CLOSING                        |
|   | 2.1.                                                        | Assets to Be Sold. |
|   | 2.2.                                                        | Excluded Assets. |
|   | 2.3.                                                        | Consideration. |
|   | 2.4.                                                        | Liabilities. |
|   | 2.5.                                                        | Allocation. |
|   | 2.6.                                                        | Closing. |
|   | 2.7.                                                        | Closing Obligations. |
|   | 2.8.                                                        | Adjustment Amount, EBITDA Adjustment Amount  and Payment. |
|   | 2.9.                                                        | Adjustment Procedures. |
|   | 2.10.                                                       | Consents. |
|   |                                                        |   |
| 3.     | REPRESENTATIONS AND WARRANTIES OF SELLER  AND SHAREHOLDERS. |
|   | 3.1.                                                        | Organization and Good Standing. |
|   | 3.2.                                                        | Enforceability; Authority; No Conflict. |
|   | 3.3.                                                        | Capitalization. |
|   | 3.4.                                                        | Financial Statements. |
|   | 3.5.                                                        | Books and Records. |
|   | 3.6.                                                        | Sufficiency of Assets. |
|   | 3.7.                                                        | Description of Owned Real Property. |
|   | 3.8.                                                        | Description of Leased Real Property. |
|   | 3.9.                                                        | Title to Assets; Encumbrances. |
|   | 3.10.                                                       | Condition of Facilities. |
|   | 3.11.                                                       | Accounts Receivable. |
|   | 3.12.                                                       | Inventories. |
|   | 3.13.                                                       | No Undisclosed Liabilities. |
|   | 3.14.                                                       | Taxes. |
|   | 3.15.                                                       | No Material Adverse Change. |
|   | 3.16.                                                       | Employee Benefits. |
|   | 3.17.                                                       | Compliance With Legal Requirements;  Governmental Authorizations. |
|   | 3.18.                                                       | Legal Proceedings; Orders. |
|   | 3.19.                                                       | Absence of Certain Changes and Events. |
|   | 3.20.                                                       | Contracts; No Defaults. |
|   | 3.21.                                                       | Insurance. |
|   | 3.22.                                                       | Environmental Matters. |
|   | 3.23.                                                       | Employees. |
|   | 3.24.                                                       | Labor Disputes; Compliance. |

 

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|   | 3.25.                                                      | Intellectual Property Assets.                                                                     |
|--------|------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
|   | 3.26.                                                      | Compliance With the Foreign Corrupt  Practices Act and Export Control and Anti–boycott Laws. |
|   | 3.27.                                                      | Euro-Affected Products and Services.                                                              |
|   | 3.28.                                                      | Relationships With Related Persons.                                                               |
|   | 3.29.                                                      | Brokers or Finders.                                                                               |
|   | 3.30.                                                      | Solvency.                                                                                         |
|   | 3.31.                                                      | Disclosure.                                                                                       |
|   | 3.32.                                                      | Collective Bargaining Agreement.                                                                  |
|   | 3.33.                                                      | Addition.                                                                                         |
|   | 3.34.                                                      | Procter & Gamble                                                                              |
|   | 3.35.                                                      | I-9  Forms                                                                                        |
|   |                                                       |                                                                                              |
| 4.     | REPRESENTATIONS AND WARRANTIES OF BUYER.                   |
|   | 4.1.                                                       | Organization and Good Standing.                                                                   |
|   | 4.2.                                                       | Authority; No Conflict.                                                                           |
|   | 4.3.                                                       | Certain Proceedings.                                                                              |
|   | 4.4.                                                       | Operation of Buyer.                                                                               |
|   | 4.5.                                                       | Sufficient Resources.                                                                             |
|   | 4.6.                                                       | Brokers or Finders.                                                                               |
|   |                                                       |                                                                                              |
| 5.     | COVENANTS OF SELLER PRIOR TO CLOSING.                      |
|   | 5.1.                                                       | Access and Investigation.                                                                         |
|   | 5.2.                                                       | Operation of the Business of Seller.                                                              |
|   | 5.3.                                                       | Negative Covenant.                                                                                |
|   | 5.4.                                                       | Required Approvals.                                                                               |
|   | 5.5.                                                       | Notification.                                                                                     |
|   | 5.6.                                                       | No Negotiation.                                                                                   |
|   | 5.7.                                                       | Best  Efforts.                                                                                    |
|   | 5.8.                                                       | Payment of Liabilities.                                                                           |
|   | 5.9.                                                       | Change of Name.                                                                                   |
|   | 5.10.                                                      | Current Evidence of Title.                                                                        |
|   |                                                       |                                                                                              |
| 6.     | COVENANTS OF BUYER PRIOR TO CLOSING.                       |
|   | 6.1.                                                       | Required Approvals.                                                                               |
|   | 6.2.                                                       | Notification.                                                                                     |
|   | 6.3.                                                       | Best  Efforts.                                                                                    |
|   |                                                       |                                                                                              |
| 7.     | CONDITIONS PRECEDENT TO BUYER’S OBLIGATION  TO CLOSE. |
|   | 7.1.                                                       | Accuracy of Representations.                                                                      |
|   | 7.2.                                                       | Seller’s Performance.                                                                        |
|   | 7.3.                                                       | Consents.                                                                                         |
|   | 7.4.                                                       | Additional Documents.                                                                             |
|   | 7.5.                                                       | No Proceedings.                                                                                   |
|   | 7.6.                                                       | No  Conflict.                                                                                     |
|   | 7.7.                                                       | Title Insurance.                                                                                  |
|   | 7.8.                                                       | Governmental Authorizations                                                                       |
|   | 7.9.                                                       | Environmental Report.                                                                             |
|   | 7.10.                                                      | Employees.                                                                                        |

 

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|   | 7.11.                                                       | Due Diligence Review.                                                                       |
|--------|-------------------------------------------------------------|---------------------------------------------------------------------------------------------|
|   | 7.12.                                                       | Required Approvals.                                                                         |
|   | 7.13.                                                       | Resignation.                                                                                |
|   | 7.14.                                                       | Notice.                                                                                     |
|   | 7.15.                                                       | MAM Agreement.                                                                              |
|   | 7.16.                                                       | Intellectual Property Forms.                                                                |
|   |                                                        |                                                                                        |
| 8.     | CONDITIONS PRECEDENT TO SELLER’S OBLIGATION  TO CLOSE. |
|   | 8.1.                                                        | Accuracy of Representations.                                                                |
|   | 8.2.                                                        | Buyer’s Performance.                                                                   |
|   | 8.3.                                                        | Additional Documents.                                                                       |
|   | 8.4.                                                        | No Injunction.                                                                              |
|   |                                                        |                                                                                        |
| 9.     | TERMINATION.                                                |
|   | 9.1.                                                        | Termination Events.                                                                         |
|   | 9.2.                                                        | Effect of Termination.                                                                      |
|   |                                                        |                                                                                        |
| 10.    | ADDITIONAL COVENANTS.                                       |
|   | 10.1.                                                       | Employees and Employee Benefits.                                                            |
|   | 10.2.                                                       | Payment of All Taxes Resulting From Sale of  Assets by Seller.                              |
|   | 10.3.                                                       | Payment of Other Retained Liabilities.                                                      |
|   | 10.4.                                                       | Restrictions on Seller Dissolution and  Distributions.                                      |
|   | 10.5.                                                       | Removing Excluded Assets.                                                                   |
|   | 10.6.                                                       | Reports and Returns.                                                                        |
|   | 10.7.                                                       | Assistance in Proceedings.                                                                  |
|   | 10.8.                                                       | Noncompetition, Nonsolicitation and  Nondisparagement.                                      |
|   | 10.9.                                                       | Customer and Other Business Relationships.                                                  |
|   | 10.10.                                                      | Retention of and Access to Records.                                                         |
|   | 10.11.                                                      | Kentwood Operations.                                                                        |
|   | 10.12.                                                      | Insurance.                                                                                  |
|   | 10.13.                                                      | Further Assurances.                                                                         |
|   | 10.14.                                                      | Post-Closing Payments.                                                                      |
|   | 10.15.                                                      | MAM Agreement.                                                                              |
|   | 10.16.                                                      | Escrow.                                                                                     |
|   | 10.17.                                                      | Straub Assignments.                                                                         |
|   | 10.18.                                                      | K-Mart.                                                                                     |
|   | 10.19.                                                      | Escrow Trust Instructions.                                                                  |
|   | 10.20.                                                      | Letter of Credit.                                                                           |
|   |                                                        |                                                                                        |
| 11.    | INDEMNIFICATION; REMEDIES.                                  |
|   | 11.1.                                                       | Survival.                                                                                   |
|   | 11.2.                                                       | Indemnification and Reimbursement by Seller  and Shareholders.                              |
|   | 11.3.                                                       | Indemnification and Reimbursement by Seller  and Shareholders — Environmental Matters. |
|   | 11.4.                                                       | Indemnification and Reimbursement by Buyer.                                                 |
|   | 11.5.                                                       | Limitations on Amount — Seller and  Shareholders.                                      |
|   | 11.6.                                                       | Limitations on Amount — Buyer.                                                         |
|   | 11.7.                                                       | Time Limitations.                                                                           |
|   | 11.8.                                                       | Third-Party Claims.                                                                         |
|   | 11.9.                                                       | Other Claims.                                                                               |

 

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| 12.    | CONFIDENTIALITY.    |
|--------|---------------------|
|   | 12.1.               | Definition of Confidential Information. |
|   | 12.2.               | Restricted Use of Confidential Information. |
|   | 12.3.               | Exceptions. |
|   | 12.4.               | Legal Proceedings. |
|   | 12.5.               | Return or Destruction of Confidential  Information. |
|   | 12.6.               | Attorney-Client Privilege. |
|   |                |   |
| 13.    | GENERAL PROVISIONS. |
|   | 13.1.               | Expenses. |
|   | 13.2.               | Public Announcements. |
|   | 13.3.               | Notices. |
|   | 13.4.               | Jurisdiction; Service of Process. |
|   | 13.5.               | Enforcement of Agreement. |
|   | 13.6.               | Waiver; Remedies Cumulative. |
|   | 13.7.               | Entire Agreement and Modification. |
|   | 13.8.               | Schedules. |
|   | 13.9.               | Assignments, Successors and No Third-Party  Rights. |
|   | 13.10.              | Severability. |
|   | 13.11.              | Construction. |
|   | 13.12.              | Governing Law. |
|   | 13.13.              | Execution of Agreement. |
|   | 13.14.              | Shareholder Obligations. |

 

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**ASSET PURCHASE AGREEMENT**

 

This AssetPurchase Agreement (“Agreement”) is dated July 26, 2002, by and amongRBSACQ, Inc., a Delaware corporation (“Buyer”); Sassy, Inc., an Illinoiscorporation (“Seller”); Robert Kaplan, a resident of Wyoming (“Kaplan”);Fritz Hirsch, a resident of Illinois (“Hirsch”); Steve Rotblatt, aresident of Illinois (“Rotblatt”); and Homer Douglas, a resident ofMichigan (“Douglas”) (Kaplan, Hirsch, Rotblatt and Douglas are referredto herein as “Shareholders”).

 

**RECITALS**

 

Shareholdersown one hundred percent of the issued and outstanding shares of capital stockof Seller.  Seller desires to sell, andBuyer desires to purchase, the Assets of Seller for the consideration and onthe terms and conditions set forth in this Agreement.

 

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

 

**1.****                                      DEFINITIONSAND USAGE**

 

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

 

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

 

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

 

**“Adjustment Amount”**— as defined in Section 2.8.

 

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

 

**“Assets”** — asdefined in Section 2.1.

 

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

 

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

 

**“Balance Sheet”** — asdefined in Section 3.4.

 

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

 

**“Basket”**— asdefined in Section 11.5.

 

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

 

**“Bill of Sale”**— asdefined in Section 2.7(a)(i).

 

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

 

**“Business Day”**— anyday other than (a) Saturday or Sunday or (b) any other day on whichbanks in New York, New Jersey or Illinois are permitted or required to beclosed.

 

**“Buyer”**— as definedin the first paragraph of this Agreement.

 

**“Cap”**— as definedin Section 11.5.

 

**“Buyer Contact”**— asdefined in Section 12.2(a).

 

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

 

**“Cash Consideration”**—as defined in Section 2.3.

 

**“Closing”**— asdefined in Section 2.6.

 

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

 

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

 

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

 

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

 

**“COBRA”**— therequirements of Part 6 of Subtitle B of Title I of ERISA andCode Section 4980B and of any similar applicable state law.

 

**“Code”**— theInternal Revenue Code of 1986.

 

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

 

**“Confidential Information”**—as defined in Section 12.1.

 

**“Consent”**— anyapproval, consent, ratification, waiver or other authorization.

 

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

 

**“Contract”**— anyagreement, contract, Lease, consensual obligation, promise or undertaking(whether written or oral and whether express or implied), including openpurchase and sale orders.

 

**“Copyrights”**— asdefined in Section 3.25(a)(iii).

 

**“Damages”**— asdefined in Section 11.2.

 

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

 

**“EBITDA”**— withrespect to the Seller, at the time of determination, the earnings of the Sellerbefore interest, income taxes, depreciation and amortization.

 

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

 

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

 

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

 

**“Encumbrance”**— anycharge, claim, community or other marital property interest, condition,equitable interest, lien, option, pledge, security interest, mortgage, right ofway, easement, encroachment, servitude, right of first option, right of firstrefusal or similar restriction, including any restriction on use, voting (inthe case of any security or equity interest), transfer, receipt of income orexercise of any other attribute of ownership.

 

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

 

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

 

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

 

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

 

**“ERISA”**— theEmployee Retirement Income Security Act of 1974.

 

**“Excluded Assets”**—as defined in Section 2.2.

 

**“Facilities”**— anyReal Property, leasehold or other interest in real property currently owned oroperated by Seller, including the Tangible Personal Property used or operatedby Seller at the respective locations of the Real Property specified inSection 3.7.  Notwithstanding theforegoing, for purposes of the definitions of “Hazardous Activity” and“Remedial Action” and Sections 3.22 and 11.3, “Facilities” shall mean anyreal property, leasehold or other interest in real property currently orformerly owned or operated by Seller, including the Tangible Personal Propertyowned, used or operated by Seller at the respective locations of the RealProperty specified in Section 3.7.

 

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

 

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

 

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

 

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

 

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

 

**“Ground Lease”**— anylong–term lease of land in which most of the rights and benefitscomprising ownership of the land and the improvements thereon or to beconstructed thereon, if any, are transferred to the tenant for the termthereof.

 

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

 

**“Guarantee”**— asdefined in Section 4.2.

 

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

 

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

 

**“HSR Act”**— the Hart–Scott–RodinoAntitrust Improvements Act of 1976.

 

**“Improvements”**— allbuildings, structures, fixtures and improvements located on the Land orincluded in the Assets, including those under construction.

 

**“Indemnified Person”**—as defined in Section 11.8.

 

**“Indemnifying Person”**—as defined in Section 11.8.

 

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

 

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

 

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

 

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

 

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

 

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

 

**“Kentwood Operations”**—the receiving, packaging, warehousing, shipping, quality inspection, inventorycontrol, marketing, research and development, engineering, customer service,consumer relations, information systems and financial and administrativefunctions currently conducted by Seller in the Kentwood, Michigan facility ofSeller.

 

**“Knowledge”**— anindividual will be deemed to have Knowledge of a particular fact or othermatter if:  (a) that individual isactually aware of that fact or matter; or (b) that individual woulddiscover or otherwise become aware of that fact or matter in the course ofconducting a reasonably comprehensive investigation regarding the accuracy ofany representation or warranty contained in this Agreement.

 

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

 

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

 

**“Lease”**— any RealProperty Lease or any lease or rental agreement, license, right to use orinstallment and conditional sale agreement to which Seller is a party and anyother Seller Contract pertaining to the leasing or use of any Tangible PersonalProperty.

 

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

 

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

 

**“Liability”**— withrespect to any Person, any liability or obligation of such Person of any kind,character or description, whether known or unknown, absolute or contingent,accrued or unaccrued, disputed or undisputed, liquidated or unliquidated,secured or unsecured, joint or several, due or to become due, vested orunvested, executory, determined, determinable or otherwise, and whether or notthe same is required to be accrued on the financial statements of such Person.

 

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

 

**“Marks”**— as definedin Section 3.25(a)(i).

 

**“Material Consents”**—as defined in Section 7.3.

 

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

 

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

 

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

 

**“Patents”** — asdefined in Section 3.25(a)(ii).

 

**“Permitted Encumbrances”**—as defined in Section 3.9.

 

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

 

**“Person”**— anindividual, partnership, corporation, business trust, limited liability company,limited liability partnership, joint stock company, trust, unincorporatedassociation, joint venture or other entity or a Governmental Body.

 

**“Proceeding”**— anyaction, arbitration, audit, hearing, investigation, litigation or suit (whethercivil, criminal, administrative, judicial or investigative, whether formal orinformal, whether public or private) commenced, brought, conducted or heard byor before, or otherwise involving, any Governmental Body or arbitrator.

 

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

 

**“Purchase Price”**—as defined in Section 2.3.

 

**“RB”**— as defined inSection 4.2.

 

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

 

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

 

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

 

**“Related Person”**—

 

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

 

With respectto a specified Person other than an individual:  any Person that directly or indirectly controls, is directly orindirectly controlled by or is directly or indirectly under common control withsuch specified Person.

 

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

 

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individual’s spouse within thesecond degree and (iv) any other natural person who resides with suchindividual.

 

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

 

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

 

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

 

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

 

**“Seller”**— asdefined in the first paragraph of this Agreement.

 

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

 

**“Shareholders”**— asdefined in the first paragraph of this Agreement.

 

**“Space Lease”**— anylease or rental agreement pertaining to the occupancy of any improved space onany Land.

 

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

 

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

 

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

 

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

 

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

 

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

 

**“Third–Party Claim”**—any claim against any Indemnified Person by a Third Party, whether or notinvolving a Proceeding.

 

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

 

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

 

**“Title Insurer”**— asdefined in Section 5.10(a).

 

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

 

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

 

**“Union”**— as definedin Section 10.1(f).

 

**“WARN Act”**— asdefined in Section 10.1(c).

 

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

 

**1.2. Usage****.**

 

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

 

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

 

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

 

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(iii)          reference to anygender includes each other gender;

 

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

 

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

 

(vi)          “hereunder,”“hereof,” “hereto,”  and words ofsimilar import shall be deemed references to this Agreement as a whole and notto any particular Article, Section or other provision hereof;

 

(vii)         “including” (andwith correlative meaning “include”) means including without limiting thegenerality of any description preceding such term;

 

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

 

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

 

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

 

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

 

(c)           Legal Representation of theParties.  This Agreement wasnegotiated by the parties with the benefit of legal representation, and anyrule of construction or interpretation otherwise requiring this Agreement to beconstrued or interpreted against any party shall not apply to any constructionor interpretation hereof.

 

**2.****             SALE AND TRANSFER OF ASSETS; CLOSING**

 

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

 

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

 

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

 

(c)           all Inventories;

 

(d)           subject to Section 2.10(c), allAccounts Receivable;

 

(e)           all Seller Contracts, including thoselisted on Schedule 3.20(a), and all outstanding offers or solicitationsmade by or to Seller to enter into any Contract;

 

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

 

(g)           all data and records related to theoperations of Seller, including client and customer lists, supplier lists andrecords, referral sources, research and development reports and records,production reports and records, service and warranty records, equipment logs,operating guides and manuals, financial and accounting records, creativematerials, advertising materials, promotional materials, studies, reports,correspondence and other similar documents and records and, subject to LegalRequirements, copies of all personnel records and other records described inSection 2.2(g);

 

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

 

(i)            all insurance benefits, includingrights and proceeds, arising from or relating to the Assets or the AssumedLiabilities prior to the Closing Date;

 

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

 

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

 

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

 

Notwithstandingthe foregoing, the transfer of the Assets pursuant to this Agreement shall notinclude the assumption of any Liability related to the Assets unless Buyerexpressly assumes that Liability pursuant to Section 2.4(a).

 

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**2.2. Excluded Assets****.**** **Notwithstandinganything to the contrary contained in Section 2.1 or elsewhere in thisAgreement, the following assets of Seller (collectively, the “ExcludedAssets”) are not part of the sale and purchase contemplated hereunder, areexcluded from the Assets and shall remain the property of Seller after theClosing:

 

(a)           all cash, cash equivalents andshort-term investments;

 

(b)           all minute books, stock records andcorporate seals;

 

(c)           the shares of capital stock of Sellerheld in treasury;

 

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

 

(e)           all insurance policies and rightsthereunder (except to the extent specified in Sections 2.1(i) and (j) and7.4(c));

 

(f)            all of the Seller Contracts listedon Schedule 2.2(f);

 

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

 

(h)           all claims for refund of Taxes andother Governmental Body charges of whatever nature, including, withoutlimitation, the anticipated duty refund in connection with customs duties paidunder the MAM Agreement prior to the Closing Date;

 

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

 

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

 

(k)           the property and assets expresslydesignated on Schedule 2.2(k).

 

**2.3. Consideration****.**

 

(a)           The aggregate consideration for theAssets (the “Purchase Price”) will be (x) $44,990,000 (the “CashConsideration”), plus or minus the Adjustment Amount, (y) the EBITDAAdjustment Amount, if any, and (z) the assumption of the AssumedLiabilities.

 

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

 

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

 

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**2.4. Liabilities****.**

 

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

 

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

 

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

 

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

 

(iv)          Liabilities listedon Schedule 2.4(b)(vii); and

 

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

 

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

 

(i)            subject to Sections10.12, 11.2(e), 11.4(g) and 11.5 of this Agreement, any Liabilityarising out of or relating to products of Seller to the extent manufactured orsold prior to the Closing Date other than to the extent assumed underSection 2.4(a)(ii);

 

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

 

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

 

(iv)          any Liability under any Contract notassumed by Buyer under Section 2.4(a), including any Liability arising outof or relating to Seller’s credit facilities or any security interest relatedthereto;

 

(v)           any Environmental, Health and SafetyLiabilities arising out of or relating to the operation of Seller’s businessprior to the Closing Date or Seller’s leasing, ownership or operation of realproperty;

 

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

 

(vii)         except as set forth on Schedule2.4(b)(vii), any Liability under any employment, severance, retention ortermination Contract with any employee of Seller or any of its Related Persons;

 

(viii)        any Liability arising out of or relatingto any employee grievance whether or not the affected employees are hired byBuyer;

 

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

 

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

 

(xi)           any Liability to distribute to any ofSeller’s Shareholders or otherwise apply all or any part of the considerationreceived hereunder;

 

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

 

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

 

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

 

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(xv)         any Liability of Seller under thisAgreement or any other document executed in connection with the ContemplatedTransactions;

 

(xvi)        any Liability of Seller based uponSeller’s acts or omissions, or arising out of or in connection with the businessconducted by Seller, occurring prior to the Closing Date, except to the extentexpressly assumed hereunder;

 

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

 

(xviii)      any Liability of Seller to RBK ManagementCompany; and

 

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

 

**2.5. Allocation****.**** **The Purchase Price shall beallocated in accordance with the determination of a reputable valuation firm designatedmutually by the Seller and the Buyer (at Buyer’s expense). After the Closing,the parties shall make consistent use of the allocation, fair market value anduseful lives specified by such valuation firm for all Tax purposes and in allfilings, declarations  and reports withthe IRS in respect thereof, including the reports required to be filed underSection 1060 of the Code.  Buyershall prepare and deliver IRS Form 8594 to Seller withinseventy-five (75) days after the Closing Date to be filed with theIRS.  In any Proceeding related to thedetermination of any Tax, neither Buyer nor Seller or Shareholders shallcontend or represent that such allocation is not a correct allocation.

 

**2.6. Closing****.**** **The purchase and sale providedfor in this Agreement (the “Closing”) will take place at the offices ofKaye Scholer LLP at 425 Park Avenue, New York, NY 10022, commencing at10:00 a.m. (local time) on the later of (a) July 26, 2002, or(b) the date that is five (5) Business Days following the satisfactionor waiver of all conditions to Closing hereunder unless Buyer and Sellerotherwise agree.  Subject to theprovisions of Article 9, failure to consummate the purchase and saleprovided for in this Agreement on the date and time and at the place determinedpursuant to this Section 2.6 will not result in the termination of thisAgreement and will not relieve any party of any obligation under thisAgreement.  In such a situation, theClosing will occur as soon as practicable, subject to Article 9.

 

**2.7. Closing Obligations****.**** **In addition to any otherdocuments to be delivered under other provisions of this Agreement, at theClosing:

 

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

 

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

 

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

 

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Buyer’s undertaking andassumption of the Assumed Liabilities (the “Assignment and AssumptionAgreement”) executed by Seller;

 

(iii)          for each interest in Real Propertyidentified on Schedules 3.7 and 3.8, a recordable warranty deed, anAssignment and Assumption of Lease in the form of Exhibit 2.7(a)(iii)or such other appropriate document or instrument of transfer, as the case mayrequire, each in form and substance satisfactory to Buyer and its counsel andexecuted by Seller;

 

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

 

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

 

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

 

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

 

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

 

(vii)         a noncompetitionagreement in the form of Exhibit 2.7(a)(vii), executed byKaplan (the “Noncompetition Agreement”);

 

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

 

(ix)           a certificate of the Secretary ofSeller certifying, as complete and accurate as of the Closing, attached copiesof the Governing Documents of Seller, certifying and attaching all requisiteresolutions or actions of Seller’s board of directors and shareholdersapproving the execution and delivery of this Agreement and the consummation ofthe Contemplated Transactions and the change of name contemplated bySection 5.9 and certifying to the incumbency and signatures of theofficers of Seller executing this Agreement and any other document relating tothe Contemplated Transactions and accompanied by the requisite documents foramending the relevant Governing Documents of Seller

 

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required toeffect such change of name in form sufficient for filing with the appropriate GovernmentalBody.

 

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

 

(i)            the CashConsideration by wire transfer to an account specified by Seller in awriting delivered to Buyer at least three (3) Business Days prior to theClosing Date;

 

(ii)           the Assignment and AssumptionAgreement executed by Buyer;

 

(iii)          the Employment Agreements executed byBuyer;

 

(iv)          the Noncompetition Agreement executedby Buyer;

 

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

 

(vi)          a certificate of the Secretary ofBuyer certifying, as complete and accurate as of the Closing, attached copiesof the Governing Documents of Buyer and certifying and attaching all requisiteresolutions or actions of Buyer’s board of directors and shareholders, if required,approving the execution and delivery of this Agreement and the consummation ofthe Contemplated Transactions and certifying to the incumbency and signaturesof the officers of Buyer executing this Agreement and any other documentrelating to the Contemplated Transactions.

 

**2.8. Adjustment Amount, EBITDA AdjustmentAmount and Payment****.**

 

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

 

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

 

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

 

**2.9. Adjustment Procedures****.**

 

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

 

(b)           Adjustment Amount.

 

(i)            Seller shallprepare a balance sheet (“Closing Balance Sheet”) and income statement(“Closing Income Statement”) of Seller as of the Closing Date and forthe period from the date of the Balance Sheet through the Closing Date, all inaccordance with GAAP.  The ClosingBalance Sheet shall reflect the results of a physical inventory to be conductedby Seller, effective as of the Closing Date. Buyer shall be present for such physical inventory and the parties shallmutually agree to the methods and results thereof.  Seller shall then determine the Working Capital as of the ClosingDate, plus half the amount of capital expenditures set forth onSchedule 2.9(b) (the “Closing Working Capital”) based upon theClosing Balance Sheet and Closing Income Statement and using the samemethodology as was used to calculate the Initial Working Capital, as set forthon Schedule 2.9(b)(i).  Sellershall deliver the Closing Balance Sheet, Closing Income Statement and itsdetermination of the Closing Working Capital to Buyer within ninety (90) daysfollowing the Closing Date.  Inpreparing the Closing Balance Sheet, Closing Income Statement and ClosingWorking Capital, Buyer

 

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

 

(ii)           In connection withits review of the Closing Balance Sheet and the Closing Income Statement, Buyershall have the right to audit such statements and determinations, and Selleragrees to cooperate with Buyer during the preparation thereof to accommodateany such audit.  If withinthirty (30) days following delivery of the Closing Balance Sheet, ClosingIncome Statement and the Closing Working Capital calculation Buyer has notgiven Seller written notice of its objection as to the Closing Working Capitalcalculation (which notice shall state in reasonable detail the basis of Buyer’sobjection), then the Closing Working Capital calculated by Seller shall bebinding and conclusive on the parties and be used in computing the AdjustmentAmount.

 

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

 

(c)           EBITDAAdjustment Amount.

 

(i)            Seller shalldetermine (x) the Twelve Month EBITDA and (y) the EBITDA AdjustmentAmount, if any, in accordance with the provisions of

 

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

 

(ii)           If withinthirty (30) days following delivery of such determinations, Buyer has notgiven Seller written notice of its objection thereto (which notice shall statein reasonable detail the basis of Buyer’s objection), then such determinationsshall be binding and conclusive on the parties.

 

(iii)          If Buyer timelygives Seller such notice of objection, and if Seller and Buyer fail to resolvethe issues outstanding with respect to the determination of the Twelve MonthEBITDA and the EBITDA Adjustment Amount in good faith within thirty (30)days of Seller’s receipt of Buyer’s objection notice, Seller and Buyer shallsubmit the issues remaining in dispute to the Independent Accountants forresolution applying the principles, policies and practices referred to inherein and in Section 2.8(b).  Ifissues are submitted to the Independent Accountants for resolution,(i) Seller and Buyer shall furnish or cause to be furnished to theIndependent Accountants such work papers and other documents and informationrelating to the disputed issues as the Independent Accountants may request andare available to that party or its agents and shall be afforded the opportunityto present to the Independent Accountants any material relating to the disputedissues and to discuss the issues with the Independent Accountants;(ii) the determination by the Independent Accountants, as set forth in anotice to be delivered to both Seller and Buyer within sixty (60) days of thesubmission to the Independent Accountants of the issues remaining in dispute,shall be final, binding and conclusive on the parties and shall be used in thecalculation of the Twelve Month EBITDA and the EBITDA Adjustment Amount; and(iii) if the determinations of either party differ from those of theIndependent Accountants by more than 15%, such party shall pay the fees andcosts of the Independent Accountants and the costs and expenses, includingreasonable attorney’s fees, of the other party; if the determinations of bothparties differ from those of the Independent Accountants by either (i) 15% orless, or (ii) more than 15%, Seller and Buyer will each bear fifty percent(50%) of the fees and costs of the Independent Accountants for suchdetermination, and each party shall pay its own costs and expenses.

 

**2.10.****                     Consents****.**

 

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

 

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Material Consent andeither:  (i) elect to have Sellercontinue its efforts to obtain the Material Consents; or (ii) elect tohave Seller retain that Restricted Material Contract and all Liabilitiesarising therefrom or relating thereto.

 

(b)           If Buyer waives theclosing condition as to any Material Consent and elects to have Seller continueits efforts to obtain such Material Consent and the Closing occurs,notwithstanding Sections 2.1 and 2.4, neither this Agreement nor theAssignment and Assumption Agreement nor any other document related to the consummationof the Contemplated Transactions shall constitute a sale, assignment,assumption, transfer, conveyance or delivery or an attempted sale, assignment,assumption, transfer, conveyance or delivery of the Restricted MaterialContracts, and following the Closing, the parties shall use Best Efforts, andcooperate with each other, to obtain the Material Consent relating to eachRestricted Material Contract as quickly as practicable.  Pending the obtaining of such MaterialConsents relating to any Restricted Material Contract, the parties shallcooperate with each other in any reasonable and lawful arrangements designed toprovide to Buyer the benefits of use of the Restricted Material Contract forits term (or any right or benefit arising thereunder, including the enforcementfor the benefit of Buyer of any and all rights of Seller against a third partythereunder).  Once a Material Consentfor the sale, assignment, assumption, transfer, conveyance and delivery of aRestricted Material Contract is obtained, Seller shall promptly assign,transfer, convey and deliver such Restricted Material Contract to Buyer, andBuyer shall assume the obligations under such Restricted Material Contractassigned to Buyer from and after the date of assignment to Buyer pursuant to aspecial-purpose assignment and assumption agreement substantially similar interms to those of the Assignment and Assumption Agreement (whichspecial-purpose agreement the parties shall prepare, execute and deliver ingood faith at the time of such transfer, all at no additional cost to Buyer).

 

(i)            If there are anyConsents listed on Exhibit 7.3 necessary for the assignment and transferof any Seller Contracts to Buyer (the “Nonmaterial Consents”) which havenot yet been obtained (or otherwise are not in full force and effect) as of theClosing (the “Restricted Nonmaterial Contracts”), Buyer shall, at theClosing, accept the assignment of such Restricted Nonmaterial Contracts, inwhich case, as between Buyer and Seller, such Restricted Nonmaterial Contractsshall, to the maximum extent practicable and notwithstanding the failure toobtain the applicable Nonmaterial Consent, be transferred at the Closingpursuant to the Assignment and Assumption Agreement as elsewhere provided underthis Agreement.

 

(c)           Notwithstandinganything to the contrary contained herein, the assignment of the right toreceive payments under the Wal-Mart Stores, Inc. Vendor Agreement betweenWal-Mart Stores, Inc. and the Seller (the “Walmart Agreement”) shall not beeffective until the 30th day after notice has been given to Walmart Stores,Inc., under the Walmart Agreement Standards for Vendors, under the sectiontitled “Notice Regarding Assignment of Accounts” (the “WM Assignment EffectiveDate”).  During the period between the ClosingDate and the WM Assignment Effective Date, Seller agrees to pay an amount tothe Buyer, as and when collected, equal to the amount of any receivablescollected under the WalMart Agreement (the “Receivables Amount”), withoutregard to when such receivables arose. For purposes of calculating the Adjustment Amount under Section 2.8,Working Capital shall be calculated to

 

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

 

**3.****                                      REPRESENTATIONSAND WARRANTIES OF SELLER AND SHAREHOLDERS****.**

 

Sellerrepresents and warrants, jointly and severally, and each Shareholder representsand warrants, severally, to Buyer as follows:

 

**3.1.Organization and Good Standing.**

 

(a)           Schedule 3.1(a) contains acomplete and accurate list of Seller’s jurisdiction of incorporation and anyother jurisdictions in which it is qualified to do business as a foreigncorporation.  Seller is a corporationduly organized, validly existing and in good standing under the laws of itsjurisdiction of incorporation, with full corporate power and authority toconduct its business as it is now being conducted, to own or use the propertiesand assets that it purports to own or use, and to perform all its obligationsunder the Seller Contracts. Seller is duly qualified to do business as aforeign corporation and is in good standing under the laws of each state orother jurisdiction in which either the ownership or use of the properties ownedor used by it, or the nature of the activities conducted by it, requires suchqualification, except where the absence to be so qualified would not have amaterial adverse effect on the business, operations, assets, results ofoperations or condition (financial or other) of Seller.

 

(b)           Complete and accurate copies of theGoverning Documents of Seller, as currently in effect, are attached toSchedule 3.1(b).

 

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

 

**3.2.Enforceability; Authority; No Conflict.**

 

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

 

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

 

(b)           Except as set forth onSchedule 3.2(b), neither the execution and delivery of this Agreement northe consummation or performance of any of the Contemplated Transactions will,directly or indirectly (with or without notice or lapse of time):

 

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

 

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

 

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

 

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

 

(v)           breach any provisionof, or give any Person the right to declare a default or exercise any remedyunder, or to accelerate the maturity or performance of, or payment under, or tocancel, terminate or modify, any Seller Contract of an amount or value inexcess of $25,000;

 

(vi)          result in theimposition or creation of any Encumbrance upon or with respect to any of theAssets; or

 

(vii)         result in anyShareholder of the Seller having the right to exercise dissenters’ appraisalrights.

 

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

 

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**3.3. Capitalization****.**** **Theauthorized equity securities of Seller consist of 10,000 shares of commonstock, par value one dollar per share, of which 1,200 shares are issued andoutstanding, 960 of which are owned by Kaplan, 120 of which are owned byHirsch, 60 of which are owned by Rotblatt and 60 of which are owned byDouglas.  Shareholders are and will be onthe Closing Date the record and beneficial owners and holders of the sharesowned by each of them, free and clear of all Encumbrances.  There are no Contracts relating to theissuance, sale or transfer of any equity securities or other securities of Seller.  Other than the Shareholders, no other Personowns, holds or has the right to acquire any equity securities or othersecurities of Seller.

 

**3.4. FinancialStatements****.**** **Seller has delivered toBuyer:  (a) an unaudited (butreviewed by Friduss, Lukee, Schiff & Co., P.C., the independent certifiedpublic accountants of the Seller (“Reviewed”)) balance sheet of Selleras at December 31, 2001 (including the notes thereto, the “BalanceSheet”), and the related Reviewed unaudited statements of income, changesin shareholders’ equity and cash flows for the fiscal year then ended,including in each case the notes thereto, (b) Reviewed balance sheets ofSeller as at December 31 in each of the fiscal years 1998 through 2000,and the related Reviewed statements of income, changes in shareholders’ equityand cash flows for each of the fiscal years then ended, including in each casethe notes thereto; and (c) an unaudited balance sheet of Seller as atMarch 31, 2002, (the “Interim Balance Sheet”) and the relatedunaudited statement of income for the three months then ended, certified bySeller’s chief financial officer.  Suchfinancial statements fairly present the financial condition and the results ofoperations, changes in shareholders’ equity and cash flows of Seller, asapplicable, as at the respective dates of and for the periods referred to insuch financial statements, all in accordance with GAAP, subject, in the case ofinterim financial statements, to normal recurring year-end adjustments (theeffect of which will not, individually or in the aggregate, be significant) andthe absence of notes (that, if presented, would not differ materially fromthose included in the Balance Sheet). The financial statements referred to in this Section 3.4 reflectthe consistent application of such accounting principles throughout the periodsinvolved, except as set forth on Schedule 3.4 or as disclosed in the notesto such financial statements.  Thefinancial statements have been and will be prepared from and are in accordancewith the accounting records of Seller. Seller has also delivered to Buyer copies of all letters from Seller’sauditors to Seller’s board of directors during the thirty-six (36) monthspreceding the execution of this Agreement, together with copies of anyresponses thereto.

 

**3.5. Books and Records****.**** **Thebooks of account and other financial records of Seller, all of which have beenmade available to Buyer, are complete and correct, in all material respects,and represent actual, bona fide transactions and have been maintained inaccordance with sound business practices including the maintenance of anadequate system of internal controls. The minute books of Seller, all of which have been made available toBuyer, contain accurate and complete, in all material respects, records of allmeetings held of, and corporate action taken by, the Shareholders, the board ofdirectors and any committees of the board of directors of Seller, and nomeeting of any such Shareholders, board of directors or committee at whichaction has been taken to obligate the Seller or subject the Seller to anyliability after the date hereof has been held for which minutes have not beenprepared or are not contained in such minute books.

 

**3.6. Sufficiency of Assets****.**** **Except as set forth onSchedule 3.6, the Assets (a) constitute all of the assets, tangibleand intangible, of any nature whatsoever, necessary to operate Seller’s

 

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business in the mannerpresently operated by Seller and (b) include all of the operating assetsof Seller.

 

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

 

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

 

**3.9.Title to Assets; Encumbrances****.**

 

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

 

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

 

**3.10.****       Condition of Facilities****.**

 

(a)           Use of the Real Property for thevarious purposes for which it is presently being used is permitted as of rightunder all applicable zoning Legal Requirements and is not subject to “permittednonconforming” use or structure classifications.  All Improvements are in substantial compliance with allapplicable Legal Requirements, including those pertaining to zoning, buildingand the disabled.  No part of anyImprovement encroaches on any real property not included in the Real Property,and there are no buildings, structures, fixtures or other improvementsprimarily situated on adjoining property which encroach on any part of theLand.  The Land for each owned Facilityabuts on and has vehicular access to a public road, is supplied with public orquasi-public utilities appropriate for the operation of the Facilities locatedthereon and, except as described on Schedule 3.10(a), is not locatedwithin any flood plain or area subject to wetlands regulation or any similarrestriction.  With respect to the leaseof property

 

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

 

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

 

**3.11.****       Accounts Receivable****.**** **AllAccounts Receivable that are reflected on the Balance Sheet and the InterimBalance Sheet, and on the accounting records of Seller as of the Closing Daterepresent or will represent valid obligations arising from sales actually madeor services actually performed by Seller in the ordinary course of businessconsistent with past practice. Except to the extent paid prior to the ClosingDate, such Accounts Receivable are or will be as of the Closing Date currentand collectible net of the respective reserves shown on the Balance Sheet, theInterim Balance Sheet and on the Closing Balance Sheet (which reserves arecalculated as described on Schedule 3.11, and will not represent amaterial adverse change in the composition of such Accounts Receivable in termsof aging).  Except as set forth onSchedule 3.11, there is no contest, claim, defense or right of setoffunder any Contract with any account debtor of an Account Receivable relating tothe amount or validity of such Account Receivable.  Schedule 3.11 contains a complete and accurate list of allAccounts Receivable as of the date of the Interim Balance Sheet, which listsets forth the aging of each such Account Receivable.

 

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

 

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

 

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

 

**3.13.****       No Undisclosed Liabilities****.**** **Exceptas set forth on Schedule 3.13, Seller has no Liability that is required tobe reflected or reserved against on financial statements under GAAP that is notso reflected or reserved against in the Balance Sheet, the Interim BalanceSheet and/or the Closing Balance Sheet.

 

**3.14.****       Taxes****.**

 

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

 

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

 

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

 

(c)           Proper Accrual.  The charges, accruals and reserves withrespect to Taxes on the financial statements of Seller are adequate (determinedin accordance with GAAP) and are at least equal to Seller’s liability forTaxes.  There exists no proposed taxassessment or deficiency against Seller except as disclosed in the InterimBalance Sheet or on Schedule 3.14(c).

 

(d)           Specific PotentialTax Liabilities and Tax Situations.

 

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

 

(ii)           Tax Sharing orSimilar Agreements.  There is no taxsharing agreement, tax allocation agreement, tax indemnity obligation orsimilar written or unwritten agreement, arrangement, understanding or practicewith respect to Taxes (including any advance pricing agreement, closingagreement or other arrangement relating to Taxes) that will require any paymentby Seller.

 

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

 

(iv)          S Corporation.  Seller is, and has been since November 1,1987, an S corporation as defined in Code Section 1361, and Seller has notbeen required to pay any amounts of Tax pursuant to either the built-in-gainstax under Code Section 1374 or the passive income tax under CodeSection 1375.

 

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

 

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Seller hasfiled any corporate, income or franchise tax returns and sets forth whetherSeller is treated as the equivalent of an S corporation by or with respect toeach such state or locality.  Seller hasproperly filed Tax Returns with and paid and discharged any liabilities forTaxes in any states or localities in which it is subject to Tax.  Seller has disclosed on its federal incomeTax Returns all positions taken therein that could give rise to a substantialunderstatement of federal income Tax within the meaning of CodeSection 6662.

 

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

 

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

 

**3.17.       Compliance With Legal Requirements;Governmental Authorizations****.**

 

(a)           Except as set forth onSchedule 3.17(a):

 

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

 

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

 

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(iii)          Seller has notreceived, at any time since January 1, 1999, any notice or othercommunication (whether oral or written) from any Governmental Body or any otherPerson regarding (A) any actual, alleged, possible or potential violationof, or failure to comply with, any Legal Requirement or (B) any actual,alleged, possible or potential obligation on the part of Seller to undertake,or to bear all or any portion of the cost of, any remedial action of anynature.

 

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

 

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

 

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

 

(iii)          Seller has notreceived, at any time since January 1, 1999, any notice or othercommunication (whether oral or written) from any Governmental Body or any otherPerson regarding (A) any actual, alleged, possible or potential violationof or failure to comply with any term or requirement of any GovernmentalAuthorization or (B) any actual, proposed, possible or potentialrevocation, withdrawal, suspension, cancellation, termination of ormodification to any Governmental Authorization; and

 

(iv)          all applicationsrequired to have been filed for the renewal of the Governmental Authorizationslisted or required to be listed on Schedule 3.17(b) have been duly filedon a timely basis with the appropriate Governmental Bodies, and all otherfilings required to have been made with respect to such GovernmentalAuthorizations have been duly made with the appropriate Governmental Bodies.

 

TheGovernmental Authorizations listed on Schedule 3.17(b) collectivelyconstitute all of the Governmental Authorizations necessary to permit Seller tolawfully conduct and operate its business in the manner in which it currentlyconducts and operates such business and to permit Seller to own and use itsassets in the manner in which it currently owns and uses such assets, exceptwhere the absence of such Governmental Authorizations would not have a material

 

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

 

**3.18.****       Legal Proceedings; Orders****.**

 

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

 

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

 

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

 

To theKnowledge of Seller, no event has occurred or circumstance exists that isreasonably likely to give rise to or serve as a basis for the commencement ofany such Proceeding.  Seller hasdelivered to Buyer copies of all pleadings, correspondence and other documentsrelating to each Proceeding listed on Schedule 3.18(a).  There are no Proceedings listed or requiredto be listed on Schedule 3.18(a) that could have a material adverse effecton the business, operations, assets or condition of Seller or upon the Assets.

 

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

 

(c)           Except as set forth onSchedule 3.18(c):  (i) Selleris, and, at all times has been in compliance with all of the terms andrequirements of each Order to which it or any of the Assets is or has beensubject; (ii) to Seller’s Knowledge, no event has occurred or circumstanceexists that is reasonably likely to constitute or result in (with or withoutnotice or lapse of time) a violation of or failure to comply with any term or requirementof any Order to which Seller or any of the Assets is subject; and(iii) Seller has not received, at any time, any notice or othercommunication (whether oral or written) from any Governmental Body or any otherPerson regarding any actual, alleged, possible or potential violation of, orfailure to comply with, any term or requirement of any Order to which Seller orany of the Assets is or has been subject.

 

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

 

(a)           amendment to the Governing Documentsof Seller;

 

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

 

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

 

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

 

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

 

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

 

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

 

(h)           written or oral notification by anysignificant customer or supplier of an intention to discontinue or materiallychange the terms of its relationship with Seller;

 

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

 

(j)            Contract by Seller to do any of theforegoing.

 

**3.20.****       Contracts; No Defaults****.**

 

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

 

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

 

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

 

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

 

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

 

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a value peritem or aggregate payments of less than $20,000 and with a term of less thanone year);

 

(v)           each Seller Contractwith any labor union or other employee representative of a group of employeesrelating to wages, hours and other conditions of employment;

 

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

 

(vii)         each Seller Contractcontaining covenants that in any way purport to restrict Seller’s businessactivity or limit the freedom of Seller to engage in any line of business or tocompete with any Person;

 

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

 

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

 

(x)            each SellerContract entered into other than in the ordinary course of business, consistentwith past practice, that contains or provides for an express undertaking bySeller to be responsible for consequential damages;

 

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

 

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

 

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

 

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

 

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

 

(b)           Except as set forth onSchedule 3.20(b), no Shareholder or any Related Person of a Shareholderhas or may acquire any rights under, and no Shareholder has or may becomesubject to any obligation or liability under, any Contract that relates to thebusiness of Seller or any of the Assets.

 

(c)           Except as set forth onSchedule 3.20(c):

 

(i)            each SellerContract identified or required to be identified on Schedule 3.20(a) andwhich is to be assigned to or assumed by Buyer under this

 

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Agreement isin full force and effect and is valid and enforceable in accordance with itsterms, except to the extent that enforceability is limited by the laws ofbankruptcy, insolvency or similar laws affecting creditors’ rights andremedies, or by equitable principles;

 

(ii)           each SellerContract identified or required to be identified on Schedule 3.20(a) andwhich is being assigned to or assumed by Buyer is assignable by Seller to Buyerwithout the consent of any other Person; and

 

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

 

(d)           Except as set forth onSchedule 3.20(d):

 

(i)            Seller is inmaterial and substantial compliance with all applicable terms and requirementsof each Seller Contract which is being assumed by Buyer;

 

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

 

(iii)          no event hasoccurred or circumstance exists that (with or without notice or lapse of time)may contravene, conflict with or result in a breach of, or give any otherPerson, or to the Knowledge of Seller or the Shareholders, Seller,  the right to declare a default or exerciseany remedy under, or to accelerate the maturity or performance of, or paymentunder, or to cancel, terminate or modify, any Seller Contract that is beingassigned to or assumed by Buyer;

 

(iv)          no event hasoccurred or circumstance exists under or by virtue of any Contract that (withor without notice or lapse of time) would cause the creation of any Encumbranceaffecting any of the Assets; and

 

(v)           Seller has not givento or received from any other Person any notice or other communication (whetheroral or written) regarding any actual, alleged, possible or potential violationor breach of, or default under, any Contract which is being assigned to orassumed by Buyer.

 

(e)           Except as set forth on Schedule3.20(e), there are no renegotiations of, attempts to renegotiate or outstandingrights to renegotiate any material amounts paid or payable to Seller undercurrent or completed Contracts with any Person having the contractual orstatutory right to demand or require such renegotiation and no such Person hasmade written demand for such renegotiation.

 

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

 

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

 

**3.21.****       Insurance****.**

 

(a)           Seller has delivered to Buyer:

 

(i)            accurate andcomplete copies of all policies of insurance (and correspondence relating tocoverage thereunder) to which Seller is a party or under which Seller is or hasbeen covered at any time since January 1, 1999, a list of which isincluded on Schedule 3.21(a);

 

(ii)           accurate andcomplete copies of all pending applications by Seller for policies ofinsurance; and

 

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

 

(b)           Schedule 3.21(b) describes:

 

(i)            any self–insurancearrangement by or affecting Seller, including any reserves establishedthereunder;

 

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

 

(iii)          all obligations ofSeller to provide insurance coverage to Third Parties (for example, underLeases or service agreements) and identifies the policy under which suchcoverage is provided.

 

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

 

(d)           Except as set forth onSchedule 3.21(d):  (i) allpolicies of insurance to which Seller is a party or that provide coverage toSeller:  (A) are valid, outstandingand

 

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enforceable; (B) areissued by an insurer that is financially sound and reputable; (C) toSeller’s Knowledge, when taken together, provide adequate insurance coveragefor the Assets and the operations of Seller for all risks normally insuredagainst by a Person carrying on the same business or businesses as Seller inthe same location; and (D) are sufficient for compliance with all SellerContracts, and to the Knowledge of the Seller and Shareholders, all LegalRequirements; (ii) Seller has not received (A) any refusal ofcoverage or any notice that a defense will be afforded with reservation ofrights or (B) any notice of cancellation or any other notice that anypolicy of insurance is no longer in full force or effect or that the issuer ofany policy of insurance is not willing or able to perform its obligationsthereunder; and (iii) Seller has paid all premiums due, and has otherwiseperformed all of its obligations, under each policy of insurance to which it isa party or that provides coverage to Seller.

 

**3.22.****       Environmental Matters****.******This Section contains the sole andexclusive representations and warranties of Seller and Shareholders relating toEnvironmental Law.  Except as disclosedon Schedule 3.22:

 

(a)           Seller is in material compliancewith, and is not in material violation of any Environmental Law.  Neither Seller nor any Shareholder has anyKnowledge of, nor has any of them received, any actual or threatened order,notice or other communication from (i) any Governmental Body or privatecitizen acting in the public interest or (ii) the current or prior owneror operator of any Facility, of any actual or potential violation or failure tomaterially comply with any Environmental Law, or of any actual or impendingmaterial obligation to undertake or bear the cost of any Environmental, Healthand Safety Liabilities with respect to any Facility or other property or asset(whether real, personal or mixed) in which Seller has or had an interest, orwith respect to any property or Facility at or to which Hazardous Materialswere generated, manufactured, refined, transferred, imported, used or processedby Seller or any other Person for whose conduct it is or may be heldresponsible, or from which Hazardous Materials have been transported, treated,stored, handled, transferred, disposed, recycled or received.

 

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

 

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

 

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responsible, have beentransported, treated, stored, handled, transferred, disposed, recycled orreceived.

 

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

 

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

 

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

 

(g)           Seller has delivered to Buyer trueand complete copies and results of any reports, studies, analyses, tests, ormonitoring possessed or initiated by Seller pertaining to Hazardous Materialsor Hazardous Activities in, on, or under the Facilities, or concerningcompliance, by Seller with Environmental Laws.

 

**3.23.****       Employees****.**

 

(a)           Schedule 3.23(a) contains acomplete and accurate list of the following information for each employee anddirector of Seller, including each employee on leave of absence or layoffstatus:  employee’s name; job title;bargaining unit status; date of hire; current compensation paid for thoseearning $50,000 a year or more; sick and vacation leave that is accrued butunused; and service credited for purposes of vesting and eligibility toparticipate under any Employee Plan, or any other employee or director benefitplan.

 

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

 

(c)           To the Knowledge of Seller, noofficer, director, agent, employee, consultant, or contractor of Seller isbound by any Contract that purports to limit the ability of

 

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

 

**3.24.****       Labor Disputes; Compliance****.**

 

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

 

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

 

**3.25.****       Intellectual PropertyAssets****.**

 

(a)           The term “Intellectual PropertyAssets” means all intellectual property owned or licensed (as licensor orlicensee) by Seller in which Seller has a proprietary interest, anywhere in theworld, including:

 

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

 

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

 

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

 

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

 

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

 

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

 

(vi)          all written licensesor agreements providing for the grant by or to Seller of:  (A) any right to use any Mark or TradeSecret, (B) any right under any Patent, (C) any right under anyCopyright, and (D) any right under any Net Name (collectively, the “IntellectualProperty Licenses”);

 

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

 

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

 

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

 

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

 

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

 

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

 

(ii)           Except as set forthon Schedule 3.25(c), all former and current employees, independentcontractors, consultants and agents of Seller have executed written Contractswith Seller that assign to Seller all rights to any inventions, improvements,discoveries, Intellectual Property Assets or information relating to thebusiness of Seller.

 

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

 

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

 

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

 

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

 

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

 

(e)           (i)Schedule 3.25(e)(i) contains a complete and accurate list and summarydescription of all Marks; (ii) all registered Marks or applications forregistration of Marks are currently in force and are not subject to actionsfalling due within ninety (90) days after the Closing Date; (iii) exceptas set forth on Schedule 3.25(e)(iii), no Mark has been or is now

 

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

 

(f)            (i) Schedule 3.25(f) contains acomplete and accurate list and summary description of all registeredCopyrights; (ii) all of the registered Copyrights are currently in force;(iii) except as set forth on Schedule 3.25(f) and to Seller’sKnowledge, no Copyright is infringed or has been challenged or threatened inany way; (iv) to Seller’s Knowledge, none of the subject matter of any ofthe Copyrights infringes or is alleged to infringe any copyright of any ThirdParty or is a derivative work based upon the work of any other Person; and(v) all works encompassed by the Copyrights have been marked to the extentshown in the samples provided, such provided samples are listed on Schedule3.25(f)(v).

 

(g)           (i) Schedule 3.25(g) contains acomplete and accurate list and summary description (without disclosing the TradeSecret) of all itemizable Trade Secrets. To the best of Seller’s Knowledge, the Trade Secrets are not part of thepublic knowledge or literature and, to Seller’s Knowledge, have not been used,divulged or appropriated either for the benefit of any Person (other thanSeller) or to the detriment of Seller and (ii) to Seller’s Knowledge, noTrade Secret is subject to any adverse claim or has been challenged orthreatened in any way or infringes any intellectual property right of any otherPerson.

 

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

 

**3.26.****       Compliance With the Foreign Corrupt PracticesAct and Export Control and Anti–boycott Laws.**

 

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

 

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

 

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

 

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

 

(d)           Seller has at all times been insubstantial compliance with all Legal Requirements relating to export controland trade embargoes.

 

(e)           Except as set forth onSchedule 3.26(e), Seller has not violated the antiboycott prohibitionscontained in 50 U.S.C. sect. 2401 et seq. or taken any action that can bepenalized under Section 999 of the Code. Except as set forth on Schedule 3.26(e), during the lastfive (5) years, Seller has not been a party to, is not a beneficiary underand has not performed any service or sold any product under any Seller Contractunder which a product has been sold to customers in countries to which any suchsale or service is prohibited by any domestic Legal Requirement, and to theKnowledge of Seller and Shareholders, any foreign Legal Requirement.

 

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

 

**3.28.****       RelationshipsWith Related Persons****.**** **Except as disclosed onSchedule 3.28, no Seller nor any Shareholder nor any Related Person of anyof them has, or since January 1, 1999, has had, any interest in anyproperty (whether real, personal or mixed and whether tangible or intangible) usedin or pertaining to Seller’s business. Neither Seller nor any Shareholder nor any Related Person of any of themowns, has owned, of record or as a beneficial owner, an equity interest or anyother financial or profit interest in any Person that has (a) had businessdealings or a material financial interest in any transaction with Seller otherthan business dealings or

 

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transactions disclosed onSchedule 3.28, each of which has been conducted in the ordinary course ofbusiness with Seller, consistent with past practice at substantially prevailingmarket prices and on substantially prevailing market terms or (b) engagedin competition with Seller with respect to any line of the products or servicesof Seller (a “Current Competing Business”) in any market presentlyserved by Seller, except for ownership of less than one percent (1%) of theoutstanding capital stock of any Current Competing Business that is publiclytraded on any recognized exchange or in the over–the–countermarket.  Except as set forth onSchedule 3.28, neither Seller nor any Shareholder nor any Related Personof any of them is a party to any Contract with, or has any claim or rightagainst, Seller.

 

**3.29.****       Brokers or Finders****.**** **Otherthan Duff & Phelps, LLC, neither Seller, any Shareholder nor any of itsRepresentatives have incurred any obligation or liability, contingent orotherwise, for brokerage or finders’ fees or agents’ commissions or othersimilar payments in connection with the sale of Seller’s business or the Assetsor the Contemplated Transactions. Seller shall pay all fees and expenses of Duff & Phelps.

 

**3.30.****       Solvency****.**

 

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

 

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

 

**3.31.****       Disclosure****.**

 

(a)           No representation or warranty orother statement made by Seller or any Shareholder in this Agreement, theschedules hereto, any supplement to the schedules hereto, the certificatesdelivered pursuant to Section 2.7(a) or otherwise in connection with theContemplated Transactions contains any untrue statement or omits to state amaterial fact necessary to make any of them, in light of the circumstances inwhich it was made, not misleading.

 

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

 

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to materially adversely affectthe assets, business, prospects, financial condition or results of operationsof Seller that has not been set forth in this Agreement or the schedulesattached hereto.

 

**3.32.       Collective Bargaining Agreement****.**** **Sellerrepresents and warrants that it has duly complied with all relevant provisionsof the Collective Bargaining Agreement in respect of the ContemplatedTransactions, including giving timely notice under such agreement toeffectively assign such agreement to Buyer.

 

**3.33.       Addition****.**** **Theaddition to the Kentwood facility completed in 2002 was constructedsubstantially in accordance with the plans provided to the Buyer.

 

**3.34.       Procter & Gamble****. **Sellerrepresents and warrants that it no longer sells the products that are thesubject of the accusation of infringement by Procter & Gamble described inSchedule 3.25(d).

 

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

 

**4.****             REPRESENTATIONSAND WARRANTIES OF BUYER****.**

 

Buyerrepresents and warrants to Seller and Shareholders as follows:

 

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

 

**4.2.Authority; No Conflict.**

 

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

 

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Guarantee, and on the ClosingDate, such action will have been duly authorized by all necessary corporateaction.

 

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

 

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

 

**4.4. Operationof Buyer****.**** **Buyer is a direct or indirectwholly-owned subsidiary of RB, and was formed solely for the purpose ofconsummating the Contemplated Transactions.

 

**4.5.Sufficient Resources****.**** **Buyer,at the Closing, will have sufficient resources to consummate the ContemplatedTransactions.  RB has sufficientresources to perform the Guarantee.

 

**4.6. Brokersor Finders****.**** **Neither Buyer nor any of itsRepresentatives have incurred any obligation or liability, contingent orotherwise, for brokerage or finders’ fees or agents’ commissions or othersimilar payment in connection with the Contemplated Transactions.

 

**5.****             COVENANTSOF SELLER PRIOR TO CLOSING****.**

 

**5.1. Accessand Investigation****.**** **Betweenthe date of this Agreement and the Closing Date, and upon reasonable advancenotice received from Buyer, Seller shall (and Shareholders shall cause Sellerto) (a) afford Buyer and its Representatives and prospective lenders andtheir Representatives (collectively, “Buyer Group”) full and freeaccess, during regular business hours, to Seller’s personnel, properties(including subsurface testing), Contracts, Governmental Authorizations, booksand records and other documents and data, such rights of access to be exercisedin a manner that does not unreasonably interfere with the operations of Seller;(b) furnish Buyer Group with copies of all such Contracts, GovernmentalAuthorizations, books and records and other existing documents and data asBuyer may reasonably request; (c) furnish Buyer Group with such additionalfinancial, operating and other relevant data and information as Buyer mayreasonably request; and (d) otherwise cooperate and assist, to the extentreasonably requested by Buyer, with Buyer’s investigation of the properties,assets and financial condition related to Seller.  In addition, Buyer shall have the right to have the Real Propertyand Tangible Personal Property inspected by Buyer Group, at Buyer’s sole cost andexpense, for purposes of determining the physical condition and legalcharacteristics of the Real Property and Tangible Personal Property.  In the event subsurface or other destructivetesting is recommended by any of Buyer Group, Buyer shall be permitted to havethe same performed.

 

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**5.2.Operation of the Business of Seller****.**** **Betweenthe date of this Agreement and the Closing, Seller shall (and Shareholdersshall cause Seller to):

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(i)            except as required to comply withERISA or to maintain qualification under Section 401(a) of the Code, notamend, modify or terminate any Employee Plan without the express writtenconsent of Buyer;

 

(j)            cooperate with Buyer and assistBuyer in identifying the Governmental Authorizations required by Buyer tooperate the business from and after the Closing Date and either transferringexisting Governmental Authorizations of Seller to Buyer, where permissible, orobtaining new Governmental Authorizations for Buyer;

 

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

 

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

 

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**5.3. NegativeCovenant****.**** **Except as otherwise expresslypermitted herein, between the date of this Agreement and the Closing Date,Seller shall not, and Shareholders shall not permit Seller to, without theprior written Consent of Buyer, (a) take any affirmative action, or failto take any reasonable action within its control, as a result of which any ofthe changes or events listed in Sections 3.15 or 3.19 would be likely tooccur; (b) make any modification to any material Contract or GovernmentalAuthorization; (c) allow the levels of raw materials, supplies or othermaterials included in the Inventories to vary materially from the levelscustomarily maintained; or (d) enter into any compromise or settlement ofany litigation, Proceeding or investigation of any Governmental Body relatingto the Assets, the business of Seller or the Assumed Liabilities.

 

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

 

**5.5. Notification****.**** **Betweenthe date of this Agreement and the Closing, Seller and Shareholders shall promptlynotify Buyer in writing if any of them obtains Knowledge of (a) any factor condition that causes or constitutes a breach of any of Seller’srepresentations and warranties made as of the date of this Agreement or(b) the occurrence after the date of this Agreement of any fact orcondition that would or be reasonably likely to (except as expresslycontemplated by this Agreement) cause or constitute a breach of any suchrepresentation or warranty had that representation or warranty been made as ofthe time of the occurrence of, or Seller’s or either Shareholders’ discoveryof, such fact or condition.  Should anysuch fact or condition require any change to the schedules hereto, Seller shallpromptly deliver to Buyer a supplement to the schedules hereto specifying suchchange.  Such delivery shall not affectany rights of Buyer under Section 9.2 and Article 11.  During the same period, Seller andShareholders also shall promptly notify Buyer of the occurrence of any breachof any covenant of Seller or Shareholders in this Article 5 or of theoccurrence of any event that may make the satisfaction of the conditions inArticle 7 impossible or unlikely.

 

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

 

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

 

**5.8. Paymentof Liabilities****.**** **Sellershall pay or otherwise satisfy when due all of its Liabilities and obligationsconsistent with past practice.  Buyerand Seller hereby waive compliance with the bulk–transfer provisions ofthe Uniform Commercial Code (or any similar law) (“Bulk Sales Laws”) inconnection with the Contemplated Transactions.

 

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

 

**5.10.****       Current Evidence of Title****.**

 

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

 

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

 

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

 

(B)           complete and legiblecopies of all recorded documents listed as Schedule B–1 matters tobe terminated or satisfied in order to issue the policy described in the TitleCommitment or as special Schedule B–2 exceptions thereunder (the “RecordedDocuments”); and

 

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

 

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

 

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

 

(iii)          complete andcurrent searches in the name of Seller and other appropriate parties of allUniform Commercial Code Financing Statements records maintained by theSecretary of State of the state in which Seller is incorporated, the state inwhich Seller maintains its principal place of business, each state in which aFacility is located, each jurisdiction in which a filing would be required inorder to perfect a security interest in the Assets, the clerk or recorder ofdeeds (or other governmental office where real property documents are filed forrecording) of each county in which any Facility is located and wherever elseSeller or Buyer, based upon its investigation, is aware that a UniformCommercial Code Financing Statement has been filed, together with suchreleases, termination statements and other documents as may be necessary toprovide reasonable evidence that all items of intangible personal property,Tangible Personal Property and fixtures to be sold under this Agreement arefree and clear of Encumbrances, other than as permitted under this Agreement.

 

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

 

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

 

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

 

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(ii)           any title exceptionis disclosed in Schedule B to any Title Commitment that is not one of thePermitted Real Estate Encumbrances or one that Seller specifies when deliveringthe Title Commitment to Buyer as one that Seller will cause to be deleted fromthe Title Commitment concurrently with the Closing, including (A) anyexceptions that pertain to Encumbrances securing any loans that do not constitutean Assumed Liability and (B) any exceptions that Buyer reasonably believescould materially and adversely affect Buyer’s use and enjoyment of the RealProperty described therein; or

 

(iii)          any Surveydiscloses any matter that Buyer reasonably believes could materially andadversely affect Buyer’s use and enjoyment of the Real Property describedtherein;

 

then Buyer shall notify Sellerin writing (“Buyer’s Notice”) of such matters within ten (10) BusinessDays after receiving all of the Title Commitment, Survey and copies of RecordedDocuments for the Facility covered thereby.

 

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

 

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

 

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

 

**6.****             COVENANTSOF BUYER PRIOR TO CLOSING****.**

 

**6.1. RequiredApprovals****.**** **As promptly as practicable afterthe date of this Agreement, Buyer shall make, or cause to be made, all filingsrequired by Legal Requirements (including all filings under the HSR Act) to bemade by it to consummate the Contemplated Transactions.  Buyer also shall cooperate, and cause itsRelated Persons to cooperate, with Seller (a) with respect to all filingsSeller shall be required by Legal Requirements to make and (b) inobtaining all Consents identified on Schedule 3.2(c), provided, however,that Buyer shall not be required to dispose of or make any change to itsbusiness, expend any material funds or incur any other burden in order tocomply with this Section 6.1.

 

**6.2. Notification****.**** **Betweenthe date of this Agreement and the Closing, Buyer shall promptly notify Sellerin writing if it obtains Knowledge of (a) any fact or condition thatcauses or constitutes a breach of any of Buyer’s representations and warrantiesmade as of the date of this Agreement or (b) the occurrence after the dateof this Agreement of any fact or condition

 

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

 

**6.3. Best Efforts****.**** **Buyershall use its Best Efforts to cause the conditions in Section 7.8 andArticle 8 to be satisfied, and to cause the consummation of theContemplated Transactions.

 

**7.****             CONDITIONSPRECEDENT TO BUYER’S OBLIGATION TO CLOSE****.**

 

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

 

**7.1. Accuracy of Representations****.**

 

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

 

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

 

**7.2. Seller’sPerformance****.**** **All of the covenants andobligations that Seller and Shareholders are required to perform or to complywith pursuant to this Agreement at or prior to the Closing (consideredcollectively), and each of these covenants and obligations (consideredindividually), shall have been duly performed and complied with in all materialrespects.

 

**7.3. Consents****.**** **Eachof the Consents (the “Material Consents”) required to consummate theContemplated Transactions with respect to the Seller Contracts, other than theNon Material Consents identified in Exhibit 7.3, shall have beenobtained and shall be in full force and effect, including, but not limited to,a Consent to the assignment to the Buyer of the MAM Agreement on termssatisfactory to Buyer.

 

**7.4.Additional Documents****.**** **Sellerand Shareholders shall have caused the documents and instruments required bySection 2.7(a) and the following documents to be delivered (or tenderedsubject only to Closing) to Buyer:

 

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

 

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

 

(c)           a valid certificate of insurance withBuyer as the named insured for each insurance policy set forth on Schedule7.4(c), in form satisfactory to Buyer;

 

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

 

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

 

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

 

(g)           Certificates dated as of a date notearlier than the fifth Business Day prior to the Closing as to the goodstanding of Seller and, to the extent consistent with routine practice of eachrelevant state, payment of all applicable state Taxes by Seller, executed bythe appropriate officials of the State of Illinois and each jurisdiction inwhich Seller is licensed or qualified to do business as a foreign corporationas specified on Schedule 3.1(a); and

 

(h)           Such other documents as Buyer mayreasonably request for the purpose of: (i) evidencing the accuracy of any of Seller’s representations andwarranties; (ii) evidencing the performance by Seller or any Shareholderof, or the compliance by Seller or any Shareholder with, any covenant orobligation required to be performed or complied with by Seller or suchShareholder; (iii) evidencing the satisfaction of any condition referredto in this Article 7; or (iv) otherwise facilitating the consummationor performance of any of the Contemplated Transactions.

 

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

 

**7.6. No Conflict****.**** **Neitherthe consummation nor the performance of any of the Contemplated Transactionswill, directly or indirectly (with or without notice or lapse of time),

 

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

 

**7.7. Title Insurance****.**** **Buyershall have received unconditional and binding commitments to issue policies oftitle insurance consistent with Section 5.10, dated the Closing Date, inan aggregate amount equal to the amount of the Purchase Price allocated to theReal Property, deleting all requirements listed in ALTA Schedule B–1,amending the effective date to the date and time of recordation of the deedtransferring title to the Real Property to Buyer with no exception for the gapbetween closing and recordation, deleting or insuring over Title Objections asrequired pursuant to Section 5.10, attaching all endorsements required byBuyer in order to ensure provision of all coverage required pursuant to Section 5.10and otherwise in form satisfactory to Buyer insuring Buyer’s interest in eachparcel of Real Property or interest therein to the extent required bySection 5.10.

 

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**7.8.Governmental Authorizations****. **Buyershall have received such Governmental Authorizations as are necessary ordesirable to allow Buyer to operate the Assets from and after the Closing.

 

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

 

**7.10.****       Employees****.**

 

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

 

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

 

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

 

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

 

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

 

**7.14.****       Notice****.**

 

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

 

**7.15.****       MAM Agreement****.**

 

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

 

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**7.16.****       Intellectual Property Forms****.**

 

All employees of Sassy involvedin product development who have not signed the Invention, Patents andConfidential Information Agreement, including those identified in theattachment to Schedule 3.25(c), shall have executed such agreement, in form andwith language satisfactory to Buyer.

 

**8.****             CONDITIONSPRECEDENT TO SELLER’S OBLIGATION TO CLOSE****.**

 

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

 

**8.1.Accuracy of Representations****.**** **Allof Buyer’s representations and warranties in this Agreement (consideredcollectively), and each of these representations and warranties (consideredindividually), shall have been accurate in all material respects as of the dateof this Agreement and shall be accurate in all material respects as of the timeof the Closing as if then made.

 

**8.2. Buyer’sPerformance****.**** **All of the covenants andobligations that Buyer is required to perform or to comply with pursuant tothis Agreement at or prior to the Closing (considered collectively), and eachof these covenants and obligations (considered individually), shall have beenduly performed and complied with in all material respects.

 

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

 

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

 

(b)           Buyer will adopt a managementretention plan and an EBITDA earnout in the form set forth in Exhibits8.3(b)(i) and (ii); and

 

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

 

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

 

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**9.****             TERMINATION****.**

 

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

 

(a)           by Buyer if a material breach of anyprovision of this Agreement has been committed by Seller or Shareholders andsuch breach has not been waived by Buyer;

 

(b)           by Seller if a material breach of anyprovision of this Agreement has been committed by Buyer and such breach has notbeen waived by Seller;

 

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

 

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

 

(e)           by mutual consent of Buyer andSeller;

 

(f)            by Buyer if the Closing has notoccurred on or before July 26, 2002 or such later date as the parties may agreeupon, unless the Buyer is in material breach of this Agreement; or

 

(g)           by Seller if the Closing has notoccurred on or before July 26, 2002 or such later date as the parties may agreeupon, unless the Seller or Shareholders are in material breach of thisAgreement.

 

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

 

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**10.****          ADDITIONAL COVENANTS****.**

 

**10.1.       Employees and Employee Benefits****.**

 

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

 

(b)           Employment of Active Employees byBuyer.

 

(i)            Buyer will offeremployment to all Active Employees as of the Closing Date on termssubstantially similar to those under which they were employed by Seller priorto the Closing Date.  Buyer agrees tocredit Active Employees with all service such Employees have been credited withpursuant to corresponding plans maintained by Seller as of the Closing Dateprior to the Closing Date for purposes of vesting and eligibility under anyemployee benefit plan maintained by Buyer or any of its Related Persons inwhich the Active Employees participate after the Closing.  Buyer will permit Active Employees to carryover and take paid vacation or other paid time-off benefits which were accruedbut unused as of the Closing Date in accordance with applicable policies ofSeller as of the Closing Date.  Buyerwaives any limitations regarding preexisting conditions, and will give fullcredit for any co-payments made and deductibles fully or partially satisfiedprior to the Closing Date with respect to any welfare benefit plans maintainedby Buyer or any of its Related Persons in which Active Employees participateafter the Closing Date.  From and afterthe Closing Date, Buyer shall be solely responsible for all termination and severancebenefits, costs, charges and liabilities of any nature incurred with respect tothe termination of an Active Employee by Buyer or any of its Related Persons onor after the Closing Date.  Seller willprovide access to the Facilities and personnel records of Seller uponreasonable prior notice during normal business hours.  Effective immediately before the Closing, Seller will terminatethe employment of all of its Active Employees.

 

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

 

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

 

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locations,salaries, other compensation or terms or conditions of employment of suchemployees.

 

(c)           Salaries and Benefits.

 

(i)            To the extent notaccrued as a current liability on the Closing Balance Sheet or set forth onSchedule 2.4(b)(vii), Seller shall be responsible for (A) the payment ofall wages and other remuneration due to Active Employees with respect to theirservices as employees of Seller through the close of business on the ClosingDate, including pro rata bonus payments and all vacation pay earned prior tothe Closing Date; (B) the payment of any termination or severance paymentsand the provision of health plan continuation coverage in accordance with therequirements of COBRA; and (C) any and all payments to employees requiredunder the Worker Adjustment and Retraining Notification Act (the “WARN Act”)for the period prior to the Closing Date. Notwithstanding the foregoing, Buyer shall pay all cash bonusesreflected on the Closing Balance Sheet accrued to any Active Employees inaccordance with their terms, when due, and Buyer shall be responsible for anyand all obligations arising under the continuation coverage requirements ofCOBRA for any Active Employees and their qualified beneficiaries who experiencea qualifying event on or following the Closing Date.

 

(ii)           Seller shall beliable for any claims made or incurred by Active Employees and theirbeneficiaries through the Closing Date under the Employee Plans.  For purposes of the immediately precedingsentence, a charge will be deemed incurred, in the case of hospital, medical ordental benefits, when the services that are the subject of the charge areperformed and, in the case of other benefits (such as disability or lifeinsurance), when an event has occurred or when a condition has been diagnosedthat entitles the employee to the benefit.

 

(d)           Seller’s Retirement and SavingsPlans.  All Active Employees who areparticipants in Seller’s Employee Plans that are “employee pension benefitplans” under Section 3(1) of ERISA shall become fully vested in theiraccrued benefits under such plans as of the Closing Date, and such plans (andSeller, in the case of non-qualified plans) shall retain sole liability for thepayment of such benefits as and when such Active Employees become eligibletherefor under such plans.

 

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

 

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

 

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

 

(g)           General EmployeeProvisions.

 

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

 

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

 

(iii)          If any of thearrangements described in this Section 10.1 are determined by the IRS orother Governmental Body to be prohibited by law, Seller and Buyer shall modifysuch arrangements to as closely as possible reflect their expressed intent andretain the allocation of economic benefits and burdens to the partiescontemplated herein in a manner that is not prohibited by law.

 

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

 

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

 

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

 

**10.2.       Payment of All Taxes Resulting From Saleof Assets by Seller****.**** **Subjectto the portion of any Taxes contested by Seller in good faith, Seller shall payin a timely manner all Taxes resulting from or payable in connection with thesale of the Assets pursuant to this Agreement imposed by Legal Requirements onSeller.

 

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

 

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

 

**10.5.       Removing Excluded Assets****.****** Onor before the Closing Date, Seller shall remove all Excluded Assets from allFacilities and other Real Property to be occupied by Buyer.  Such removal shall be done in such manner asto avoid any damage to the Facilities and other properties to be occupied byBuyer and any disruption of the business operations to be conducted by Buyerafter the Closing.  Any damage to theAssets or to the Facilities resulting from such removal shall be paid by Sellerat the Closing.

 

**10.6.       Reports and Returns****.**** **Sellershall promptly after the Closing prepare and file all reports and returnsrequired by Legal Requirements relating to the business of Seller as conductedusing the Assets, to and including the Closing Date.

 

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

 

**10.8.       Noncompetition, Nonsolicitation andNondisparagement****.**

 

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

 

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

 

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

 

(c)           Nondisparagement.  After the Closing Date, Seller will notdisparage Buyer or any of Buyer’s shareholders, directors, officers, employeesor agents.

 

(d)           Modification of Covenant.  If a final judgment of a court or tribunalof competent jurisdiction determines that any term or provision contained inSection 10.8(a) through (c) is invalid or unenforceable, then theparties agree that the court or tribunal will have the power to reduce thescope, duration or geographic area of the term or provision, to delete specificwords or phrases or to replace any invalid or unenforceable term or provisionwith a term or provision that is valid and enforceable and that comes closestto expressing the intention of the invalid or unenforceable term orprovision.  This Section 10.8 willbe enforceable as so modified after the expiration of the time within which thejudgment may be appealed.  ThisSection 10.8 is reasonable and necessary to protect and preserve Buyer’slegitimate business interests and the value of the Assets and to prevent anyunfair advantage conferred on Seller.

 

**10.9.       Customer and Other Business Relationships****.**** **Afterthe Closing, Seller and Shareholders will cooperate (in the case of Kaplan,such cooperation shall not exceed 40 hours per year, require him to travel, orextend beyond the second anniversary of the Closing Date) with Buyer in itsefforts to continue and maintain for the benefit of Buyer those businessrelationships of Seller existing prior to the Closing and relating to thebusiness of Seller to be operated by Buyer after the Closing, includingrelationships with lessors, employees, regulatory authorities, licensors,licensees, customers, suppliers and others, and Seller will satisfy allRetained Liabilities as and when due, unless a good faith dispute exists withrespect thereto (Seller will give Buyer written notice of any such dispute ifso requested by Buyer).  Seller willrefer to Buyer all inquiries relating to such business.  Neither Seller nor any of its officers,employees, agents or Shareholders shall take any action that would tend todiminish the value of the Assets after the Closing or that would interfere withthe business of Buyer to be engaged in after the Closing, including disparagingthe name or business of Buyer.

 

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

 

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

 

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

 

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

 

**10.13.     Further Assurances****.**** **Subjectto the proviso in Section 6.1, the parties shall cooperate reasonably witheach other and with their respective Representatives in connection with anysteps required to be taken as part of their respective obligations under thisAgreement, and shall (a) furnish upon request to each other such furtherinformation; (b) execute and deliver to each other such other documents;and (c) do such other acts and things, all as the other party mayreasonably request for the purpose of carrying out the intent of this Agreementand the Contemplated Transactions, including, but not limited to, execution offorms of assignment and related documents suitable for recordation in foreignjurisdictions to effect the transfer of the Intellectual Property Assets.

 

**10.14.     Post-Closing Payments****.**** **Inthe event that Seller or any Shareholder should, following the Closing, receiveany payments or other property with respect to accounts receivable or otherassets constituting Assets hereunder, Seller or Shareholders, as the case maybe, shall promptly remit and transfer such funds or other property to Buyer.

 

**10.15.     MAM Agreement****.**

 

Seller shall not agree to anymethod of calculation of any amounts under the MAM Agreement without the priorwritten consent of Buyer.

 

**10.16.     Escrow****.**

 

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

 

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**10.17.     Straub Assignments****.**

 

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

 

**10.18.     K-Mart****.**Buyer agrees to (i) pay for legal expensesincurred by Buyer or Seller in connection with the defense of any preferenceclaim allegations with respect to the K-Mart bankruptcy and (ii) remit toSeller one-third of the net amount recovered with respect to accountsreceivable which were written off as a direct result of the K-Martbankruptcy.  Seller agrees that Buyershall control any such defense, including the settlement thereof.

 

**10.19.     Escrow Trust Instructions.**Withrespect to the Real Property identified on Schedule 3.7, Buyer and Seller willjointly execute Escrow Trust Instructions (the “Instructions”), in formattached hereto as Exhibit 10.19.

 

**10.20.     Letter of Credit.**

 

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

 

**11.          INDEMNIFICATION; REMEDIES.**

 

**11.1.       Survival****.**** **Allrepresentations, warranties, covenants and obligations in this Agreement, theschedules hereto, the supplements to the schedules hereto, the certificatesdelivered pursuant to Section 2.7 and any other certificate or documentdelivered pursuant to this Agreement shall survive the Closing and theconsummation of the Contemplated Transactions, subject to Section 11.7.  The right to indemnification, reimbursementor other remedy based upon such representations, warranties, covenants andobligations shall not be affected by any investigation (including anyenvironmental investigation or assessment) conducted with respect to, or anyKnowledge acquired (or capable of being acquired) at any time, whether beforeor after the execution and delivery of this Agreement or the Closing Date, withrespect to the accuracy or inaccuracy of or compliance with any suchrepresentation, warranty, covenant or obligation.  The waiver of any condition based upon the accuracy of anyrepresentation or warranty, or on the performance of or compliance with anycovenant or obligation, will not affect the right to indemnification,reimbursement or other remedy based upon such representations, warranties,covenants and obligations.

 

**11.2.       Indemnification and Reimbursement bySeller and Shareholders****.**  Seller and each Shareholder, jointly andseverally with respect to Seller and severally with respect to each

 

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Shareholder, will indemnify andhold harmless Buyer, and its Representatives, shareholders, subsidiaries andRelated Persons (collectively, the “Buyer Indemnified Persons”), andwill reimburse the Buyer Indemnified Persons for any loss, liability, claim,damage, expense (including costs of investigation and defense and reasonableattorneys’ fees and expenses) or diminution of value, whether or not involvinga Third-Party Claim (collectively, “Damages”), arising from or inconnection with:

 

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

 

(b)           any breach of any covenant orobligation of Seller or any Shareholder in this Agreement or in any othercertificate, document, writing or instrument delivered by Seller or anyShareholder pursuant to this Agreement provided, however, that with respect toany Shareholder breach of his own Employment Agreement or Non CompetitionAgreement, such Shareholder shall be solely responsible for such breach and anyrelated Damages;

 

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

 

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

 

(e)           subject to Section 11.4(g), anyproduct or component thereof manufactured by or shipped, or any servicesprovided by, Seller, in whole or in part, prior to the Closing Date, or anyInventories purchased by Buyer hereunder, to the extent not covered under theProduct Liability Insurance Policies;

 

(f)            any matter disclosed on Schedule3.25(d) hereto;

 

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

 

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

 

(i)            any Employee Plan established ormaintained by Seller;

 

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

 

(k)           any Retained Liabilities; and

 

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

 

**11.3.       Indemnification and Reimbursement by Sellerand Shareholders — Environmental Matters.**  In addition to the other indemnificationprovisions in this Article 11, Seller jointly and severally, and eachShareholder, severally, will indemnify and hold harmless Buyer and the otherBuyer Indemnified Persons, and will reimburse Buyer and the other BuyerIndemnified Persons, for any Damages (including costs of cleanup, containmentor other remediation) arising from or in connection with:

 

(a)           any Environmental, Health and SafetyLiabilities arising out of or relating to: (i) the ownership or operation by any Person at any time on orprior to the Closing Date of any of the Facilities, Assets or the business ofSeller, or (ii) any Hazardous Materials or other contaminants that werepresent on the Facilities or Assets at any time on or prior to the ClosingDate; or

 

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

 

Buyer will beentitled to control any Remedial Action and any Proceeding relating to anEnvironmental Claim for any Facility occupied by Buyer at the time of theRemedial Action or Proceeding.  Sellerwill be entitled, but not required, to control any other Remedial Action orProceeding with respect to which indemnity may be sought under thisSection 11.3 with respect to an environmental claim.

 

**11.4.       Indemnification and Reimbursement byBuyer****.** Buyer will indemnify and hold harmless Seller and each Shareholder, andtheir respective Representatives, stockholders, subsidiaries and RelatedPersons (collectively, the “Seller Indemnified Persons”), and will reimburseSeller and Seller Indemnified Persons, for any Damages arising from or inconnection with:

 

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

 

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

 

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

 

(d)           any obligations of Buyer with respectto bargaining with the collective bargaining representatives of ActiveEmployees subsequent to the Closing;

 

(e)           any Assumed Liabilities;

 

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

 

(g)           any product or component thereofmanufactured by or shipped or any services provided by Seller, in whole or inpart, prior to the Closing Date, or any Inventories purchased by Buyerhereunder, but only to the extent of the deductible under the Product LiabilityInsurance Policies.

 

**11.5.       Limitations on Amount — Seller andShareholders.**** **(a)                            Seller andShareholders shall have no liability (for indemnification or otherwise) withrespect to claims under Section 11.2(a) until the total of all Damageswith respect to such matters exceeds $250,000 (the “Basket”), in which caseSeller shall be liable for the amount of all Damages from or the first dollarthereof, up to a maximum liability of $30,000,000 (the “Cap”).  Notwithstanding the foregoing, the Basketshall not apply to matters arising in respect of Sections 3.14, 3.28, 3.29, or11.2(b)-(j) or 11.2(l), but the Cap shall apply, and neither the Basket nor theCap will apply to any breach of any of Seller’s and Shareholders’representations and warranties of which the Seller had Knowledge at any timeprior to the date on which such representation and warranty is made or anyintentional breach by Seller or any Shareholder of any covenant or obligation,and Seller will be jointly and severally liable and the Shareholders will beseverally liable for all Damages with respect to such breaches.  Notwithstanding the foregoing, with respectto claims under Section 11.2(k), (i) for direct claims against the Seller,neither the Basket nor the Cap shall apply and (ii) for direct claims againstthe Shareholders, the Basket shall not apply, but the Cap shall apply exceptfor claims under which the plaintiff can establish personal liability on thepart of any Shareholder.  The Basketshall apply to claims arising under Section 11.3.

 

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

 

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

 

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

 

**11.7.       TimeLimitations****.**

 

(a)           If the Closing occurs, Seller andShareholders will have liability (for indemnification or otherwise) withrespect to any breach of (i) a covenant or obligation to be performed orcomplied with prior to the Closing Date (other than those in Sections 2.1 and2.4(b) and Articles 10 and 12, as to which a claim may be made at anytime) or (ii) a representation or warranty (other than those inSections 3.9, 3.14, 3.16, 3.22, 3.29 or 3.30, as to which a claim may bemade at any time), only if on or before the second anniversary of the ClosingDate, Buyer notifies Seller or Shareholders of a claim specifying the factualbasis of the claim in reasonable detail to the extent then known by Buyer.  Notwithstanding anything herein to thecontrary, a claim under Section 11.2(f) or 11.2(j) may be made at any time.

 

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

 

**11.8.      ****Third****-Party Claims.**

 

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

 

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demonstrates that the defenseof such Third–Party Claim is prejudiced by the Indemnified Person’sfailure to give such notice.

 

(b)           If an Indemnified Person gives noticeto the Indemnifying Person pursuant to Section 11.9(a) of the assertion ofa Third-Party Claim, the Indemnifying Person shall be entitled to participatein the defense and settlement of such Third-Party Claim and, to the extent thatit wishes (unless (i) the Indemnifying Person is also a Person againstwhom the Third-Party Claim is made and the Indemnified Person determines ingood faith that joint representation would be inappropriate or (ii) theIndemnifying Person fails to provide reasonable assurance to the IndemnifiedPerson of its financial capacity to defend such Third-Party Claim and provideindemnification with respect to such Third-Party Claim), to assume the defense,including settlement, of such Third-Party Claim with counsel satisfactory tothe Indemnified Person.  After noticefrom the Indemnifying Person to the Indemnified Person of its election to assumethe defense of such Third-Party Claim, the Indemnifying Person shall not, solong as it diligently conducts such defense, be liable to the IndemnifiedPerson under this Article 11 for any fees of other counsel or any otherexpenses with respect to the defense of such Third-Party Claim, in each casesubsequently incurred by the Indemnified Person in connection with the defenseof such Third-Party Claim, other than reasonable costs of investigation.  If the Indemnifying Person assumes thedefense of a Third-Party Claim, (i) such assumption will conclusivelyestablish for purposes of this Agreement that the claims made in thatThird-Party Claim are within the scope of and subject to indemnification,(ii) no compromise or settlement of such Third-Party Claims may beeffected by the Indemnifying Person without the Indemnified Person’s Consentunless (A) there is no finding or admission of any violation of LegalRequirement or any violation of the rights of any Person; (B) the solerelief provided is monetary damages that are paid in full by the IndemnifyingPerson; and (iii) the Indemnifying Person shall have no liability withrespect to any compromise or settlement of such Third-Party Claims effectedwithout its Consent.  If notice is givento an Indemnifying Person of the assertion of any Third-Party Claim and theIndemnifying Person does not, within thirty days after the Indemnified Person’snotice is given, give notice to the Indemnified Person of its election toassume the defense of such Third-Party Claim, the Indemnifying Person will bebound by any determination made in such Third-Party Claim or any compromise orsettlement effected by the Indemnified Person.

 

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

 

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

 

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

 

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

 

**11.9.       OtherClaims****.** A claim for indemnification for any matter not involving a Third-PartyClaim may be asserted by notice to the party from whom indemnification issought and shall be paid promptly after such notice.

 

**12.****          CONFIDENTIALITY****.**

 

**12.1.       Definition of Confidential Information****.**

 

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

 

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

 

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

 

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(iii)          all informationconcerning the business and affairs of the Disclosing Party (which includeshistorical and current financial statements, financial projections and budgets,tax returns and accountants’ materials, historical, current and projectedsales, capital spending budgets and plans, business plans, strategic plans,marketing and advertising plans, publications, client and customer lists andfiles, contracts, the names and backgrounds of key personnel and personneltraining techniques and materials, however documented), and all informationobtained from review of the Disclosing Party’s documents or property ordiscussions with the Disclosing Party regardless of the form of thecommunication; and

 

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

 

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

 

**12.2.****       RestrictedUse of Confidential Information.**

 

(a)           Each Receiving Party acknowledges theconfidential and proprietary nature of the Confidential Information of theDisclosing Party and agrees that such Confidential Information (i) shallbe kept confidential by the Receiving Party; (ii) shall not be used forany reason or purpose other than to evaluate and consummate the ContemplatedTransactions; and (iii) without limiting the foregoing, shall not bedisclosed by the Receiving Party to any Person, except in each case asotherwise expressly permitted by the terms of this Agreement or with the priorwritten consent of an authorized representative of Seller with respect toConfidential Information of Seller or Shareholders (each, a “Seller Contact”)or an authorized representative of Buyer with respect to ConfidentialInformation of Buyer (each, a “Buyer Contact”).  Each of Buyer and Seller and Shareholdersshall disclose the Confidential Information of the other party only to itsRepresentatives who require such material for the purpose of evaluating theContemplated Transactions and are informed by Buyer, Seller or Shareholders, asthe case may be, of the obligations of this Article 12 with respect tosuch information.  Each of Buyer, Sellerand Shareholders shall (iv) enforce the terms of this Article 12 asto its respective Representatives; (v) take such action to the extentnecessary to cause its Representatives to comply with the terms and conditionsof this Article 12; and (vi) be responsible and liable for any breachof the provisions of this Article 12 by it or its Representatives.

 

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

 

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(ii) and (iii), whether ornot disclosed to Buyer) of the Seller or Shareholders relating to any of theAssets or the Assumed Liabilities. Notwithstanding the preceding sentence, Seller may use any ConfidentialInformation of Seller before the Closing in the ordinary course of business inconnection with the transactions permitted by Section 5.2.

 

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

 

**12.3.       Exceptions****.**  Sections 12.2(a) and (b) do not apply tothat part of the Confidential Information of a Disclosing Party that aReceiving Party demonstrates (a) was, is or becomes generally available tothe public other than as a result of a breach of this Article 12 or anyother agreements that pertain to confidentiality executed by the Buyer, Seller,the Shareholders or any of the Related Parties of each, by the Receiving Partyor its Representatives; (b) was or is developed by the Receiving Party independentlyof and without reference to any Confidential Information of the DisclosingParty; or (c) was, is or becomes available to the Receiving Party on anonconfidential basis from a Third Party not bound by a confidentialityagreement or any legal, fiduciary or other obligation restrictingdisclosure.  Neither Seller nor eitherShareholder shall disclose any Confidential Information of Seller orShareholders relating to any of the Assets or the Assumed Liabilities inreliance on the exceptions in clauses (b) or (c) above.

 

**12.4.       Legal Proceedings****.**  If a Receiving Party becomes compelled inany Proceeding or is requested by a Governmental Body having regulatoryjurisdiction over the Contemplated Transactions to make any disclosure that isprohibited or otherwise constrained by this Article 12, that ReceivingParty shall provide the Disclosing Party with prompt notice of such compulsionor request so that it may seek an appropriate protective order or otherappropriate remedy or waive compliance with the provisions of thisArticle 12.  In the absence of aprotective order or other remedy, the Receiving Party may disclose that portion(and only that portion) of the Confidential Information of the DisclosingParty that, based upon advice of the Receiving Party’s counsel, the ReceivingParty is legally compelled to disclose or that has been requested by suchGovernmental Body, provided, however, that the Receiving Party shall usereasonable efforts to obtain reliable assurance that confidential treatmentwill be accorded by any Person to whom any Confidential Information is sodisclosed.  The provisions of thisSection 12.4 do not apply to any Proceedings between the parties to thisAgreement.

 

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

 

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**12.6.      ****Attorney-Client Privilege.**  The Disclosing Party is not waiving, andwill not be deemed to have waived or diminished, any of its attorney workproduct protections, attorney-client privileges or similar protections andprivileges as a result of disclosing its Confidential Information (includingConfidential Information related to pending or threatened litigation) to theReceiving Party, regardless of whether the Disclosing Party has asserted, or isor may be entitled to assert, such privileges and protections.  The parties (a) share a common legaland commercial interest in all of the Disclosing Party’s ConfidentialInformation that is subject to such privileges and protections; (b) are ormay become joint defendants in Proceedings to which the Disclosing Party’sConfidential Information covered by such protections and privileges relates;(c) intend that such privileges and protections remain intact shouldeither party become subject to any actual or threatened Proceeding to which theDisclosing Party’s Confidential Information covered by such protections and privilegesrelates; and (d) intend that after the Closing the Receiving Party shallhave the right to assert such protections and privileges.  No Receiving Party shall admit, claim orcontend, in Proceedings involving either party or otherwise, that any DisclosingParty waived any of its attorney work-product protections, attorney-clientprivileges or similar protections and privileges with respect to anyinformation, documents or other material not disclosed to a Receiving Party dueto the Disclosing Party disclosing its Confidential Information (includingConfidential Information related to pending or threatened litigation) to theReceiving Party.

 

**13.****          GENERAL PROVISIONS****.**

 

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

 

**13.2.       Public Announcements****.**  Except as required by law, Buyer will notmake any public announcement, press release or similar publicity with respectto this Agreement or the Contemplated Transactions prior to Closing, and Buyeragrees to show any such announcement to Seller prior to its publication.  Except with the prior consent of Buyer or aspermitted by this Agreement, neither Seller, Shareholders nor any of theirRepresentatives shall disclose to any Person (a) the fact that anyConfidential Information of Seller or Shareholders has been disclosed to Buyeror its Representatives, that Buyer or its Representatives have inspected anyportion of the Confidential Information of Seller or Shareholders, that anyConfidential Information of Buyer has been disclosed to Seller, Shareholders ortheir Representatives or that Seller, Shareholders or their Representativeshave inspected any portion of the Confidential Information

 

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of Buyer or (b) anyinformation about the Contemplated Transactions, including the status of suchdiscussions or negotiations, the execution of any documents (including thisAgreement) or any of the terms of the Contemplated Transactions or the related documents(including this Agreement).  Seller andBuyer will consult with each other concerning the means by which Seller’semployees, customers, suppliers and others having dealings with Seller will beinformed of the Contemplated Transactions, and Buyer will have the right to bepresent for any such communication.

 

**13.3.       Notices****.**  All notices, Consents, waivers and othercommunications required or permitted by this Agreement may be given by counsel,shall be in writing and shall be deemed given to a party when (a) deliveredto the appropriate address by hand or by nationally recognized overnightcourier service (costs prepaid); (b) sent by facsimile with confirmationof transmission by the transmitting equipment; or (c) received or rejectedby the addressee, if sent by certified mail, return receipt requested, in eachcase to the following addresses or facsimile numbers and marked to theattention of the person (by name or title) designated below (or to such otheraddress or facsimile number or person as a party may designate by notice to theother parties):

 
| Seller/Shareholders  (before the Closing): |
|--------------------------------------------|
|                                       |
| Sassy, Inc.                                |
| 2101  Waukegan Rd., Suite 203              |
| Bannockburn,  Illinois  60015         |
| Attention:  Fritz Hirsch              |
| Fax  no.:  (847)267-0210              |
|                                       |
| with a  mandatory copy to:                 |
|                                       |
| Vedder, Price,  Kaufman & Kammholz     |
| 222 N.  LaSalle Street, Suite 2400         |
| Chicago,  Illinois  60601             |
| Attention:  Guy E. Snyder             |
| Fax  no.:  (312) 609-5005             |
|                                       |
| Seller  (after the Closing):               |
| c/o Vedder,  Price, Kaufman & Kammholz |
| 222 N.  LaSalle Street, Suite 2400         |
| Chicago, Illinois  60601              |
| Attention:  Guy E. Snyder             |
| Fax  no.:  (312) 609-5005             |
|                                       |
| Shareholders  (after Closing):             |
| Robert B,  Kaplan                          |
| 357 County  Road 58                        |
| Ten Sleep,  Wyoming  82442            |
| Fax  no.:  (307) 366-2341             |

 

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| Fritz Hirsch                          |
|---------------------------------------|
| Sassy, Inc.                           |
| 2101  Waukegan Rd, Suite 203          |
| Bannockburn,  Illinois  60015    |
| Fax  no.:  (847)267-0210         |
|                                  |
| Homer  Douglas                        |
| 2305 Brenton  Industrial Park Dr., SE |
| Kentwood,  Michigan  49508       |
| Fax:  (616) 243-1042             |

 

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| Stephen L.  Rotblatt                                     |
|----------------------------------------------------------|
| Sassy, Inc.                                              |
| 2101  Waukegan Rd, Suite 203                             |
| Bannockburn,  Illinois  60015                       |
| Fax  no.:  (847)267-0210                            |
|                                                     |
| with a  mandatory copy to:                               |
| Vedder,  Price, Kaufman & Kammholz                   |
| 222 N.  LaSalle Street, Suite 2400                       |
| Chicago,  Illinois  60601                           |
| Attention:  Guy E. Snyder                           |
| Fax  no.:  (312) 609-5005                           |
|                                                     |
| Buyer: c/o  Russ Berrie and Company, Inc.                |
| 111 Bauer  Drive                                         |
| Oakland,  NJ  07436                                 |
| Attention:  Chief Operating Officer                 |
| Fax  no.:  201-405-2579                             |
|                                                     |
| with a  mandatory copy to: Russ Berrie and Company, Inc. |
| 111 Bauer Drive                                          |
| Oakland,  NJ  07436                                 |
| Attention:  General Counsel                         |
| Fax  no.:  201-405-7377                             |
|                                                     |
| and                                                      |
|                                                     |
| Kaye Scholer  LLP                                        |
| 425 Park  Avenue                                         |
| New York,  NY  10022                                |
| Attention:  Joel Greenberg, Esq.                    |
| Fax  no.:  212-836-7149                             |

 

**13.4.       Jurisdiction; Service of Process****.**  Any Proceeding arising out of or relating tothis Agreement or any Contemplated Transaction may be brought in the courts ofthe State of Delaware, or, if it has or can acquire jurisdiction, in the UnitedStates District Court for the District of Delaware, and each of the partiesirrevocably submits to the exclusive jurisdiction of each such court in anysuch Proceeding, waives any objection it may now or hereafter have to venue orto convenience of forum, agrees that all claims in respect of the Proceedingshall be heard and determined only in any such court and agrees not to bringany Proceeding arising out of or relating to this Agreement or any ContemplatedTransaction in any other court.  Theparties agree that either or both of them may file a copy of this paragraphwith any court as written evidence of the knowing, voluntary and bargainedagreement between the parties irrevocably to waive any objections to venue orto convenience of forum.  Process in anyProceeding referred to in the first sentence of this Section may be servedon any party anywhere in the world.

 

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**13.5.       Enforcement of Agreement.**

 

(a)           Seller and Shareholders acknowledgeand agree that Buyer would be irreparably damaged if any of the provisions of thisAgreement are not performed in accordance with their specific terms and thatany breach of this Agreement by Seller or Shareholders could not be adequatelycompensated in all cases by monetary damages alone.  Accordingly, in addition to any other right or remedy to whichBuyer may be entitled, at law or in equity, it shall be entitled to enforce anyprovision of this Agreement by a decree of specific performance and totemporary, preliminary and permanent injunctive relief to prevent breaches orthreatened breaches of any of the provisions of this Agreement, without postingany bond or other undertaking.

 

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

 

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

 

**13.7.       Entire Agreement and Modification.**  This Agreement supersedes all prioragreements, whether written or oral, between the parties with respect to itssubject matter (including any letter of intent and any confidentialityagreement between Buyer and Seller) and constitutes (along with the scheduleshereto, Exhibits and other documents delivered pursuant to this Agreement) acomplete and exclusive statement of the terms of the agreement between theparties with respect to its subject matter. This Agreement may not be amended, supplemented, or otherwise modifiedexcept by a written agreement executed by the party to be charged with the amendment.

 

76

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**13.8.       Schedules.**

 

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

 

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

 

**13.9.      ****Assignments, Successors and No Third-Party Rights.**  No party may assign any of its rights ordelegate any of its obligations under this Agreement or the Guarantee withoutthe prior written consent of the other parties, except that Buyer may assignany of its rights under this Agreement to any Subsidiary of Buyer without theconsent of any party, provided, however, that no such assignment shallrelieve the Buyer of its obligations hereunder (or RB of its obligations underthe Guarantee).  Subject to thepreceding sentence, this Agreement will apply to, be binding in all respectsupon and inure to the benefit of the successors and permitted assigns of theparties.  Nothing expressed or referredto in this Agreement will be construed to give any Person other than theparties to this Agreement any legal or equitable right, remedy or claim underor with respect to this Agreement or any provision of this Agreement (includingthe Guarantee), except such rights as shall inure to a successor or permittedassignee pursuant to this Section 13.9.

 

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

 

**13.11.     Construction.****** The headings of Articles and Sections in this Agreement areprovided for convenience only and will not affect its construction orinterpretation.  All references to“Articles” and “Sections” refer to the corresponding Articles and Sections ofthis Agreement.

 

77

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**13.12.     GoverningLaw****.** This Agreement will be governed by and construed under the laws of theState of Delaware without regard to conflicts-of-laws principles that wouldrequire the application of any other law.

 

**13.13.     Execution of Agreement.**  This Agreement may be executed in one ormore counterparts, each of which will be deemed to be an original copy of thisAgreement and all of which, when taken together, will be deemed to constituteone and the same agreement.  Theexchange of copies of this Agreement and of signature pages by facsimiletransmission shall constitute effective execution and delivery of thisAgreement as to the parties and may be used in lieu of the original Agreementfor all purposes.  Signatures of theparties transmitted by facsimile shall be deemed to be their originalsignatures for all purposes.

 

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

 

78

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IN WITNESSWHEREOF, the parties have executed this Agreement as of the date first writtenabove.

 
| RBSACQ, INC. |               | Shareholders:   |
|--------------|--------------------|-----------------|
|         |               |            |
| By:          | /s/ Thomas  Bowles |            |   |   |
|         |               | ROBERT  KAPLAN  |
|         |               |            |
| SASSY, INC.  |               |            |   |
|         |               | FRITZ HIRSCH    |
| By:          |               |            |   |
|         |               |            |   |
|         |               | STEVE  ROTBLATT |
|         |               |            |
|         |               |            |   |
|         |               | HOMER DOUGLAS   |

 

**GUARANTEE**

 

Theundersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of(i) the Cash Consideration to Seller in accordance with the terms andprovisions hereof, as adjusted pursuant to the terms hereof; (ii) any paymentsrequired under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments requiredunder the Employment Agreements; (iv) Liabilities described in Section 2.4(a)(i); (v) amounts required to maintain the insurance policies set forth inSchedule 7.4(c) until the third anniversary of the Closing Date and fulfill thecovenant set forth in Section 10.12 and (vi) amounts required under Section11.4(g).  This guarantee is of paymentand not performance.

 
| Dated: July  26, 2002 | RUSS BERRIE  AND COMPANY, INC. |
|-----------------------|--------------------------------|
|                  |                           |   |
|                  | By:                            | /s/ Thomas  Bowles |   |
|                  |                           | Name: Thomas  Bowles |
|                  |                           | Title: COO |

 

----

 

IN WITNESSWHEREOF, the parties have executed this Agreement as of the date first writtenabove.

 
| RBSACQ, INC. |   | Shareholders:   |
|--------------|--------|-----------------|
|         |   |            |
| By:          |   |            | /s/ Robert  Kaplan |   |
|         |   | ROBERT  KAPLAN  |
|         |   |            |
| SASSY, INC.  |   |            |   |
|         |   | FRITZ HIRSCH    |
| By:          |   |            |   |
|         |   |            |   |
|         |   | STEVE  ROTBLATT |
|         |   |            |
|         |   |            |   |
|         |   | HOMER  DOUGLAS  |

 

**GUARANTEE**

 

Theundersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of(i) the Cash Consideration to Seller in accordance with the terms andprovisions hereof, as adjusted pursuant to the terms hereof; (ii) any paymentsrequired under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments requiredunder the Employment Agreements; (iv) Liabilities described in Section 2.4(a)(i); (v) amounts required to maintain the insurance policies set forth inSchedule 7.4(c) until the third anniversary of the Closing Date and fulfill thecovenant set forth in Section 10.12 and (vi) amounts required under Section11.4(g).  This guarantee is of paymentand not performance.

 
| Dated:                  ,  2002 | RUSS BERRIE  AND COMPANY, INC. |
|---------------------------------------------------------------------------------------------------------------------------|--------------------------------|
|                                                                                                                      |                           |   |
|                                                                                                                      | By:                            |   |   |
|                                                                                                                      |                           | Name: |
|                                                                                                                      |                           | Title: |

 

----

 

IN WITNESSWHEREOF, the parties have executed this Agreement as of the date first writtenabove.

 
| RBSACQ, INC. |              | Shareholders:       |
|--------------|-------------------|---------------------|
|         |              |                |
| By:          |              |                |   |   |
|         |              | ROBERT  KAPLAN      |
|         |              |                |
| SASSY, INC.  |              | /s/ Fritz  Hirsch   |   |
|         |              | FRITZ HIRSCH        |
| By:          | /s/ Fritz  Hirsch |                |   |
|         |              | /s/ Steve  Rotblatt |   |
|         |              | STEVE  ROTBLATT     |
|         |              |                |
|         |              |                |   |
|         |              | HOMER  DOUGLAS      |

 

**GUARANTEE**

 

Theundersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of(i) the Cash Consideration to Seller in accordance with the terms andprovisions hereof, as adjusted pursuant to the terms hereof; (ii) any paymentsrequired under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments requiredunder the Employment Agreements; (iv) Liabilities described in Section 2.4 (a)(i);(v) amounts required to maintain the insurance policies set forth in Schedule7.4(c) until the third anniversary of the Closing Date and fulfill the covenantset forth in Section 10.12 and (vi) amounts required under Section 11.4(g).  This guarantee is of payment and notperformance.

 
| Dated:                  ,  2002 | RUSS BERRIE  AND COMPANY, INC. |
|---------------------------------------------------------------------------------------------------------------------------|--------------------------------|
|                                                                                                                      |                           |   |
|                                                                                                                      | By:                            |   |   |
|                                                                                                                      |                           | Name: |
|                                                                                                                      |                           | Title: |

 

----

 

IN WITNESSWHEREOF, the parties have executed this Agreement as of the date first writtenabove.

 
| RBSACQ, INC. |   | Shareholders:      |
|--------------|--------|--------------------|
|         |   |               |
| By:          |   |               |   |   |
|         |   | ROBERT  KAPLAN     |
|         |   |               |
| SASSY, INC.  |   |               |   |
|         |   | FRITZ HIRSCH       |
| By:          |   |               |   |
|         |   |               |   |
|         |   | STEVE  ROTBLATT    |
|         |   |               |
|         |   | /s/ Homer  Douglas |   |
|         |   | HOMER  DOUGLAS     |

 

**GUARANTEE**

 

Theundersigned, Russ Berrie and Company, Inc., hereby guarantees the payment of(i) the Cash Consideration to Seller in accordance with the terms andprovisions hereof, as adjusted pursuant to the terms hereof; (ii) any paymentsrequired under Exhibits 8.3(b)(i) or (b)(ii); (iii) any payments requiredunder the Employment Agreements; (iv) Liabilities described in Section 2.4(a)(i); (v) amounts required to maintain the insurance policies set forth inSchedule 7.4(c) until the third anniversary of the Closing Date and fulfill thecovenant set forth in Section 10.12 and (vi) amounts required under Section 11.4(g).  This guarantee is of payment and notperformance.

 
| Dated:                  ,  2002 | RUSS BERRIE  AND COMPANY, INC. |
|---------------------------------------------------------------------------------------------------------------------------|--------------------------------|
|                                                                                                                      |                           |   |
|                                                                                                                      | By:                            |   |   |
|                                                                                                                      |                           | Name: |
|                                                                                                                      |                           | Title: |

 

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