Document:

Exhibit
10.1

 

AMENDMENT
NUMBER TEN

TO

TEXAS REGIONAL BANCSHARES, INC.

AMENDED AND RESTATED EMPLOYEE STOCK OWNERSHIP PLAN

(WITH 401(K) PROVISIONS)

 

Texas Regional
Bancshares, Inc., a corporation organized and operating under the laws of the
State of Texas, and registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the “Company”), together with the Trustees of
the Texas Regional Bancshares, Inc. Amended and Restated Employee Stock
Ownership Plan (with 401(k) Provisions) adopt the following amendments to the
Plan effective as of March 12, 2004.

 

WHEREAS, the Company has
established and maintains the Texas Regional Bancshares, Inc. Amended and
Restated Employee Stock Ownership Plan (with 401(k) Provisions) (the “Plan”);
and

 

WHEREAS, the Company and
Southeast Texas Bancshares, Inc. entered into an Agreement and Plan of
Reorganization, pursuant to which, effective as of March 12, 2004, Southeast
Texas Bancshares, Inc. and its wholly owned subsidiary merged with and into
Texas Regional Delaware, Inc., and Community Bank & Trust, SSB merged with
and into Texas State Bank, and, as a part of those mergers, the Company and its
subsidiaries have become the employer of the employees of the former Southeast
Texas Bancshares, Inc. and its subsidiaries; and

 

WHEREAS, the Board of
Directors desires to coordinate and consolidate the employee benefit programs
available to all employees of the Company and its subsidiaries; and

 

WHEREAS, it is the desire
of the Company and its wholly owned subsidiary, Texas State Bank, that eligible
employees of Southeast Texas Bancshares, Inc., Community Bank & Trust, SSB,
Port Arthur Abstract and Title Company,
Southeast Texas Title Company, and Southeast Texas Insurance Services,
L.P., as a result of becoming employees of the Company, Texas State Bank, and
its subsidiaries pursuant to the mergers, be entitled to participate in the
Plan as soon as is feasible, that their service with their acquired employers
be credited under the Plan for purposes of eligibility to participate and
vesting, and further that such employees who, by virtue of this Amendment, will
otherwise become eligible for an Employer Discretionary Optional Contribution
shall be credited for that purpose with Hours of Service performed for their
former employers during the period January 1, 2004 to March 12, 2004.

 

NOW THEREFORE, IT IS
HEREBY AGREED THAT the Plan is hereby amended effective as of March 12, 2004 as
follows:

 

Schedule A to the Plan, Service of
Acquired Employees, shall be and hereby is amended and restated in the form
attached to this Amendment as Exhibit “A.”

 

IN WITNESS WHEREOF, this
Tenth Amendment to the Texas Regional Bancshares, Inc. Amended and Restated
Employee Stock Ownership Plan (with 401(k) Provisions) has been executed this
19th day of March, 2004 to be effective as of the dates provided above.

 

 

	
   

  	
  Texas Regional Bancshares, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ G.E. Roney

  
	
   

  	
   

  	
  Glen E. Roney,

  
	
   

  	
   

  	
  Chairman of the Board
  and

  
	
   

  	
   

  	
  Chief Executive Officer

  
				

 

 

	
  AGREED TO AND ACCEPTED
  BY:

  
	
   

  
	
   

  
	
  /s/ G.E. Roney

  	
   

  
	
  Glen E. Roney, Trustee

  
	
   

  
	
  /s/ Morris Atlas

  	
   

  
	
  Morris Atlas, Trustee

  
	
   

  
	
  /s/ Frank N. Boggus

  	
   

  
	
  Frank N. Boggus,
  Trustee

  

 

2

 

TEXAS REGIONAL BANCSHARES, INC.

AMENDED AND RESTATED EMPLOYEE STOCK

OWNERSHIP PLAN (WITH 401(K)
PROVISIONS)

 

Schedule “A”

 

Service of Acquired Employees

 

 

The Employer, Texas
Regional Bancshares, Inc., grants “Years of Service” (as that term is defined
in Plan Section 2.76) to the following groups of acquired Employees for the
following periods of service with other employers, as of the dates indicated
below, and for the Plan purposes indicated below:

 

 

	
  Acquired
  Group

  (including date of hire)

  	
   

  	
  Participation
  Service

  (including
  limits)

  	
   

  	
  Vesting
  Service

  (including limits)

  	
   

  	
  Entry Date

  (including
  limits)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mid Valley Bank, 1992 (former participants in Mid Valley
  Bank Employees’ Pension Plan only)

  	
   

  	
  Yes; all service with Mid Valley Bank

  	
   

  	
  Yes; all service with Mid Valley Bank

  	
   

  	
  Immediately upon employment by Employer (and for compensation
  earned from Mid Valley Bank in 1992 and the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  First National Bank of South Texas, 1995 (employees of Rio
  Grande City and Roma branches as of acquisition by Texas State Bank)

  	
   

  	
  Yes; all service with First National Bank of South Texas

  	
   

  	
  Yes; all service with First National Bank of South Texas

  	
   

  	
  Immediately upon employment by Employer (but only for
  compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  First State Bank & Trust Co., The Border Bank, 1996
  (employees as of time of merger into Texas State Bank)

  	
   

  	
  Yes; all service with First State Bank & Trust Co., The
  Border Bank

  	
   

  	
  Yes; all service with First State Bank & Trust Co., The
  Border Bank

  	
   

  	
  Immediately upon employment by Employer (but only for
  compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Brownsville National Bank, Texas Bank & Trust, and Bank
  of Texas; 1998

  	
   

  	
  Yes; all service with Brownsville National Bank, Texas Bank
  & Trust, and Bank of Texas

  	
   

  	
  Yes; all service with Brownsville National Bank, Texas Bank
  & Trust, and Bank of Texas

  	
   

  	
  Immediately upon employment by Employer (but only for
  compensation earned from the Employer)

  

 

3

 

	
  Harlingen Bancshares, Inc., HN Bancshares of Delaware,
  Inc., and Harlingen National Bank; August 15, 1999

  	
   

  	
  Yes; all service with Harlingen Bancshares, Inc., HN
  Bancshares of Delaware, Inc., and Harlingen National Bank

  	
   

  	
  Yes; all service with Harlingen Bancshares, Inc., HN
  Bancshares of Delaware, Inc., and Harlingen National Bank

  	
   

  	
  Immediately upon employment by Employer (but only for
  compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Frost National Bank and Overton Park Bank (Frost National
  Bank data processing location in Grapevine, Texas); March 12, 2002

  	
   

  	
  Yes; all service with Frost National Bank and Overton Park
  Bank

  	
   

  	
  Yes; all service with Frost National Bank and Overton Park
  Bank

  	
   

  	
  Immediately upon employment by Employer (but only for
  compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Riverway Holdings, Inc., Riverway Holdings of Delaware,
  Inc., and Riverway Bank; time of 2002 merger

  	
   

  	
  Yes; all service with Riverway Holdings, Inc., Riverway
  Holdings of Delaware, Inc., and Riverway Bank

  	
   

  	
  Yes; all service with Riverway Holdings, Inc., Riverway
  Holdings of Delaware, Inc., and Riverway Bank

  	
   

  	
  Immediately upon employment by Employer (but only for
  compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  San Juan Bancshares, Inc., San Juan Delaware Financial
  Corporation, Texas Country Bank; time of 2002 merger

  	
   

  	
  Yes; all service with San Juan Bancshares, Inc., San Juan
  Delaware Financial Corporation, Texas Country Bank

  	
   

  	
  Yes; all service with San Juan Bancshares, Inc., San Juan
  Delaware Financial Corporation, Texas Country Bank

  	
   

  	
  Immediately upon employment by Employer (but only for
  compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Corpus Christi Bancshares, Inc., CCB-Nevada, Inc., and The
  First State Bank; February 14, 2003

  	
   

  	
  Yes; all service with Corpus Christi Bancshares, Inc.,
  CCB-Nevada, Inc., and The First State Bank

  	
   

  	
  Yes; all service with Corpus Christi Bancshares, Inc.,  CCB-Nevada, Inc., and The First State Bank

  	
   

  	
  Immediately upon employment by Employer (but only for
  compensation earned from the Employer)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Southeast Texas Bancshares, Inc., Community Bank &
  Trust, SSB, Port Arthur Abstract and
  Title Company, Southeast Texas Title Company, and Southeast Texas
  Insurance Services, L.P.  (“its
  subsidiaries”)(for employees on date of merger)

  	
   

  	
  Yes; all service with Southeast Texas Bancshares, Inc., its
  subsidiaries, and Secure Trust if credited by Southeast Texas Bancshares,
  Inc. (for employees on date of merger)

  	
   

  	
  Yes; all service with Southeast Texas Bancshares, Inc., its
  subsidiaries, and Secure Trust if credited by Southeast Texas Bancshares,
  Inc. (for employees on date of merger)

  	
   

  	
  Immediately upon employment by Employer (but only for
  eligible employees age 21 or more, and only for compensation earned from the
  Employer); in addition, Hours of Service with Southeast Texas Bancshares,
  Inc. and subsidiaries served from January 1, 2004-March 12, 2004 shall be
  credited for purposes of allocating Employer Discretionary Optional
  Contributions if the employee is otherwise eligible

  

 

4Exhibit
10.86

 

AGREEMENT

 

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

 

Effective
as of June 1, 2004 or such earlier date as the Parties may mutually agree
(the “Commencement Date”), the Executive shall be
employed by the Company as its President and Chief Executive Officer, on the
terms and conditions set forth herein. 
His employment by the Company shall be on an “at will” basis and shall
be subject to termination by the Company or the Executive, with or without
Cause or Good Reason (as defined below), with the consequences provided in this
Agreement.  Certain terms used in this
Agreement are defined in Section 8.

 

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

 

1.                                       POSITION; DUTIES

 

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

 

•                                          Russ North America

 

•                                          Russ International

 

•                                          Russ Far East

 

•                                          Sassy

 

•                                          Bright of America

 

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

 

 

concludes in his discretion that such service will not
interfere with the proper performance of the Executive’s duties hereunder.

 

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

 

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

 

(B)                                Incentive Compensation.  The Executive shall participate in the
Company’s Incentive Compensation Program (the “IC Program”), on the terms and
conditions set forth in Annex I hereto, which is incorporated by reference
herein.

 

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

 

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

 

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

 

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

 

2

 

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

 

(G)                                Expense Reimbursement.

 

(1)                                  The Company shall reimburse
the Executive for business expenses reasonably incurred by him in the
performance of his duties with the Company, in accordance with the Company’s
usual practices.  Notwithstanding the
foregoing, the limitations on travel expenses set forth in the Company Employee
Handbook shall not be applicable to the Executive, provided, however, that in
the event that the Executive travels with other executives of the Company, he
will travel in the same class and, unless he determines that the difference is
warranted by business considerations, be provided with similar accommodations.

 

(2)                                  The Company shall promptly
reimburse the Executive for all legal fees and expenses incurred in negotiating
and documenting his employment arrangement with the Company (up to a maximum
aggregate payment of $40,000).

 

(H)                               Other Benefits.

 

(i)                                     Group Health, Life, Accident
and Disability Insurance Plans.

 

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

 

(ii)                                  Dental Insurance Plan.

 

After
twelve months of continuous employment, the Executive will be entitled to
participate in the Company’s contributory dental insurance plan.

 

(iii)                               Employee Assistance Program.

 

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

 

(iv)                              Voluntary Benefits Program.

 

After
90 days of continuous employment, the Executive will be entitled to participate
in the Company’s voluntary benefits program which consists of the following
offerings: (a)

 

3

 

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

 

(v)                                 401(k) Plan.

 

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

 

(vi)                              Executive Deferred  Compensation Plan.

 

Within
30 days of the Commencement Date, the Executive will be entitled to participate
in the Company’s Executive Deferred Compensation Plan.

 

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

 

(viii)                        Vacation.

 

The
Executive will be entitled to three weeks vacation annually to be taken at
times determined by the Executive which do not unreasonably interfere with the
performance of his duties hereunder.  Any
vacation time not taken during any year may be carried over to subsequent years
only if permitted by Company policy, and if so permitted, in accordance with
any such policy.

 

(ix)                                Life Insurance Benefit.

 

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

 

(x)                                   General.

 

The
Executive will be entitled to participate in the plans and programs described
in clauses (i)-(vii) above, and any other employee benefit programs applicable
to senior executives generally, in each case at a level, and on terms and
conditions consistent with his position, and no less favorable than those
provided to other senior executives.

 

4

 

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

 

(J)                                   Exclusion of Other Benefits.

 

The
terms of this Agreement are intended to be in lieu of, and not in addition to,
the following benefits which the Company has made available to other
executives, and accordingly, the Executive shall not be entitled to (i)
participate in the Company’s Change in Control Severance Plan, (ii) participate
in the Company’s general severance policy applicable to domestic vice
presidents and above or (iii) receipt of a retention letter of the type
currently outstanding with respect to eleven of its officers regarding a change
in control of the Company.

 

3.                                       CONSEQUENCES OF TERMINATION

 

(A)                              Termination for Cause or
Absence of Good Reason.

 

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

 

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

 

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

 

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

 

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

 

As
of the Termination Date, except as set forth above, the rights of the Executive
to the accrual, payment and/or receipt of any other compensation or benefits
described under Section 2 of this Agreement, including, but not limited
to, any award under the IC Program, any Guaranteed Amount (as defined in Annex
I), or any payment of any MB or SB, shall immediately cease.

 

(B)                                Termination without Cause or
with Good Reason

 

(1)                                  If the Executive’s
employment under this Agreement is terminated by the Company without Cause or
by reason of the Disability of the Executive, or by the Executive for Good
Reason (whether or not in connection with a change of control), or by reason of
the

 

5

 

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

 

(i)                                     Base Salary earned through the Termination
Date;

 

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

 

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

 

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

 

(v)                                 (x)  if a
Qualified Termination occurs on or prior to the second anniversary of the
Commencement Date, payment of (A) an amount equal to the pro-rata portion
(determined by multiplying the relevant amount by a fraction, the numerator of
which shall equal the number of days the Executive was employed in the year of
termination and the denominator of which is 365) of the IC Award (as defined in
Annex I) otherwise payable to the Executive for the year in which such
termination occurs, determined using a Target Percentage (as defined in Annex
I) of 100% and (B) an amount equal to 200% of the IC Award (as defined in Annex
I) otherwise payable to the Executive for the full year in which such
termination occurs, determined using a Target Percentage (as defined in Annex
I) of 100%, and (y) if a Qualified Termination occurs after the second
anniversary of the Commencement Date, payment of (A) an amount equal to the
pro-rata portion (determined by multiplying the relevant amount by a fraction,
the numerator of which shall equal the number of days the Executive was
employed in the year of termination and the denominator of which is 365) of the
IC Award (as defined in Annex I) otherwise payable to the Executive for the
year in which such termination occurs, determined using the actual Target
Percentage (as defined in Annex I) achieved in the year in which the
termination occurs and (B) an amount equal to 200% of the IC Award actually
paid to the Executive with respect to the last full fiscal year of his
employment hereunder.  Notwithstanding
the foregoing, if the Qualified Termination occurs during 2004, the amount
payable pursuant to clause (x)(A) above shall be no less than the 2004
Guaranteed Amount, and if the Qualified Termination occurs during 2005, the
amount payable pursuant to clause (x)(A) above shall be no less than the 2005
Guaranteed Amount (each as defined in Annex I);

 

(vi)                              An amount equal to the MB that would have been
earned by the Executive for the year of termination had his employment not
terminated, as determined by the Compensation Committee in its discretion in
good faith, but prorated (by multiplying that amount by a fraction, the
numerator of which shall equal the number of days the Executive was employed in
the

 

6

 

year of termination and the
denominator of which is 365) to reflect his termination.

 

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

 

Any
amounts payable pursuant to clause (i) of this paragraph (B) shall be paid
promptly after the Termination Date with respect to the Qualified Termination;
and amounts payable pursuant to clause (ii) of this paragraph (B) shall be paid
in accordance with the payment terms specified herein or in the annexes hereto;
any amounts payable under clause (iii) of this paragraph (B) shall be paid,
promptly when due; any amounts payable pursuant to clause (iv) of this
paragraph (B) shall be paid in 24 equal monthly installments, commencing the
month after the termination occurs; any amounts payable pursuant to clause
(vii) of this paragraph (B) shall be paid as described in Annex II; any other
amounts payable under this paragraph (B) shall be payable no later than
March 31st in the year following the year in which the Qualified
Termination occurs.  In order to receive
any payments or benefits under Section 3(B) of this Agreement, the
Executive must execute and deliver to the Company a release in substantially
the form of Exhibit A, which release shall become effective only if it is
countersigned by an authorized officer of the Company, and returned to the
Executive, within ten business days after it is received by the Company.  All amounts payable hereunder shall be
without interest if paid when due.

 

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

 

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

 

(2)                                  Benefits.

 

Notwithstanding
anything to the contrary in paragraph (1) above, the Company shall, through the
second anniversary of the Qualified Termination, continue to provide to the
Executive medical and other insurance benefits, in each case to the extent and
on substantially the same basis as provided immediately prior to the Qualified
Termination (disregarding any reduction described in clause (B) of the
definition of Good Reason).

 

7

 

(3)                                  Parachute Payments

 

If
the Executive’s receipt of any payment and/or non-monetary benefit under this
Agreement that constitutes a “parachute payment” for purposes of determining
the amount of any excise tax due under Section 4999 of the Internal
Revenue Code of 1986, as amended (the “Code”) (collectively, the “Plan
Payments”) would cause him to become subject to any such excise tax, the
Company shall reduce the cash portion of his Plan Payments to the extent
necessary to avoid the application of such excise tax if (i) the required
reduction does not exceed 10% of the aggregate amount of the Plan Payments and
(ii) as a result of such reduction, the net benefits to the Executive of the
Plan Payments as so reduced (after payment of applicable income, excise and
other taxes thereon) exceeds the net benefit to the Executive of the Plan
Payments without such reduction (after payment of applicable income taxes,
excise and other taxes thereon). If a reduction in Plan Payments in the amount
permitted by clause (i) is insufficient to avoid the application of such excise
tax, then the provisions of “Exhibit B,” attached hereto and incorporated
herein, shall apply to the Executive.

 

(C)                                No Mitigation; No Offset

 

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

 

4.                                       CONFIDENTIALITY

 

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

 

Upon
termination of his employment with the Company, the Executive shall return to
the Company all confidential, proprietary and non-public materials, and any
other property of the Company, in his possession.  The personal property of the Executive,
including his rolodex,

 

8

 

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

 

5.                                       NON-COMPETE; NONSOLICITATION

 

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

 

6.                                       NONDISPARAGEMENT

 

The
Executive shall, after his employment with the Company has terminated, refrain
from any action that could reasonably be expected to harm the reputation or
goodwill of the Company, its subsidiaries or affiliates, including, without
limitation, making derogatory comments about the character or ability of the
Company or its directors, officers, employees, agents or representatives.

 

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

 

7.                                       REMEDY FOR BREACH AND
MODIFICATION

 

The
Executive acknowledges that the provisions of this Agreement are reasonable and
necessary for the protection of the Company and that the Company may be
irreparably damaged if these provisions are not specifically enforced.  Accordingly, the Executive agrees that, in
addition to any other relief or remedies available to the Company, the Company
shall be entitled to seek appropriate temporary, preliminary and permanent
injunctive or other equitable relief for the purposes of restraining the
Executive from any actual or threatened breach of or otherwise enforcing these
provisions and no bond or security will be required in connection
therewith.  In addition, notwithstanding
any provision in this Agreement to the contrary, if the Executive breaches any
of the provisions of Sections 4, 5 or 6 of this Agreement at any time and such
breach is either (x) willful and not inconsequential or (y) in a material
respect and not cured

 

9

 

promptly after notice from the Company, he shall not
thereafter be entitled to any payments or benefits under this Agreement,
including any annexes hereto.

 

8.                                       DEFINITIONS

 

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

 

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

 

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

 

10

 

Any
determination that “Cause” or “Good Reason” exists shall be subject to de novo
review in arbitration pursuant to Section 11(B) below.

 

9.                                       SEVERABILITY

 

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

 

10.                                 COUNTERPARTS; FACSIMILIES

 

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

 

11.                                 GOVERNING LAW; JURISDICTION; ARBITRATION

 

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

 

(B)                                Any claim or dispute arising
out of or relating to this Agreement, or the breach, termination or validity of
this Agreement, or the Executive’s employment with the Company or the
termination thereof (a “Dispute”), shall, except to the extent otherwise
provided in Section 11(C) below with respect to certain claims for
injunctive relief, be submitted for de novo review in arbitration in accordance
with the procedures set forth in this Section 11(B).  A party that wishes to initiate the
arbitration of a Dispute (the “Initiating Party”) shall give notice of its
demand for arbitration to the other party (or parties); that notice must
include a description of the Dispute in reasonable detail and a specific
description of the relief sought by the Initiating Party, including a proposed
form of award by the arbitrator.  Within
ten days after that notice is given, the other party or parties (each, a
“Responding Party”) shall give notice to the Initiating Party including a
statement as to whether it wishes to submit to the arbitration a Dispute that
varies from, or is in addition to, the Dispute described in the Initiating
Party’s notice and a specific description of the relief sought by the
Responding Party, including a proposed form of award by the arbitrator.  If a Responding Party’s notice describes a
Dispute that varies from, or is in addition to, the Dispute described in the
Initiating Party’s notice, the Initiating Party may, by notice to the
Responding Party within five days after the Responding Party’s notice is given,
modify the description of its requested relief, including the proposed form of
award by the arbitrator, to take account of the Dispute as described in the
Responding Party’s notice.  The
arbitration shall be conducted in New Jersey before a single arbitrator in
accordance with the rules of the American Arbitration Association (at the
offices of the American Arbitration Association nearest to the principal
executive offices of the Company), provided that all appropriately documented
costs (including reasonable attorneys fees and expenses) of any such
arbitration are to be paid by the Company promptly as incurred, subject to
prompt reimbursement to the Company by the Executive of the fees and expenses
of his counsel to the extent that his claims and defenses are found by the
arbitrator to lack reasonable basis.

 

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

 

11

 

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

 

12.                                 NOTICES

 

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

 

	
  To the Executive, at his
  principal residence as reflected in

  the records of the Company, with a copy to him at his

  principal business office during his employment with the

  Company:

  
	
  with a simultaneous copy to:

  
	
   

  
	
  Morrison Cohen Singer &
  Weinsten, LLP

  
	
  750 Lexington Avenue

  
	
  New York, NY  10022

  
	
  Attention:

  	
  Robert M. Sedgwick, Esq.

  
	
  Fax No.: 212-735-8708

  
	
   

  
	
  To the Company:

  
	
  111 Bauer Drive

  
	
  Oakland, NJ 07436

  
	
  Attention:

  	
  Arnold S. Bloom, Esq.

  
	
   

  	
  General Counsel

  
	
  Fax No.:(201)
  405-7377

  
	
   

  
	
  with a simultaneous copy to:

  
	
   

  
	
  Kaye Scholer LLP

  
	
  425 Park Avenue

  
	
  New York, New York  10022

  
	
  Attention:

  	
  Joel I. Greenberg, Esq.

  
	
  Fax No.: 212-836-8211

  

 

12

 

13.                                 ENTIRE AGREEMENT; AMENDMENT

 

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

 

14.                                 WAIVER

 

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

 

15.                                 ASSIGNMENT

 

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

 

16.                                 AUTHORITY

 

The
Company represents and warrants that it has the power, authority and right to
enter into this Agreement and to carry out and perform the terms, covenants and
conditions hereof.  The Executive
represents and warrants that to the best of his knowledge and belief, he is not
subject to any contractual or other commitment (including commitments relating
to notice of resignation) that he has not disclosed to the Company and that
would be breached by the Executive by his performance of this Agreement.  Notwithstanding anything in this Agreement to
the contrary, this Agreement shall not become effective (x) until the Executive’s
present employer executes and delivers to him a waiver letter in the form
previously provided to the Company or otherwise satisfactory to the Company and
the Executive provides the Company with a copy of such letter and (y) unless
the condition specified in clause (x) is satisfied on or before June 1,
2004.

 

13

 

17.                                 CODES

 

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

 

18.                                 DEDUCTIONS

 

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

 

19.                                 CAPTIONS

 

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

 

14

 

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

 

	
  RUSS
  BERRIE AND COMPANY, INC.

  
	
   

  
	
  By:

  	
  /s/
  Josh Weston

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Josh
  Weston

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chairman

  	
   

  
	
   

  
	
  THE
  EXECUTIVE

  
	
   

  
	
   

  
	
  /s/  Andrew R. Gatto

  	
   

  
	
  Andrew
  R. Gatto

  
							

 

15

 

Exhibit A

 

GENERAL RELEASE

 

1.                                       GENERAL RELEASE OF ALL
CLAIMS

 

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

 

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

 

16

 

Systems Improvement Act, the Uniformed Services
Employment and Reemployment Rights Act, the Vietnam Era Veterans Readjustment
Assistance Act, the National Labor Relations Act, the Worker Adjustment and
Retraining Notification Act, the Family and Medical Leave Act of 1993, the
Employee Retirement Income Security Act of 1974, the Age Discrimination in
Employment Act, the Americans with Disabilities Act of 1990, the Fair Labor
Standards Act of 1938, the New York Human Rights Law, the New Jersey Law
Against Discrimination; the New Jersey wage and hour laws, and the New Jersey
Conscientious Employee Protection Act; the California Fair Employment and
Housing Act, the California Labor Code, (ii) any and all other such claims
arising out of or related to any contract, any and all other federal, state or
local constitutions, statutes, rules, regulations or executive orders; or (iii)
any and all such claims arising from any common law right of any kind
whatsoever, including, without limitation, any claims for any kind of tortuous
conduct, promissory or equitable estoppel, defamation, breach of the Company’s
policies, rules, regulations, handbooks or manuals, breach of express or
implied contract or covenants of good faith, wrongful discharge or dismissal,
and/or failure to pay, in whole or part, any compensation of any kind whatsoever
(collectively, “Company’s Claims”).

 

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

 

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

 

2.                                       OPPORTUNITY FOR REVIEW

 

The
Executive acknowledges that he has had a reasonable opportunity to review and
consider the terms of this Release for a period of at least 21 days, that he
understands and has had the opportunity to receive counsel regarding his/ her
respective rights, obligations and

 

17

 

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

 

3.                                       BINDING EFFECT

 

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

 

4.                                       GOVERNING LAW; ARBITRATION;
MISCELLANEOUS

 

The
provisions of Sections 9, 10, 11(A), 12, 14, 16, and 19 of the Employment
Agreement shall be deemed incorporated into this Agreement as if fully set
forth herein.  Any claim or dispute
arising under or relating to this Release, or the breach, termination or
validity of this Release, shall be deemed a “Dispute” subject to
Section 11(B) of the Employment Agreement.

 

This
Release shall become effective only if countersigned by an authorized officer
of the Company, and returned to the Executive, no later than ten business days
after it is executed and delivered to the Company by the Executive.

 

	
   

  	
  RUSS BERRIE AND COMPANY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Josh Weston

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/  Andrew R. Gatto

  
	
   

  	
  Andrew R. Gatto

  

 

18

 

Exhibit B

 

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

 

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

 

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

 

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

 

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

 

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

 

(c)                                  All determinations required to be made under this
Exhibit B, including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized in arriving
at such determination, shall be made by the public accounting firm that is
retained by the Company as of the date immediately prior to a Change in Control
or, if such accounting firm fails to agree to perform the functions
contemplated by this Exhibit B, an accounting firm of national reputation
designated by the Company (in either case, the “Accounting Firm”), which shall
provide detailed supporting calculations both to the Company and to the
Executive within 20 business days of the receipt of notice from the Executive
that there has been a Plan Payment, or such earlier time as is requested by the
Company (collectively, the “Determination”). 
All fees and expenses of the Accounting Firm with respect to the matters
contemplated by this Exhibit B shall be borne by the Company.  Any Gross-Up Payment, as determined pursuant
to this Exhibit B, shall be paid by the Company to the Executive within ten
days of the Determination, but in no event later than the date that the

 

19

 

Excise Tax payment to which it relates is due
(through withholding or otherwise).  If
the Accounting Firm determines that no Excise Tax is payable, the Executive may
request the Accounting Firm to furnish the Executive with a written opinion
that there is a reasonable basis for that determination.  The Determination by the Accounting Firm
shall be binding upon the Company and the Executive, except as provided in
paragraph (d) below.  As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the Determination, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made (“Underpayment”).  In the event that the Company exhausts its
remedies pursuant to paragraph (d) below and the Executive is thereafter
required to make payment of any Excise Tax or Income Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.

 

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

 

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

 

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

 

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

 

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

 

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

 

20

 

the
tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive shall prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided further,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the Executive
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or Income Tax imposed with respect
to such advance or with respect to any imputed income with respect to such
advance.  Furthermore, the Company’s
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder or an Underpayment and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority,
provided that such action by the Executive does not affect the Company’s
ability to settle or contest issues with respect to which a Gross-Up Payment
would be payable or an Underpayment.

 

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

 

21

 

Annex II

RUSS BERRIE AND COMPANY, INC.

SUPER BONUS PROGRAM

ANDREW R. GATTO

 

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

 

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

 

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

 

In
compliance with the law, payments under this agreement are subject to
withholding taxes and deductions for contributions to the Company’s 401(k) and
Executive Deferred Compensation plans.

 

This
program confers no right to continued employment.  Employment remains “at will”, does not
represent a specific guarantee and may be terminated by the Company with or
without cause at any time.

 

22

 

Annex I

RUSS BERRIE AND COMPANY, INC.

INCENTIVE COMPENSATION PROGRAM

ANDREW R. GATTO

 

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

 

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

 

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

 

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

 

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

 

In
compliance with the law, IC Awards are subject to withholding taxes and
deductions for contributions to the Company’s 401(k) and Executive Deferred
Compensation plans.

 

23

 

The
Company has the legal right to cancel the entire program without notice for any
reason without incurring any liability, provided, however, that the Company
shall not have the right to cancel such program (in whole or in part) as it
applies to you without your consent, which shall not be unreasonably withheld
or delayed.  IC Awards will be paid no
later than March 31st in the year following the year in respect of which
the IC Award has been earned.

 

Participation in the IC Program confers no right to continued
employment.  Employment remains “at
will”, does not represent a specific guarantee and may be terminated with or
without cause at any time by the Company, without any entitlement to future
payment of IC Awards.

 

24

 

RUSS BERRIE AND COMPANY, INC.

STOCK OPTION AGREEMENT

 

Date of Grant:
            
    , 2004

 

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

 

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

 

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

 

2.                                       (a)                                  If the employment of the Executive under the
Employment Agreement is terminated by the Company without Cause or by reason of
the Disability of the Executive, or by the Executive for Good Reason (each as
defined in the Employment Agreement), whether or not in connection with a
change in control, or by reason of the Executive’s death, any outstanding
unexercised portion of this Option, whether or not vested and/or exercisable on
the Termination Date, shall be deemed fully vested and exercisable and may be
exercised for two years after the Termination Date or the remainder of the
ten-year term of the Option, whichever period is shorter.  The “Termination Date” is the date on which
the Executive’s employment under the Employment Agreement ceases.

 

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

 

25

 

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

 

(c)                                  If
the employment of the Executive under the Employment Agreement is terminated by
the Company for Cause or by the Executive without Good Reason (each as defined
in the Employment Agreement), and not due to death or Disability, any
outstanding unexercised unvested portion of this Option will be cancelled and
deemed terminated as of the Termination Date and any unexercised, vested
portion of this Option may be exercised through the earlier of (x) 30 days
after the Termination Date or (y) the 10th anniversary of the Date
of Grant.

 

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

 

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

 

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

 

26

 

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

 

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

 

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

 

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

 

27

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

28

 

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

 

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

 

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

 

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

 

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

 

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

 

29

 

	
   

  	
  RUSS BERRIE AND COMPANY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  AGREED TO AND ACCEPTED AS OF
  THE

  	
   

  
	
  DATE OF GRANT SET FORTH ABOVE:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ANDREW R. GATTO

  	
   

  
					

 

30

 

RUSS BERRIE AND COMPANY, INC.

STOCK OPTION AGREEMENT

 

Date of Grant:
             
   , 2004

 

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

 

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

 

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

 

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

 

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

 

31

 

(c)                                  If
the employment of the Executive under the Employment Agreement is terminated by
the Company for Cause or by the Executive without Good Reason, and not due to
death or Disability, any outstanding unexercised unvested portion of this
Option will be cancelled and deemed terminated as of the Termination Date and
any unexercised, vested portion of this Option may be exercised through the
earlier of (x) 30 days after the Termination Date or (y) the 10th
anniversary of the Date of Grant.

 

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

 

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

 

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

 

(c)                                  Delivery
of Shares in Payment of Option Price. 
Payment by delivery of Shares may be effected by delivering one or more
stock certificates or by otherwise delivering Shares to the Company’s
reasonable satisfaction, in each case accompanied by such endorsements, stock
powers, signature guarantees or other documents or assurances as may reasonably
be required by the

 

32

 

Company.  If a
certificate or certificates or other documentation representing Shares in
excess of the amount required are delivered, a certificate (or other
satisfactory evidence of ownership) representing the excess number of Shares
shall be returned by the Company.  The
Company need not accept fractional Shares.

 

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

 

(a)                                  In
the event of any dissolution or liquidation of the Company, sale of all or
substantially all of the assets of the Company, merger or consolidation of the
Company with or into any other corporation if the Company is the surviving
corporation, statutory share exchange involving capital stock of the Company,
reorganization, recapitalization, reclassification, stock dividend,
extraordinary dividend, stock split, reverse stock split, stock combination,
rights offering, spin-off or other relevant change, the Committee (as defined
in the Company’s 2004 Stock Option, Restricted and Non-Restricted Stock Plan
(the “2004 Plan”)) may adjust the Option Price of the Option and may make any
or all other adjustments deemed appropriate by the Committee in good faith,
including, without limitation, accelerating the vesting and/or exercise period
pertaining to the Option; such adjustment shall be made on a basis that is no
less favorable to the Executive than the adjustment, if any, made in respect of
such event to options held by persons who are directors and executive officers
of the Company is to such holders.

 

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

 

33

 

continuation, assumption or substitution contemplated by the
foregoing clauses, the Option shall continue in the manner and under the terms
so provided.

 

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

 

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

 

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

 

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

 

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

 

9.                                       The Company shall not be required to issue or
deliver a certificate for Option Shares unless the issuance and delivery of
such certificate complies with all applicable legal requirements including,
without limitation, compliance with the provisions of applicable state
securities laws, the Securities Act of 1933, as amended (the “Securities Act”),
the Securities Exchange Act of 1934, as amended, and the requirements of the
exchanges, if any, on which the Company’s shares of Common Stock may, at that
time, be listed; provided, however, that the Company shall use
reasonable efforts to satisfy, as promptly as possible, any condition (other
than those in the Executive’s control) that would permit such issuance or
delivery.

 

34

 

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

 

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

 

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

 

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

 

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

 

	
   

  	
  RUSS BERRIE AND COMPANY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BY:

  	
   

  

 

35

 

	
  AGREED
  TO AND ACCEPTED AS OF THE

  	
   

  
	
  DATE
  OF GRANT SET FORTH ABOVE:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ANDREW
  R. GATTO

  	
   

  
			

 

36

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