10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to

Commission file number  1-8681

RUSS BERRIE AND COMPANY, INC.

(Exact name of registrant as specified in its charter)

New Jersey	22-1815337
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
111 Bauer Drive, Oakland, New Jersey	07436
(Address of principal executive offices)	(Zip Code)
(201) 337-9000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý   No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ý   No  o

The number of shares outstanding of each of the registrant’s classes of common stock, as of November 2, 2004 was as follows:

CLASS	OUTSTANDING AT November 2, 2004
Common Stock, $0.10 stated value	20,823,717

RUSS BERRIE AND COMPANY, INC.

INDEX

PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements
a)		Consolidated Balance Sheet as of September 30, 2004 and December 31, 2003
b)		Consolidated Statement of Operations for the three and nine months ended September 30, 2004 and 2003
c)		Consolidated Statement of Cash Flows for the nine months ended September 30, 2004 and 2003
d)		Notes to Consolidated Financial Statements
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures About Market Risk
Item 4.		Controls and Procedures
PART II – OTHER INFORMATION
Item 6.		Exhibits
	Signatures

2

PART 1 - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in Thousands)

(UNAUDITED)

	September 30, 2004			December 31, 2003
ASSETS
Current assets
Cash and cash equivalents	$	64,581		$	81,535
Marketable securities	7,914			150,515
Accounts receivable, trade, less allowances of $ 3,085 in 2004 and $ 3,841 in 2003	68,741			82,795
Inventories — net	41,600			51,921
Prepaid expenses and other current assets	3,980			4,517
Deferred income taxes	15,128			9,671
Total current assets	201,944			380,954
Property, plant and equipment — net	40,848			46,108
Goodwill	10,141			10,353
Intangible assets	17,551			17,564
Other assets	6,589			7,769
Total assets	$	277,073		$	462,748
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	4,314		$	10,318
Accrued expenses	29,349			28,684
Accrued income taxes	—			8,000
Total current liabilities	33,663			47,002
Deferred income taxes	328			328
Total liabilities	$	33,991		$	47,330
Commitments and contingencies
Shareholders’ equity
Common stock: $.10 stated value per share; authorized 50,000,000 shares; issued 2004, 26,460,001 shares; 2003, 26,296,995 shares	2,646			2,631
Additional paid in capital	88,452			85,197
Retained earnings	251,317			428,704
Accumulated other comprehensive income	10,817			9,036
Treasury stock, at cost (5,636,284 shares at September 30, 2004 and at December 31, 2003)	(110,150		)	(110,150		)
Total shareholders’ equity	243,082			415,418
Total liabilities and shareholders’ equity	$	277,073		$	462,748

The accompanying notes are an integral part of the consolidated financial statements.

3

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Dollars in Thousands, Except Per Share Data)

(UNAUDITED)

	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
	2004		2003		2004			2003
Net sales	$	79,272	$	87,848	$	198,405		$	242,566
Cost of Sales	41,893		41,228		117,094			112,618
Gross profit	37,379		46,620		81,311			129,948
Selling, general and administrative expense	35,349		32,217		103,819			98,032
Investment and other income-net	310		1,131		2,501			4,403
Income (loss) before provision(benefit) for income taxes	2,340		15,534		(20,007		)	36,319
Provision (benefit) for income taxes	92		3,939		(7,141		)	10,567
Net income (loss)	$	2,248	$	11,595	$	(12,866	)	$	25,752
Net income (loss) per share:
Basic	$	0.11	$	0.56	$	(0.62	)	$	1.25
Diluted	$	0.11	$	0.56	$	(0.62	)	$	1.25
Weighted average shares:
Basic	20,829,000		20,628,000		20,767,000			20,581,000
Diluted	20,829,000		20,732,000		20,767,000			20,681,000

The accompanying notes are an integral part of the consolidated financial statements.

4

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in Thousands)

(UNAUDITED)

	NINE MONTHS ENDED SEPTEMBER 30,
	2004			2003
Cash flows from operating activities:
Net (loss) income	$	(12,866	)	$	25,752
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	4,949			4,885
Provision for accounts receivable reserves	1,095			1,448
Provision for inventory reserves	14,426			840
Deferred income taxes – net	(5,457		)	—
Realized loss on other investments	—			1,537
Loss on sale of Bright of America, Inc.	235
Other	1,764			1,147
Changes in assets and liabilities:
Accounts receivable	11,733			(12,288		)
Inventories	(6,379		)	(5,407		)
Prepaid expenses and other current assets	425			154
Other assets	1,178			(841		)
Accounts payable	(5,690		)	(882		)
Accrued expenses	1,237			(1,268		)
Accrued income taxes	(8,000		)	1,712
Total adjustments	11,516			(8,963		)
Net cash (used in) provided by operating activities	(1,350		)	16,789
Cash flows from investing activities:
Purchase of marketable securities and other investments	(322,794		)	(354,196		)
Proceeds from sale of marketable securities and other investments	464,618			328,259
Proceeds from sale of property, plant and equipment	4,715			17
Capital expenditures	(1,527		)	(6,437		)
Net cash provided by (used in) investing activities	145,012			(32,357		)
Cash flows from financing activities:
Proceeds from issuance of common stock	3,270			2,836
Dividends paid to shareholders	(164,520		)	(17,289		)
Net cash (used in) financing activities	(161,250		)	(14,453		)
Effect of exchange rate changes on cash and cash equivalents	634			4,748
Net (decrease) in cash and cash equivalents	(16,954		)	(25,273		)
Cash and cash equivalents at beginning of period	81,535			93,513
Cash and cash equivalents at end of period	$	64,581		$	68,240
Cash paid during the period for:
Interest	$	77		$	17
Income taxes	$	859		$	8,855

The accompanying notes are an integral part of the consolidated financial statements.

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements have been prepared by Russ Berrie and Company, Inc. and its subsidiaries (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles have been condensed or omitted pursuant to such principles and regulations.  The information furnished reflects all adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the interim periods presented.  Results for interim periods are not necessarily an indication of results to be expected for the year.

The Company operates in two segments which consists of the Company’s core gift business and the Company’s non-core business.  The Company’s core business designs, manufactures through third parties and markets a wide variety of gift products to retail stores throughout the United States and throughout the world via the Company’s international wholly-owned subsidiaries and distributors.  Until August 2, 2004 the Company’s non-core businesses designed and marketed functional consumer products sold at comparable price points with comparable gross margins to each other and consisted of the Company’s wholly-owned subsidiaries Sassy, Inc. and Bright of America, Inc.  Effective August 2, 2004, the Company sold Bright of America, Inc. (See Note 13 of the Notes to Consolidated Financial Statements).  Sassy’s product line consists of approximately 400 infant and juvenile products that focus on children of the age group between newborn to two years, under the trade name Sassy™, with concept groupings such as bath toys and accessories, development toys, feeding utensils and bowls, pacifiers, bottles, bibs, soft toys, mobiles and feeders.  Sassy also benefits from United States distribution rights to certain baby soothing and comforting products from MAM Babyartikel GmbH, of Vienna, Austria, a developer and manufacturer of children’s products.  Sassy’s products are sold to consumers, primarily in the United States, through mass marketers.

Certain prior year amounts have been reclassified to conform to the 2004 presentation.

This Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2004 should be read in conjunction with the Company’s Quarterly Reports on Form 10-Q for the three months ended March 31, 2004 and June 30, 2004 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 (the “2003 10-K”).

NOTE 2 – FINANCIAL INSTRUMENTS

MARKETABLE SECURITIES AND OTHER INVESTMENTS

In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” the Company’s marketable securities are considered available-for-sale investments.  Accordingly, these investments are carried in the accompanying consolidated balance sheet at fair value, with the difference between cost and fair value (unrealized gains and losses) recorded as a component of shareholders’ equity, net of tax, in Accumulated Other Comprehensive Income.  These investments consist primarily of U.S. government obligations, municipal obligations, preferred stock, mutual funds and equity securities.  The Company liquidated, in July 2003, its equity investment in a limited partnership which managed a portfolio of mortgage-backed securities to achieve returns through yield income and price appreciation.  This investment, which had been included in Other Investments in the Consolidated Balance Sheet until its liquidation, was accounted for using the equity method.  Accordingly the Company’s proportionate share of the limited partnership’s income or loss amounting to non-cash loss of $49,000 and $1,537,000 for the three and nine months ended September 30, 2003, respectively, is included in investment and other income-net in the Consolidated Statement of Operations.  Additionally, realized losses on sales of the Company’s available-for-sale marketable securities of $34,000 for the three months ended September 30, 2004 and realized gains of $1,005,000 for the nine months ended September 30, 2004, as determined on a specific identification basis, are included in investment and other income, net in the Consolidated Statement of Operations.  Realized losses on sale of available-for-sale marketable securities of $112,000 and realized gains of $945,000 for the three and nine months ended September 30, 2003, respectively, are included in investment and other income, net in the Consolidated Statement of Operations.

6

Marketable securities consist of the following:

	As of September 30, 2004
	Cost		Gross Unrealized Gain		Gross Unrealized (Loss)			Fair Value
U.S. Government obligations	$	920,000	$	0	$	(4,000	)	$	916,000
Municipal obligations	4,645,000		3,000		(44,000		)	4,604,000
Preferred stock & other	954,000		0		(69,000		)	885,000
Equity securities	616,000		0		(23,000		)	593,000
Asset backed securities	921,000		2,000		(7,000		)	916,000
Total marketable securities	$	8,056,000	$	5,000	$	(147,000	)	$	7,914,000

	As of December 31, 2003
U.S. Government obligations	$	23,874,000	$	23,000	$	(148,000	)	$	23,749,000
Municipal obligations	98,440,000		131,000		(140,000		)	98,431,000
Preferred stock & other	7,946,000		225,000		(68,000		)	8,103,000
Equity securities	12,955,000		332,000		(140,000		)	13,147,000
Asset backed securities	7,082,000		12,000		(9,000		)	7,085,000
Total marketable securities	$	150,297,000	$	723,000	$	(505,000	)	$	150,515,000

NOTE 3 - EARNINGS PER SHARE

A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution is as follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2004	2003	2004	2003
Weighted average common shares outstanding	20,829,000	20,628,000	20,767,000	20,581,000
Dilutive effect of common shares issuable under outstanding stock options	—	104,000	—	100,000
Weighted average common shares outstanding assuming dilution	20,829,000	20,732,000	20,767,000	20,681,000

Stock options outstanding at September 30, 2004 to purchase 460,482 shares of common stock were excluded from the computation of earnings per share assuming dilution for such periods as the exercise prices for such options were greater than the average market price of the Company’s Common Stock.  There were no stock options outstanding at September 30, 2003 which were excluded from the computation of earnings per common share assuming dilution because none of the options’ exercise prices were greater than the average market price of the Company’s Common Stock.

NOTE 4 - DIVIDENDS

Cash dividends of $6,249,000 ($0.30 per share quarterly dividend) were paid in the quarter ended September 30, 2004.  Cash dividends of $164,520,000 ($0.30 per share quarterly dividend plus $7.00 per share special dividend) were paid in the nine months ended September 30, 2004.  On April 12, 2004, the Company declared a one-time special cash dividend in the amount of $7.00 per common share payable on May 28, 2004, to shareholders of record of the Company’s Common Stock on May 14, 2004.  This one-time special dividend of $145,808,000 is included in the dividend payment, stated above, for the nine months ended September 30, 2004.  A quarterly dividend of $0.30 per share for the third quarter was paid on September 3, 2004, to shareholders of record of the Company’s Common Stock on August 20, 2004.

Cash dividends of $5,777,000 ($0.28 per share) were paid on August 29, 2003, to shareholders of record of the Company’s Common Stock on August 15, 2003.  Cash dividends of $17,289,000 ($0.28 per share per quarter) were paid in the nine months ended September 30, 2003.

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NOTE 5 - COMPREHENSIVE INCOME

Comprehensive Income, representing all changes in Shareholders’ equity during the period other than changes resulting from the issuance or repurchase of the Company’s Common Stock and payment of dividends, is reconciled to net income for the three and nine months ended September 30, 2004 and 2003 as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2004		2003			2004			2003
Net income (loss)	$	2,248,000	$	11,595,000		$	(12,866,000	)	$	25,752,000
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	1,282,000		669,000			907,000			5,630,000
Net unrealized gain (loss) on securities available-for-sale	154,000		372,000			(255,000		)	94,000
Net unrealized gain (loss) on foreign currency forward exchange contracts and other	586,000		(22,000		)	1,129,000			38,000
Other comprehensive income	2,022,000		1,019,000			1,781,000			5,762,000
Comprehensive income (loss)	$	4,270,000	$	12,614,000		$	(11,085,000	)	$	31,514,000

NOTE 6 – LITIGATION

In the ordinary course of its business, the Company is party to various copyright, patent and trademark infringement, unfair competition, breach of contract, customs, employment and other legal actions incidental to its business, as plaintiff or defendant.  In the opinion of management, the amount of ultimate liability with respect to these actions will not materially adversely affect the consolidated results of operations, financial condition or cash flows of the Company.

NOTE 7 – SEGMENTS OF THE COMPANY AND RELATED INFORMATION

The Company operates in two segments which consist of the Company’s core gift business and the Company’s non-core business.  This segmentation of the Company’s operations reflects how the Company’s Chief Executive Officer currently views the results of operations.  There are no intersegment revenues to eliminate.

The Company’s core gift business designs, manufactures through third parties and markets a wide variety of gift and home décor products to retail stores throughout the United States and throughout the world via the Company’s international wholly-owned subsidiaries and distributors.  Until August 2, 2004 the Company’s non-core businesses designed and marketed functional consumer products sold at comparable price points with comparable gross margins to each other and consisted of the Company’s wholly-owned subsidiaries Sassy, Inc. and Bright of America, Inc.  Effective August 2, 2004, the Company sold Bright of America, Inc. (See Note 13 of the Notes to Consolidated Financial Statements).  Sassy’s product line consists of approximately 400 infant and juvenile products that focus on children of the age between newborn to two years, under the trade name Sassy™, with concept groupings such as bath toys and accessories, development toys, feeding utensils and bowls, pacifiers, bottles, bibs, soft toys, mobiles and feeders.  Sassy also benefits from United States distribution rights to certain baby soothing and comforting products from MAM Babyartikel GmbH, of Vienna, Austria, a developer and manufacturer of children’s products.  Sassy’s products are sold to consumers, primarily in the United States, through mass marketers.

	Three Months Ended September 30,				Nine months Ended September 30,
	2004		2003		2004			2003
Core:
Net sales	$	63,678,000	$	73,681,000	$	153,412,000		$	199,285,000
Income (loss) before income taxes	141,000		13,007,000		(25,593,000		)	30,244,000
Non-core:
Net Sales	15,594,000		14,167,000		44,993,000			43,281,000
Income before income taxes	2,199,000		2,527,000		5,586,000			6,075,000
Consolidated:
Net Sales	79,272,000		87,848,000		198,405,000			242,566,000
Income (loss) before income taxes	2,340,000		15,534,000		(20,007,000		)	36,319,000

8

Additionally, total assets of each segment were as follows:

	September 30, 2004		December 31, 2003
Core	$	204,163,000	$	388,207,000
Non-core	72,910,000		74,541,000
Total	$	277,073,000	$	462,748,000

As disclosed in the Company’s 2003 10-K , while 86% of purchases are attributable to manufacturers in the People’s Republic of China, the supplier accounting for the greatest dollar volume of purchases accounted for approximately 9% and the five largest suppliers accounted for approximately 34% in aggregate.  The Company utilizes approximately 100 manufacturers in the Far East.  The Company believes that there are many alternative manufacturers for the Company’s products and sources of raw materials.  Based on the above conditions, the Company does not believe there is a concentration risk associated with any significant relationship.

NOTE 8—INVESTMENT AND OTHER INCOME – NET

The significant components of investment and other income—net consist of the following:

	Three Months Ended September 30,						Nine months Ended September 30,
	2004			2003			2004			2003
Investment income	$	353,000		$	926,000		$	3,164,000		$	4,201,000
Interest (expense)	(13,000		)	(4,000		)	(77,000		)	(17,000		)
Foreign currency transactions, net	67,000			69,000			(571,000		)	13,000
Other, net	(97,000		)	140,000			(15,000		)	206,000
Total	$	310,000		$	1,131,000		$	2,501,000		$	4,403,000

NOTE 9 - ACCOUNTING FOR STOCK OPTIONS

The Company follows the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123” and, therefore, accounts for its stock option grants in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations using the intrinsic value method of accounting.  Accordingly, no compensation cost has been recognized for the options granted by the Company except for the application of Financial Accounting Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation”, which resulted in non-cash expense of $1,000 and non-cash income of $75,000 during the three months ended September 30, 2004, and September 30, 2003, respectively, which is included in selling, general and administrative expenses in the Consolidated Statement of Operations and non cash income of $222,000 and non-cash expense $7,000 for the nine months ended September 30, 2004 and September 30, 2003, respectively.  These charges relate only to the options granted during 2000 that were repriced as of February 29, 2000 upon approval of the Board of Directors and Shareholders.  Had compensation cost for the Company’s stock grants been determined based on the fair value recognition provisions of SFAS No. 123 at the grant date, in the three months and nine months ended September 30, 2004 and 2003, the Company’s net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:

	Three Months Ended September 30,				Nine months Ended September 30,
	2004		2003		2004			2003
Net income (loss) -as reported	$	2,248,000	$	11,595,000	$	(12,866,000	)	$	25,752,000
Deduction for stock-based compensation expense determined under fair value method net of tax-pro forma	91,000		393,000		403,000			620,000
Net (loss) income-pro forma	2,157,000		11,202,000		(13,269,000		)	25,132,000
Earnings (loss) per share (basic) – as reported	0.11		0.56		(0.62		)	1.25
Earnings (loss) per share (basic) – pro forma	0.10		0.54		(0.64		)	1.22
Earnings (loss) per share (diluted) – as reported	0.11		0.56		(0.62		)	1.25
Earnings (loss) per share (diluted) – pro forma	0.10		0.54		(0.64		)	1.22

9

The fair value of each option granted by the Company is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for all grants:

	Three Months Ended September 30,						Nine months Ended September 30,
	2004			2003			2004			2003
Dividend yield	3.52		%	3.22		%	3.52		%	3.22		%
Risk-free interest rate	2.40		%	2.09		%	2.40		%	2.09		%
Volatility	30.71		%	32.64		%	30.71		%	18.72		%
Expected life (years)	3.7			2.9			3.7			2.9
Weighted average fair value of options granted during the year	$	4.43		$	6.37		$	4.43		$	3.49

NOTE 10 - - FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS

Certain of the Company’s foreign subsidiaries periodically enter into foreign currency forward exchange contracts (“Forward Contracts”) to hedge inventory purchases, both anticipated and firm commitments, denominated in the United States dollar.  One of the Company’s domestic subsidiaries periodically enters into Forward Contracts to hedge inventory purchases, both anticipated and firm commitments, denominated in the Euro.  These contracts reduce foreign currency risk caused by changes in exchange rates and are used to hedge these inventory purchases, generally for periods up to 13 months.  At September 30, 2004, the Company’s Forward Contracts have expiration dates which range from one to nine months.

Since there is a direct relationship between the Forward Contracts and the currency denomination of the underlying transaction, such Forward Contracts are highly effective in hedging the cash flows of certain of the Company’s foreign subsidiaries related to transactions denominated in the United States dollar and certain of the Company’s domestic subsidiaries related to transactions denominated in the Euro.  These Forward Contracts meet the criteria for cash flow hedge accounting treatment and accordingly, gains or losses are included in other comprehensive income (loss) and are recognized in cost of sales based on the turnover of inventory.

NOTE 11 - RECENTLY ISSUED ACCOUNTING STANDARDS

On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed Statement, “Share-Based Payment” that addresses the accounting for share-based awards to employees, including employee-stock-purchase-plans (ESPPs).  The FASB formally proposed to require companies to recognize the fair value of stock options and other stock-based compensation to employees.  The proposed Statement would eliminate the ability to account for share-based compensation transactions using the intrinsic value method under APB Opinion No. 25, Accounting for Stock Issued to Employees, and generally would require instead that such transactions be accounted for using a fair-value-based method.  The proposed requirements in the exposure draft would be effective for public companies for period beginning after June 15, 2005.  The Company currently accounts for its stock-based compensation plans in accordance with APB Opinion No. 25.  Therefore, if the FASB adopts this proposed statement, as currently drafted, the Company will have to recognize the fair value of the stock based compensation in the Consolidated Statement of Operations rather than disclosing the pro forma impact of the stock based compensation as the Company currently does in Note 9.

On March 31, 2004, the Financial Accounting Standards Board ratified the consensus of its Emerging Issues Task Force (“EITF”) regarding the recognition and measurement of other-than-temporary impairments of certain investments effective on June 30, 2004.  The Company’s adoption of the provisions of EITF No. 03-01 did not have a material impact on the Company’s financial statements.

NOTE 12 – TENDER OFFER

On May 7, 2004, the Company announced that the Board of Directors authorized a cash tender offer to purchase outstanding options issued under the Company’s various equity compensation plans, as is more fully described in the Statement on Schedule TO and related amendments filed by the Company with the Securities and Exchange Commission on May 7, 2004, May 28, 2004, June 15, 2004, June 22, 2004 and June 30, 2004, respectively. 

10

The tender offer closed in June 2004 with an aggregate purchase price of approximately $844,000 paid by the Company, which was treated as a compensation expense in the second quarter of 2004.

NOTE 13 – SALE OF BRIGHT OF AMERICA

Effective August 2, 2004, the Company sold substantially all of the net assets from one of its non-core subsidiaries, Bright of America, Inc. (“Bright”).  Assets of approximately $5.8 million less assumed liabilities of $0.8 million were sold for $4.0 million in cash and a $1 million promissory note bearing interest at 9% per annum, payable in 39 months.  The Company recorded a loss of approximately $153,000 net of tax, in the third quarter 2004 as a result of the sale, due primarily to transaction related costs.  During the nine months ended September 30, 2004, Bright generated net sales of approximately $4,900,000 and net income of approximately $300,000.

NOTE 14 – COST ASSOCIATED WITH DISPOSAL ACTIVITY

In 2003, the Company restructured its operations through headcount reductions and the closure of certain facilities.  The restructuring provision of $2.3 million recorded in the third and fourth quarter of 2004, included estimates for separation cost of approximately 115 employees, facilities exit cost and the write-off of certain leasehold improvements.  Although these employees are no longer employees of the Company, payments will continue through the fourth quarter of 2004.  The lease obligations on the closed facilities will be complete in May 2005. These costs are shown in selling, general and administrative expenses in the Consolidated Statement of Operations and are all related to the Company’s core business segment.

On September 28, 2004, Russ Berrie and Company, Inc. announced a corporate restructuring designed to align the Company’s management and sales organization with its strategic plans and to right-size its expense structure.  The restructuring included the immediate elimination of approximately 75 domestic positions, and resulted in a pretax charge of $4.1 million in the third quarter of 2004, primarily related to severance costs.  Although these employees are no longer employees of the Company, payments will continue through the third quarter of 2005.  These costs are shown in selling general and administrative expenses in the Consolidated Statement of Operations and are all related to the Company’s core business segment.

The Company reassesses the reserve requirement under the restructuring plan at the end of each reporting period.  Below is the rollforward of the restructuring accrual:

	Balance 12/31/03		2004 Provision		Payments/ Write-offs		Additional Cost Incurred		Balance at 9/30/04
Employee separation	$	488,000	$	4,050,000	$	550,000	$	90,000	$	4,078,000
Facility exit cost	87,000		—		69,000		—		18,000
Total	$	575,000	$	4,050,000	$	619,000	$	90,000	$	4,096,000

See “Overview” of Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the facts and circumstance leading up to the restructuring charges discussed herein.

The Company does expect to incur further restructuring costs as it continues to investigate other areas for cost reduction and efficiency improvements in its efforts to “right-size” its infrastructure.  As these cost reduction opportunities have not yet been specifically identified and/or quantified, no estimates as to future restructuring charges can be made at this time.

NOTE 15 – INTANGIBLE ASSETS

The significant components of intangible assets consist of the following:

	September 30, 2004		December 31, 2003
MAM distribution agreement and relationship	$	10,400,000	$	10,400,000
Sassy trade name	7,100,000		7,100,000
Other intangible assets	51,000		64,000
Total intangible assets	$	17,551,000	$	17,564,000

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NOTE 16 - INVENTORY

The Company values inventory at the lower of the actual cost or its current estimated market value.  The Company regularly reviews inventory quantities on hand, by item, and records a write-down of inventory to fair market value based primarily on the Company’s historical experience and estimated forecast of product demand using historical and recent ordering data relative to the quantity on hand for each item.  In response to strategic changes in product direction made in June 2004 under its recently appointed CEO, the Company undertook a comprehensive review of its worldwide inventory during the second quarter.  As a result of this review, an additional inventory write-down of $13 million (pre tax) was recorded in the second quarter of 2004 to reflect inventory in the core segment at its lower of cost or market value.  The Company expects to sell substantially all of this inventory through other than its normal sales channels.  See “Overview” above.  A significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand, however the Company manages inventory and monitors product purchasing to minimize this risk.  “See “Overview” of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, above.  Although the Company does not anticipate further material inventory write-downs at this time, a significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand.  The Company manages inventory and monitors product purchasing to minimize this risk.”

NOTE 17 – SUBSEQUENT EVENTS

Applause Trademark

Russ Berrie and Company, Inc. (“RUSS”) and Applause, LLC (“Seller”) entered into a Trademark Purchase Agreement on or about August 11, 2004 (the “Original Agreement”), relating to the sale to RUSS of the “APPLAUSE” and certain related trademarks, together with certain inventory.  Prior to the closing under the Original Agreement, an involuntary bankruptcy petition was filed against the Seller on or about August 31, 2004.  As of September 21, 2004, RUSS and Seller entered into an Amended and Restated Trademark Purchase Agreement, which was substantially similar to the Original Agreement (the “Agreement of Sale”).  As a result of the bankruptcy petition filed against Seller, however, all sales of assets of the Seller were subject to the consent and order of the United States Bankruptcy Court, Central District of California, San Fernando Valley Division.  Pursuant to an order of the Bankruptcy Court, a public auction was held on October 14, 2004 to determine the highest bidder for the assets of the Seller which were being sought to be purchased by RUSS.  As a result of the public auction, the Bankruptcy Court entered an Order on October 15, 2004 authorizing and approving the sale by the Seller to RUSS of the “APPLAUSE” and certain related trademarks, together with certain inventory, pursuant to the Agreement of Sale. As a result of the public auction, the Agreement of Sale provides for a cash purchase price for the trademarks of $7,550,000, and a cash purchase price of the inventory to be purchased being $41,000, unless RUSS and the Seller agree to the sale and purchase of inventory in excess of such amount.  The purchase price was paid at the closing on October 26, 2004.

Potential acquisition

On October 25, 2004, the Company signed a non-binding letter of intent with respect to the potential acquisition by the Company of an entity in a related business, at a purchase price equal to approximately $128,000,000 plus a deferred payment based on performance and transaction costs.  The Company anticipates that the purchase price will be funded substantially with third-party financing, in an amount approximating $125,000,000.  The Company cannot assure that it will enter into a definitive agreement or that a transaction will be consummated.

Sale of Hong Kong office space

Russ Berrie has entered into a provisional sales agreement to sell one of its two office locations in Hong Kong as a result of the Company transitioning a number of functions that had previously been performed in Hong Kong into our offices in mainland China.  A formal sales agreement is expected to be signed before the end of November 2004, with a closing expected in the first quarter of 2005.  As a result of this transaction, the Company expects to receive $2.8 million which will result in a loss of approximately $2.0 million pre-tax.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of the Company’s consolidated financial condition, changes in financial condition and results of operations.  This financial and business analysis should be read in conjunction with the Company’s consolidated financial statements and accompanying notes to the Consolidated Financial Statements set forth in Part I, Financial Information, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

OVERVIEW

The Company’s revenues are primarily derived from sales of its products, a significant portion of which is attributable to sales of products in its core segment.  Sales and operating profits in the Company’s core business segment began to decline during 2003 as a result of several factors discussed in Russ Berrie’s Annual Report on Form 10-K for the year ended December 31, 2003 (“2003 10-K”) and subsequent 10-Q filings, including (i) retailer consolidation and a declining number of independent retail outlets, which in turn had a negative impact on sales from such outlets, (ii) increased competition from other entities which offered lower pricing and achieved greater customer acceptance of their products and (iii) changing buying habits of consumers, marked by a shift from independent retailers to mass market retailers.  During the first half of 2003, management realized that the factors discussed above were unlikely to abate, and as a result, began an evaluation of how best to respond.  The result was a multi-pronged approach begun in the third quarter of 2003, of which a restructuring was one part.  Such response, as described in the 2003 10-K, consisted of (i) focusing on categorizing and rationalizing its product range, (ii) segmenting its selling efforts to address management’s perception of new customer requirements, (iii) focusing on growing its international business and non-core segment and (iv) restructuring its operations in order to reduce overhead expenses through headcount reductions and the closure of certain domestic showrooms.  Specifically, in the third and fourth quarters of 2003, restructuring charges of $1.3 million and $1.0 million were recorded, respectively, in accordance with the provisions of SFAS No. 146, “Accounting for Costs Associated With Exit or Disposal Activities”.  The restructurings for both quarters reduced the Company’s future operating expenses, predominantly through lower compensation expense and reduced facilities lease costs, by approximately $4.3 million on an annualized basis commencing in the fourth quarter of 2003.  Liquidity will be improved by a similar amount.  Although these employees are no longer employees of the Company, payments will continue through the fourth quarter of 2004.  The lease obligations on the closed facilities will be complete in May 2005.  All costs associated with this restructuring were recorded in selling, general and administrative expenses.  “See Note 14 to Notes to Consolidated Financial Statements.”

During the first half of 2004, the Company continued to be negatively impacted by the factors discussed above.  As a result, its core business segment’s sales continued to decline, as described in its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004 (the “2004 10-Qs).  In response to this continued decline, in addition to the initiatives described above, the Company discontinued pursuit of strategic alternatives and hired a new Chief Executive Officer (“CEO”), effective June 1, 2004, all as disclosed in the 2004 10-Qs.  In June 2004, the new CEO implemented a comprehensive strategic review of Russ Berrie’s worldwide inventory, with a view towards his perception of the Company’s future direction in light of the current factors affecting its core business segment.  As a result of this review, an additional inventory write-down of $13 million (pre tax) was recorded in the second quarter to reflect inventory in the core segment at the lower of its cost or market value.  The Company expects to sell substantially all of this inventory through other than its normal sales channels. Therefore, no future impact on results of operations or liquidity is anticipated related to this additional inventory reserve.  All costs associated with the inventory write-down were recorded in cost of goods sold in the second quarter of 2004.  “Although the Company does not anticipate further material inventory write-downs at this time, a significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand.  The Company manages inventory and monitors product purchasing to minimize this risk.”

Concurrently with the inventory review discussed above, the Company continued to evaluate “right sizing” its infrastructure in response to the changing business environment.  As a result of such evaluation, and as disclosed in the Company’s 8-K filed on September 28, 2004, Russ Berrie reduced headcount by approximately 75 positions and recorded a restructuring charge of $4.1 million in the third quarter 2004.  Future operating expenses, predominantly through reduced employee cost, will be reduced by approximately $7.5 million.  The effects of these reduced costs will begin in the fourth quarter of 2004.  Although these employees are no longer employees of the Company, payments will continue through the third quarter of 2005.  All cost associated with this restructuring have been recorded in selling, general and administrative expenses.  “See Note 14 to Notes to Consolidated Financial Statements.”

The Company does expect to incur further restructuring costs as it continues to investigate other areas for cost reduction and efficiency improvements in its efforts to right-size its infrastructure.  As these cost-reduction opportunities have not yet been specifically identified and/or quantified, no estimates as to future restructuring charges can be made at this time.

In addition to the “right-sizing” efforts discussed above, the Company is continuing to respond to these developments affecting its core gift business by (i) hiring a new, experienced executive vice president of sales, who commenced employment on September 27, 2004, (ii) focusing on realigning its product line and distribution channels to better meet the changing demands of its customers and improve its competitive position in the industry, (iii) segmenting its selling efforts with an increased focus on national accounts, (iv) continuing to focus on realigning growth opportunities in its international markets and its non-core business segment, (v) selectively increasing its use of licensing to differentiate its products from its competitors,  including a license of certain intellectual property from Marvel Enterprises executed in June of 2004, execution of an agreement with Tom Wilson in August of 2004 to create a new “Ziggy” line, with Sanrio (creators of “Hello Kitty”) in October, 2004 to market the “KEROPPI” brand, and with Dreamworks SKG in October 2004 to design and market products related to an anticipated 2005 Dreamworks movie release, (vi) pursuing strategic acquisition opportunities; and (vii) implementing a three tiered “good”, “better”, “best” branding strategy within its core segment to differentiate products sold into the mass market, Russ Berrie’s traditional specialty retail market and upscale department store market.  The recent acquisition of the Applause Trademark will serve as the brand platform upon which the Company’s growth in the mass market will be positioned.  See also “Liquidity and Capital Resources” below.

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SEGMENTS

The Company operates in two segments which consist of the Company’s core gift business and the Company’s non-core business.  The Company’s core gift business designs, manufactures through third parties and markets a wide variety of gift products to retail stores throughout the United States and throughout the world via the Company’s international wholly-owned subsidiaries and distributors.  Until August 2, 2004 the Company’s non-core businesses designed and marketed functional consumer products sold at comparable price points with comparable gross margins to each other and consisted of the Company’s wholly-owned subsidiaries Sassy, Inc. and Bright of America, Inc.  Effective August 2, 2004, the Company sold Bright of America, Inc. (See Note 13 of the Notes to Consolidated Financial Statements).  Sassy’s product line consists of approximately 400 infant and juvenile products that focus on children of the age between newborn to two years, under the trade name Sassy™, with concept groupings such as bath toys and accessories, development toys, feeding utensils and bowls, pacifiers, bottles, bibs, soft toys, mobiles and feeders.  Sassy also benefits from United States distribution rights to certain baby soothing and comforting products from MAM Babyartikel GmbH, of Vienna, Austria, a developer and manufacturer of children’s products.  Sassy’s products are sold to consumers, primarily in the United States, through mass marketers.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

The Company’s consolidated net sales for the quarter ended September 30, 2004 decreased 9.8% to $79,272,000 compared to consolidated net sales of $87,848,000 for the quarter ended September 30, 2003.  The Company’s core segment’s net sales for the quarter ended September 30, 2004 decreased 13.6% to $63,678,000 compared to core net sales of $73,681,000 for the quarter ended September 30, 2003 primarily as a result of the factors described in the “Overview” above.  Net sales in the Company’s core segment benefited from foreign exchange rates by approximately $2,024,000 in the quarter.  The Company’s non-core segment’s net sales for the quarter ended September 30, 2004 increased 10.1% to $15,594,000 compared to non-core net sales of $14,167,000 for the quarter ended September 30, 2003 primarily as a result of increased sales generated by Sassy.  Non-core sales for the third quarter were negatively impacted in the amount of $2,600,000 by the sale of Bright of America, Inc. effective August 2 2004.

Consolidated gross profit was 47.2% of consolidated net sales for the quarter ended September 30, 2004, as compared to 53.1% of consolidated net sales for the quarter ended September 30, 2003.  Gross profit for the Company’s core segment was 50.5% of net sales for such segment for the quarter ended September 30, 2004 as compared to 56.7% of net sales for the quarter ended September 30, 2003, due primarily to lower selling prices in its core segment.  Gross profit for the Company’s non-core segment was 33.3% of net sales for such segment for the quarter ended September 30, 2004 as compared to 35.0% of net sales for the quarter ended September 30, 2003.

Consolidated selling, general and administrative expense was $35,349,000 or 44.6% of consolidated net sales for the quarter ended September 30, 2004 compared to $32,217,000 or 36.7% of consolidated net sales for the quarter ended September 30, 2003.  This increase in consolidated selling, general and administrative expense is due primarily to the restructuring expenses described in Note 14 of the Notes to Consolidated Financial Statements and the “Overview” above, unfavorable exchange rates variances and costs associated with the Company’s Sarbanes-Oxley Section 404 compliance efforts, partially offset by lower selling costs.

Consolidated investment and other income of $310,000 for the quarter ended September 30, 2004 compares to $1,131,000 for the quarter ended September 30, 2003, a decrease of $821,000, or 72.6%.  This decrease was primarily the result of lower investment income due to lower investment balances (See Notes 2 and 8 of the Notes to Consolidated Financial Statements).

The consolidated provision for income taxes as a percent of income before taxes for the quarter ended September 30, 2004 was 3.9% compared to 25.4% for the quarter ended September 30, 2003.  The third quarter tax expenses, when combined with the tax benefits for the first six months of 2004, reflects the Company’s estimated annual effective tax rate expected for the full year.

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Consolidated net income for the quarter ended September 30, 2004 was $2,248,000 compared to consolidated net income of $11,595,000 for the quarter ended September 30, 2003, representing a decrease of $9,347,000 and a decrease of $0.45 per diluted share (See Note 3 of the Notes to Consolidated Financial Statements).  The decrease was primarily the result of lower sales and resultant decreased gross profit in the Company’s core segment, lower selling prices in its core segment, higher selling, general and administrative expenses and lower investment and other income-net, offset, in part, by a lower provision for income taxes, all as described above.

RESULTS OF OPERATIONS—NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

The Company’s consolidated net sales for the nine months ended September 30, 2004 decreased 18.2% to $198,405,000 compared to consolidated net sales of $242,566,000 for the nine months ended September 30, 2003.  The net sales decline for the nine months ended September 30, 2004 was primarily attributable to the Company’s core segment, as described below.  The Company’s non-core segment’s net sales increased 4.0% for the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003.

The Company’s core segment’s net sales for the nine months ended September 30, 2004 decreased 23.0% to $153,412,000 compared to core net sales of $199,285,000 for the nine months ended September 30, 2003 primarily as a result of the factors discussed in the “Overview” above.  Customer bookings were down approximately 24% for the nine months ended September 30, 2004 compared to September 30, 2003.  Net sales in the Company’s core segment benefited from foreign exchange rates by approximately $5,872,000 for the nine months ended September 30, 2004.  The Company’s non-core segment’s net sales for the nine months ended September 30, 2004 increased 4.0% to $44,993,000 compared to non-core net sales of $43,281,000 for the nine months ended September 30, 2003.  Non-core sales year-to-date were also negatively impacted by the sale of Bright of America, Inc.

Consolidated gross profit was 41.0% of consolidated net sales for the nine months ended September 30, 2004 as compared to 53.6% of consolidated net sales for the nine months ended September 30, 2003.  The erosion in the consolidated gross profit percentage is primarily due to a significant increase to our inventory reserve requirement (as discussed below) and lower selling prices in the core segment.  In response to strategic changes in product direction made in June 2004 under its recently appointed CEO, the Company undertook a comprehensive review of its worldwide inventory during the second quarter.  As a result of this review, an additional inventory write-down of $13 million (pre tax) was recorded in the second quarter to reflect excess inventory in the core segment at the lower of its cost or market value.  The Company expects to sell substantially all of this inventory through other than its normal sales channels.  See “Overview” above and Note 16 of the Notes to Consolidated Financial Statements for a discussion of the additional inventory write-down.  Gross profit for the Company’s core segment was 43.2% of net sales for such segment for the nine months ended September 30, 2004 as compared to 57.6% of net sales for the nine months ended September 30, 2003.  Gross Profit for the Company’s non-core segment was 33.4% of net sales for such segment for the nine months ended September 30, 2004 as compared to 34.9% of net sales for the nine months ended September 30, 2003.

Consolidated selling, general and administrative expense was $103,819,000 or 52.3% of consolidated net sales for the nine months ended September 30, 2004 compared to $98,032,000 or 40.4% of consolidated net sales for the nine months ended September 30, 2003.  This increase in consolidated selling, general and administrative expense is due primarily to the restructuring expenses described in Note 14 to the Notes to Consolidated Financial Statements and the “Overview” above, unfavorable exchange rates variances, costs associated with the Company’s tender offer for outstanding plan options (See Note 12 of the Notes to Consolidated Financial Statements and “Liquidity and Capital Resources” below) and costs associated with the Company’s Sarbanes-Oxley Section 404 compliance efforts, partially offset by lower selling costs.

Consolidated investment and other income of $2,501,000 for the nine months ended September 30, 2004 compares to $4,403,000 for the nine months ended September 30, 2003, a decrease of $1,902,000 or 43.2%.  This decrease was primarily the result of lower investment income due to lower investment balances and higher foreign exchange losses for the nine months ended September 30, 2004 as compared nine months ended September 30, 2003 in the Company’s core segment (See Notes 2 and 8 of the Notes to Consolidated Financial Statements).

The consolidated benefit/provision for income taxes as a percent of income before taxes for the nine months ended September 30, 2004 was a benefit of 35.7% compared to a provision of 29.1% for the nine months ended September 30, 2003.  The increase in the rate reflects the Company’s estimated a benefit of annual effective tax rate primarily due to lower relative tax-exempt interest income and charitable contributions.

Consolidated net loss for the nine months ended September 30, 2004 was $12,866,000 compared to consolidated net income of $25,752,000 for the nine months ended September 30, 2003, representing a decrease of $38,618,000 and a decrease of $1.87 per diluted share (See Note 3 of the Notes to Consolidated Financial Statements).  The decrease was primarily the result of lower sales and resultant decreased gross profit in the Company’s core segment due to lower selling prices in its core segment, in addition to the impact of previously discussed inventory write-down, higher selling, general and administrative expenses and lower investment and other income-net, offset, in part, by a benefit for income taxes, all as described above.

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Liquidity and Capital Resources

As of September 30, 2004, the Company had cash, cash equivalents and marketable securities of $72,495,000 compared to $232,050,000 at December 31, 2003.  As of September 30, 2004 and December 31, 2003, working capital was $168,281,000 and $333,952,000, respectively.  These decreases are predominantly the result of the payment of the special $7.00 per share dividend discussed in Note 4 of the Notes to Consolidated Financial Statements and below.

As of September 30, 2004 and December 31, 2003, the Company had marketable securities of $7,914,000 and $150,515,000 respectively, included in the amounts above.  This decrease is primarily a result of the Company’s sale of a significant portion of the Company’s available-for-sale marketable securities during the nine months ended September 30, 2004 to fund the aforementioned special dividend.  As of September 30, 2004, marketable securities investments consisted primarily of U.S. government obligations, municipal obligations, preferred stock, mutual funds and equity securities.  For more information regarding financial instruments, see Note 2 of the Notes to Consolidated Financial Statements.

Cash and cash equivalents decreased by $16,954,000 during the nine months ended September 30, 2004 compared to a decrease of $25,273,000 for the same period in the prior year.  Net cash used by operating activities was approximately $1,350,000 during the nine months ended September 30, 2004 as compared to cash provided by operating activities of approximately $16,789,000 during the nine months ended September 30, 2003.  This decrease of $18,139,000 was due primarily to the net loss in 2004 compared to net income in 2003, payments to reduce tax liabilities and accounts payable, offset in part by cash provided by the collection of accounts receivable and the provision for inventory reserve.  Net cash provided by investing activities was approximately $145,012,000 for the nine months ended September 30, 2004 as compared to net cash used in investing activities of approximately $32,357,000 for the nine months ended September 30, 2003.  This increase of approximately $177,369,000 was due primarily to the receipt of proceeds from sales of marketable securities in the nine months ended September 30, 2004 as compared to the purchase of marketable securities in the nine months ended September 30, 2003.  Net cash used in financing activities of $161,250,000 and $14,453,000 for the nine months ended September 30, 2004 and 2003, respectively, consisted primarily of dividends paid to shareholders, described below.

During the nine months ended September 30, 2004, the Company paid approximately $859,000 for income taxes.  The Company currently expects that its cash flows will exceed any income tax payments during 2004.

Working capital requirements during the nine months ended September 30, 2004 were met entirely through internally generated funds.  The Company anticipates capital expenditure requirements for 2004 to be approximately $2,000,000 primarily for continued system implementation and development costs.  After payment of such expenditures in addition to the other expenditures described in the remainder of this “Liquidity and Capital Resources” section, the Company remains in a liquid position, and management believes that the resources available from cash and cash equivalents, marketable securities, operations and bank lines of credit are sufficient to meet the foreseeable requirements of its business.  Notwithstanding the foregoing, the Company may consider the use of debt financing to fund the prospective acquisitions (discussed below).

Cash dividends of $6,249,000 ($0.30 per share quarterly dividend) were paid in the quarter ended September 30, 2004.  Cash dividends of 164,520,000 ($0.30 per share per quarter plus $7.00 per share special dividend) were paid in the nine months ended September 30, 2004.  On April 12, 2004, the Company declared a one-time special cash dividend in the amount of $7.00 per common share payable on May 28, 2004, to shareholders of record of the Company’s Common Stock on May 14, 2004.  This one-time special dividend of $145,808,000 is included in the dividend payment, stated above, for the nine months ended September 30, 2004.  The quarterly dividend of $0.30 per share for the third quarter was paid on September 3, 2004, to shareholders of record of the Company’s Common Stock on August 20, 2004.  Management does not believe that the payment of such dividends had a material impact on the Company’s results of operations.

On September 28, 2004, the Company announced a corporate restructuring, discussed in detail in the “Overview” above, which resulted in a pre-tax charge of approximately $4.1 million in the third quarter of 2004, primarily related to severance costs.  Management does not believe that payment of such costs will have a material impact on the Company’s financial condition or cash flows.

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Russ Berrie and Company, Inc. (“RUSS”) and Applause, LLC (“Seller”) entered into a Trademark Purchase Agreement on or about August 11, 2004 (the “Original Agreement”), relating to the sale to RUSS of the “APPLAUSE” and certain related trademarks, together with certain inventory.  Prior to the closing under the Original Agreement, an involuntary bankruptcy petition had been filed against the Seller on or about August 31, 2004.  As of September 21, 2004, RUSS and Seller entered into an Amended and Restated Trademark Purchase Agreement, which was substantially similar to the Original Agreement (the “Agreement of Sale”).  As a result of the bankruptcy petition filed against Seller, however, all sales of assets of the Seller were subject to the consent and order of the United States Bankruptcy Court, Central District of California, San Fernando Valley Division.  Pursuant to an order of the Bankruptcy Court, a public auction was held on October 14, 2004 to determine the highest bidder for the assets of the Seller which were being sought to be purchased by RUSS.  As a result of the public auction, the Bankruptcy Court entered an Order on October 15, 2004 authorizing and approving the sale by the Seller to RUSS of the “APPLAUSE” and certain related trademarks, together with certain inventory, pursuant to the Agreement of Sale. As a result of the public auction, the Agreement of Sale provides for a cash purchase price for the trademarks of $7,550,000, and a cash purchase price of the inventory to be purchased being $41,000, unless RUSS and the Seller agree to the sale and purchase of inventory in excess of such amount.  The purchase price was paid at the closing on October 26, 2004.  Management does not believe that payment of the foregoing amount had a material impact on the Company’s results of operations or financial condition.

Russ Berrie has entered into a provisional sales agreement to sell one of its two office locations in Hong Kong as a result of the Company transitioning a number of functions that had previously been performed in Hong Kong into our offices in mainland China.  A formal sales agreement is expected to be signed before the end of November 2004, with a closing expected in the first quarter of 2005.  As a result of this transaction, the Company expects to receive $2.8 million which will result in a loss of approximately $2.0 million pre-tax.  The Company does not expect that the sale will have a material impact on the Company’s financial condition or cash flow.

The Company enters into forward exchange contracts, principally to manage the economic currency risks associated with the purchase of inventory by its European, Canadian and Australian subsidiaries in the core segment and the remaining subsidiary in the non-core segment.  Gains and losses related to such contracts were not material to its results of operations or cash flows.  The Company does not anticipate any material adverse impact on its results of operations or financial position from these contracts.

The Board of Directors had previously authorized the Company to repurchase 7,000,000 shares of common stock.  As of September 30, 2004, 5,643,200 shares have been repurchased since the beginning of the Company’s stock repurchase program in March 1990.  During the nine months ended September 30, 2004, the Company did not repurchase any shares.

As reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, on May 7, 2004, the Company announced that the Board of Directors has authorized a cash tender offer to purchase outstanding options issued under the Company’s various equity compensation plans, as is more fully described in the Statement on Schedule TO and related amendments filed by the Company with the Securities and Exchange Commission on May 7, 2004, May 28, 2004, June 15, 2004, June 22, 2004 and June 30, 2004, respectively.  The tender offer closed in June 2004, with an aggregate purchase price of approximately $844,000 paid by the Company, which was recorded as a compensation expense in the second quarter of 2004.  Management does not believe that payment of the foregoing amount had a material impact on the Company’s results of operations or financial condition.

As reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, effective August 2, 2004, the Company sold its wholly-owned subsidiary, Bright of America, Inc. for an aggregate purchase price of $5,095,000 net of disposal cost of $380,000.  (See Note 13 to the Notes to Consolidated Financial Statements.)  The sale did not have a material impact on the Company’s results of operations and financial condition.

The Company has entered into certain transactions with related parties which are disclosed in Note 13 of the Notes to Consolidated Financial Statements and ITEM 13 “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.  With respect to such transactions, the Company’s lease of its South Brunswick New Jersey facility expired in May 2004, and the Company is now occupying the facility on a month-to-month basis.  The parties are currently in discussions related to entering into a new lease.  In addition, in connection with the Company’s lease of its Petaluma California facility which is scheduled to expire in June 2005, the Company’s option to extend the term of the current lease by one year has expired and the parties are currently in discussions related to entering into a new lease. Finally, with respect to Hounsdown Inc., the lessor of the Hounsdown UK facility, Angelica Berrie is now its sole shareholder.

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The Company is dependent upon information technology systems in many aspects of its business.  The Company is continuing implementation of an Enterprise Resource Planning (“ERP”) system for the Company’s core businesses, which began in 2002.  In 2002 and 2003, the Company successfully completed the replacement of its warehouse management system in its South Brunswick, New Jersey and Petaluma, California, Canadian and European distribution facilities in addition to the implementation of the purchasing module of its new ERP system worldwide.  The Company’s prior custom software that had been utilized to operate and manage its business and other third party software systems are being replaced using a strategic and phased approach.  The Company’s worldwide headquarters in the United States completed the implementation of the finance module of the new ERP system in the first quarter of 2003 and transitioned to the order management and inventory modules during the second quarter of 2003.  During 2003 and continuing in 2004, the Company’s international subsidiaries began and continue to phase-in certain aspects of the Company’s new ERP system and the transition to order management, inventory and finance modules is now anticipated by the end of the third quarter of 2005.  This extended timetable is meant to continue to enable the Company to enhance its proficiency in utilizing the new system, to help ensure the efficiency of the international implementations and allow the Company to meet its obligations regarding internal controls as required by Section 404 of the Sarbanes-Oxley Act of 2002.  The Company has experienced certain startup issues but has not experienced any significant business disruptions related to the replacement of these systems.

The Company is subject to legal proceedings and claims arising in the ordinary course of its business that the Company believes will not have a material adverse impact on the Company’s consolidated financial condition, results of operations and cash flows.

In connection with the Company’s continuing expansion of its operations in the People’s Republic of China (“PRC”), the Company completed a voluntary review in 2003 of the activities of its offices in the PRC to assess their compliance with applicable laws and regulations.  As a result of this review, management became aware of some potential operational and tax compliance issues under applicable PRC laws and regulations and continues to take appropriate corrective actions.  As a result, although the relevant PRC authorities have broad discretion with respect to the imposition of sanctions on noncompliant companies, the Company does not expect the consequences, if any, of these matters to have a material impact on its results of operations, financial condition or cash flows.

The Board of Directors has discontinued the exploration of various strategic alternatives that had previously been reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Consistent with its past practices and in the normal course of its business, the Company regularly reviews and is pursuing acquisition opportunities of varying sizes.  As discussed above, the Company may consider the use of debt financing to fund such prospective acquisitions.  In connection therewith, on October 25, 2004, the Company signed a non-binding letter of intent with respect to the potential acquisition by the Company of an entity in a related business, at a purchase price equal to approximately $128,000,000 plus a deferred payment based on performance.  The Company anticipates that the purchase price will be funded substantially with third-party financing, in an amount approximating $125,000,000.  There can be no assurance, however, that the Company will enter into a definitive agreement with respect to such potential acquisition or that a transaction will be consummated.

Contractual Obligations

As of September 30, 2004, there have been no material changes outside the ordinary course of business in the Company’s contractual obligations as described under the caption “Contractual Obligations” of Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Off Balance Sheet Arrangements

As of September 30, 2004, there have been no material changes in the information provided under the caption “Off Balance Sheet Arrangements” of Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

CRITICAL ACCOUNTING POLICIES

The SEC has issued disclosure advice regarding “critical accounting policies”, defined as accounting policies that management believes are both most important to the portrayal of the Company’s financial condition and results and require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

18

Management is required to make certain estimates and assumptions during the preparation of its consolidated financial statements that effect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  Estimates and assumptions are reviewed periodically, and revisions made as determined to be necessary by management.  There have been no material changes to the Company’s significant accounting estimates and assumptions or the judgments affecting the application of such estimates and assumptions during the period covered by this report but for the change in inventory write-down described in “Results of Operations – Nine Months Ended September 30, 2004 and 2003” above.  The Company’s significant accounting estimates described below have historically been and are expected to remain reasonably accurate, but actual results could differ from those estimates under different assumptions or conditions.

Note 2 of the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 contains a summary of the significant accounting policies used in the preparation of the Company’s Consolidated Financial Statements.  The following, however, is a discussion of those accounting policies which management considers to be “critical” within the SEC definition discussed above.

Accounts Receivable, Trade and Revenue Recognition

In the normal course of business, the Company extends credit to customers which satisfy established credit criteria.  The Company believes that it does not have a significant concentration of credit risk due to the significant diversity of its customer base.  Accounts receivable, trade, as shown on the Consolidated Balance Sheet, is net of allowances, discounts and estimated bad debts.  An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on historical trends and an evaluation of the impact of current and projected economic conditions.  If such historical trends or economic conditions deteriorate the results could differ from the Company’s estimates.

The Company principally recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements (SAB 104), SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of a sales arrangement exists; (2) delivery has occurred or services rendered; (3) the amount of revenue is fixed and determinable, net of provisions for estimates of sales discounts, returns and allowances; and (4) collectibility is reasonably assured.

Determination of criteria (4) is based on management’s judgments regarding the collectibility of those revenues.

Inventory

The Company values inventory at the lower of the actual cost or its current estimated market value.  The Company regularly reviews inventory quantities on hand, by item, and records a write-down of inventory to fair market value based primarily on the Company’s historical experience and estimated forecast of product demand using historical and recent ordering data relative to the quantity on hand for each item.  In response to strategic changes in product direction made in June 2004 under its recently appointed CEO, the Company undertook a comprehensive review of its worldwide inventory during the second quarter.  As a result of this review, an additional inventory write-down of $13 million (pre tax) was recorded in the second quarter of 2004 to reflect inventory in the core segment at its lower of cost or market value.  The Company expects to sell substantially all of this inventory through other than its normal sales channels.  See “Overview” above and Note 16 to Notes to Consolidated Financial Statements.  Although the Company does not anticipate further material inventory write-downs at this time, a significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand.  The Company manages inventory and monitors product purchasing to minimize this risk.  A significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand, however the Company manages inventory and monitors product purchasing to minimize this risk.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows.  If such actual future cash flows are less than the estimated future cash flows, certain of the Company’s long-lived assets could be impaired.

Goodwill and intangible assets not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.  An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. 

19

Based on the Company’s annual test performed in 2003 there was no impairment, however, if actual future cash flows are less than the estimated future cash flows, the Company’s goodwill and intangible assets could be impaired.

Accrued Liabilities

The preparation of the Company’s Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States requires management to make certain estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent liabilities at the date of the financial statements.  Such liabilities include, but are not limited to, accruals for various legal matters, tax accruals and valuation allowances for deferred tax assets.  The settlement of the actual liabilities could differ from the estimates included in the Company’s consolidated financial statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 11 of the Notes to Consolidated Financial Statements for a description of recently issued accounting standards including the respective dates of adoption and effects on results of operations and financial condition.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements.  Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission (SEC) filings and otherwise.  The Private Securities Litigation Reform Act of 1995 provides a safe-harbor for forward-looking statements.  These statements may be identified by the use of forward-looking words or phrases including, but not limited to, “anticipate”, “believe”, “expect”, “intend”, “may”, “planned”, “potential”, “should”, or “would”.  The Company cautions readers that results predicted by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements.  Specific risks and uncertainties include, but are not limited to, the Company’s ability to continue to manufacture its products in the Far East, the seasonality of revenues, the actions of competitors, ability to increase production capacity, price competition, the effects of government regulation, results of any enforcement action by the People’s Republic of China (“PRC”) authorities with respect to the Company’s PRC operations, the resolution of various legal matters, possible delays in the introduction of new products, customer acceptance of products, changes in foreign currency exchange rates, issues related to the Company’s computer systems, the ability to obtain debt financing to fund acquisitions, the current and future outlook of the global retail market, and other factors.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2004, there has been a reduction in the market risk of the Company due the significant reduction in marketable securities discussed in “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” above.  There are no other material changes in the Company’s market risks as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

ITEM 4.  CONTROLS AND PROCEDURES

Based on the evaluation required by paragraph (b) of Rule 13a-15 or 15d-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act), are effective.

There has been no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS

Exhibits to this Quarterly Report on Form 10-Q.
10.92	Executive Employment Agreement dated August 24, 2004 between Russ Berrie and Company, Inc. and Lynn Moran
10.93	Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and John T. Toolan
10.94	Option Purchase and Sale Agreement dated as of September 10, 2004, by and between Russ Berrie and Company, Inc. and Christopher Robinson
10.95	Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and William Landman
10.96	Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Joseph Kling
10.97	Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Raphael Benaroya
10.98	Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Josh Weston
10.99	Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Carl Epstein
10.100	Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Ilan Kaufthal
10.101	Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and Charles Klatskin
10.102	Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and Sidney Slauson
10.103	Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Jeff Bialosky
10.104	Order of US Bankruptcy Court Central District of California San Fernando Division, dated October 15, 2004, authorizing and approving sale of “Applause” trademark and certain related assets free and clear of all encumbrances and other interests pursuant to Section 363 of the Bankruptcy Code
10.105	Amended and Restated Trademark Purchase Agreement, dated as of September 21, 2004, by and between Applause, LLC and the Company, as amended by the First Amendment thereto;
31.1	Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002.
31.2	Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002.
32.1	Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002.
32.2	Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002.

Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RUSS BERRIE AND COMPANY, INC.
	(Registrant)
	By	/s/ John D. Wille
Date:  November 9, 2004		John D. Wille
		Vice President and Chief Financial Officer

22

Exhibit Index

10.92	Executive Employment Agreement dated August 24, 2004 between Russ Berrie and Company, Inc. and Lynn Moran
10.93	Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and John T. Toolan
10.94	Option Purchase and Sale Agreement dated as of September 10, 2004, by and between Russ Berrie and Company, Inc. and Christopher Robinson
10.95	Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and William Landman
10.96	Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Joseph Kling
10.97	Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Raphael Benaroya
10.98	Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Josh Weston
10.99	Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Carl Epstein
10.100	Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Ilan Kaufthal
10.101	Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and Charles Klatskin
10.102	Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and Sidney Slauson
10.103	Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and JeffBialosky
10.104	Order of US Bankruptcy Court Central District of California San Fernando Division, dated October 15, 2004, authorizing and approving sale of “Applause” trademark and certain related assets free and clear of all encumbrances and other interests pursuant to Section 363 of the Bankruptcy Code
10.105	Amended and Restated Trademark Purchase Agreement, dated as of September 21, 2004, by and between Applause, LLC and the Company, as amended by the First Amendment thereto;
31.1	Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002
31.2	Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002
32.1	Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002
32.2	Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002

23

EX-10.92

Exhibit 10.92

August 24, 2004

Ms. Lynn Moran

28558 N 95^th Place

Scottsdale, AZ  58262-3601

Dear Lynn:

I am pleased to offer you the position of Executive Vice President of Sales of Russ Berrie and Company, Inc. (the “Company”) effective September 27, 2004.  This position is one of corporate officer of the Company and is included in the Company’s executive committee.

Your employment with the Company will include the following:

1.COMPENSATION.  Your base salary will be at an annual rate of $325,000.  Your 2005 bonus program, and eligibility therefor, is set forth on Exhibit A attached hereto and incorporated herein.  Payment of the bonus (or portion thereof) is predicated upon meeting both objective and subjective performance standards established for the applicable year.  The bonus is generally paid in February of the year following the applicable year.  In order to receive the bonus payment (or any portion thereof), you must be actively employed by the Company at the time of the bonus payment. For each of the years 2005 and 2006, $65,000 of your bonus is guaranteed to be paid.  Furthermore, during each of years 2005 and 2006, the $65,000 guaranteed portion of your bonus will be paid in 4 equal installments as soon as reasonably practicable after the end of each of the Company’s fiscal quarters.

2.GROUP HEALTH AND DISABILITY.  After 90 days of continuous employment, you will be eligible to participate in:

a.The Company’s contributory Group Health Plan.

b.The Company’s non-contributory Life Insurance Plan in the amount equal to the lesser of (i) one times your base salary, or (ii) $200,000, in accordance with the terms of the Plan.

c.The Company’s non-contributory Long Term Disability plan.

3.DENTAL.  After twelve months of continuous employment, you will be eligible to participate in the Company’s contributory Dental Insurance Plan.

4.STOCK OPTIONS.  After 3 months of continuous employment, you will be granted 50,000 stock options.  These options will vest ratably over a period of 5 years.  These options will be granted under and pursuant to the Company’s 2004 Stock Option, Restricted and Non-Restricted Stock Plan.  Such options will be Non-Qualified Stock Options.  Possible future grants of stock options shall be at the sole discretion of the Compensation Committee of the Board of Directors of the Company.

5. 401(k).  After 6 months of continuous employment, you will be eligible to participate in the Company’s 401(k) plan based on its current provisions.  Under the current plan terms, the Company matches a portion of your contribution to your 401(k) account.  The Company’s contribution vests over a period of 4 years of employment.

6.VACATION.  You will be eligible for three weeks vacation per year.

7.HOLIDAY/SICK.  You will be eligible for paid holidays and sick time in accordance with Company policy.

8.COMPANY CAR.  You will receive an allowance of $1,000 per month to cover the cost of an automobile, automobile insurance, automobile maintenance and repair, gasoline and any and all other costs and expenses relating to such automobile.

9.SEVERANCE.  In the event that you are terminated from the Company for reason other than cause or other than your own voluntary resignation or for reasons other than cause, you will be eligible to receive severance in accordance with the Company’s severance policy for Domestic Vice Presidents (and above), a copy of which is attached hereto as Exhibit B.

10.RELOCATION.  Pursuant to the Company’s policy, the movement of your household good will be paid as a direct expense of the Company to the applicable vendor.  Three estimates are required.  In addition, the Company will reimburse you for documented expenses up to $27,500 relating to your relocation.

The Company reserves the right to change or modify these programs.  In addition, employment with the Company is considered “at-will” and does not represent a specific guarantee.

Lynn, I want to welcome you to the Company and wish you much success in your new position.

		Very truly yours,
		/s/ ANDREW R. GATTO
		Andrew R. Gatto
		President and Chief Executive Officer
ACCEPTED AND AGREED:
/s/ LYNN MORAN
Lynn Moran
Date:	AUGUST 27, 2004

EXHIBIT A

LYNN MORAN’S INCENTIVE COMPENSATION PROGRAM

(effective January 1, 2005)

Incentive Compensation:    up to 50% of Base Salary

2005 CORPORATE OBJECTIVES:

To Be Determined Value: 50% of bonus

2005 INDIVIDUAL OBJECTIVES:

To Be Determined Value: 30% of bonus

2005 INDIVIDUAL INITIATIVES:

To Be Determined Value: 20% of bonus

EX-10.93

Exhibit No. 10.93

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and John T. Toolan (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4There is no assurance that any options will be granted to Optionee in the future.

2.5Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:	/s/ JOHN D. WILLE
Name:	John D. Wille
Title:	Vice President and Chief Financial Officer
OPTIONEE
/s/ JOHN T. TOOLAN
John T. Toolan

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Jack Toolan

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount		Aggregate Option Purchase Price
Vested Options:
1. Options granted on:	2/5/2001	4,957	$	22.19	$	1.00	$	4,957.00	See Total Below		—
2. Options granted on:	1/2/2003	10,000	$	34.80	$	0.25	$	2,500.00	See Total Below		—
3. Options granted on:	5/8/2003	8,000	$	33.42	$	0.25	$	2,000.00	See Total Below		—
4. Options granted on:
Unvested Options:
1. Options granted on:	5/8/2003	32,000	$	33.42	$	0.25	$	8,000.00	See Total Below		—
2. Options granted on:
TOTAL		54,957					$	17,457.00	$	5,839.37	$	11,617.63

EX-10.94

Exhibit No. 10.94

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of September 10, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and Christopher Robinson (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1           Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2           The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3           The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4           There is no assurance that any options will be granted to Optionee in the future.

2.5           Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6           Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7           Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8           Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2           Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3           Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4           Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5           Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6           Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7           Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:		/s/ John Wille
Name:		John D. Wille
Title:		Vice President and Chief Financial Officer
OPTIONEE
/s/ CHRISTOPHER ROBINSON
	Christopher Robinson

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Chris Robinson

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount			Aggregate Option Purchase Price
									40		%
Vested Options:
1. Options granted on:	5/8/2003	6,000	$	33.42	$	0.25	$	1,500.00	$	600.00		$	900.00
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:	5/8/2003	24,000	$	33.42	$	0.25	$	6,000.00	$	2,400.00		$	3,600.00
2. Options granted on:
TOTAL		30,000					$	7,500.00	$	3,000.00		$	4,500.00

EX-10.95

Exhibit No. 10.95

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and William Landman (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1           Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2           The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3           The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4           There is no assurance that any options will be granted to Optionee in the future.

2.5           Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6           Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7           Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8           Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2           Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3           Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4           Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5           Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6           Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7           Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

                                IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:	/s/ JOHN D. WILLE
Name:	John D. Wille
Title:	Vice President and Chief Financial Officer
OPTIONEE
/s/ WILLIAM LANDMAN
William Landman

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Bill Landman

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount			Aggregate Option Purchase Price
									25		%
Vested Options:
1. Options granted on:	5/7/2003	2,000	$	33.72	$	2.00	$	4,000.00	$	1,000.00		$	3,000.00
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:
2. Options granted on:
TOTAL		2,000					$	4,000.00	$	1,000.00		$	3,000.00

EX-10.96

Exhibit No 10.96

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and Joseph Kling (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1           Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2           The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3           The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4           There is no assurance that any options will be granted to Optionee in the future.

2.5           Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6           Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7           Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8           Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2           Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3           Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4           Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5           Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6           Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7           Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:	/s/ JOHN D. WILLE
Name:	John D. Wille
Title:	Vice President and Chief Financial Officer
OPTIONEE
/s/ JOSEPH KLING
Joseph Kling

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Joseph Kling

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount			Aggregate Option Purchase Price
									25		%
Vested Options:
1. Options granted on:	5/7/2003	2,000	$	33.72	$	2.00	$	4,000.00	$	1,000.00		$	3,000.00
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:
2. Options granted on:
TOTAL		2,000					$	4,000.00	$	1,000.00		$	3,000.00

EX-10.97

Exhibit No. 10.97

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and Raphael Benaroya (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1           Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2           The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3           The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4           There is no assurance that any options will be granted to Optionee in the future.

2.5           Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6           Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7           Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8           Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2           Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3           Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4           Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5           Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6           Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7           Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:	/s/ JOHN D. WILLE
Name:	John D. Wille
Title:	Vice President and Chief Financial Officer
OPTIONEE
/s/ RAPHAEL BENAROYA
Raphael Benaroya

RUSS BERRIE AND COMPANY, INC.

TENDER OFFER

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Raphael Benaroya

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount			Aggregate Option Purchase Price
									20		%
Vested Options:
1. Options granted on:	5/7/2003	2,000	$	33.72	$	2.00	$	4,000.00	$	800.00		$	3,200.00
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:
2. Options granted on:
TOTAL		2,000					$	4,000.00	$	800.00		$	3,200.00

EX-10.98

Exhibit No. 10.98

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and Josh Weston (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1           Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2           The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3           The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4           There is no assurance that any options will be granted to Optionee in the future.

2.5           Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6           Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7           Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8           Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2           Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3           Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4           Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5           Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6           Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7           Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:		/s/ JOHN D. WILLE
Name:		John D. Wille
Title:		Vice President and Chief Financial Officer
OPTIONEE
/s/ JOSH WESTON
	Josh Weston

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Josh Weston

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price			Aggregate Withholding Amount			Aggregate Option Purchase Price
										25		%
Vested Options:
1. Options granted on:	5/7/2003	2,000	$	33.72	$	2.00	$	4,000.00		$	1,000.00		$	3,000.00
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:
2. Options granted on:
TOTAL		2,000					$		4,000.00	$	1,000.00		$	3,000.00

EX-10.99

Exhibit No. 10.99

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and Carl Epstein (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1           Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2           The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3           The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4           There is no assurance that any options will be granted to Optionee in the future.

2.5           Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6           Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7           Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8           Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2           Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3           Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4           Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5           Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6           Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7           Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:	/s/ JOHN D. WILLE
Name:	John D. Wille
Title:	Vice President and Chief Financial Officer
OPTIONEE
/s/ CARL EPSTEIN
Carl Epstein

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Carl Epstein

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount			Aggregate Option Purchase Price
									25		%
Vested Options:
1. Options granted on:	5/7/2003	2,000	$	33.72	$	2.00	$	4,000.00	$	1,000.00		$	3,000.00
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:
2. Options granted on:
TOTAL		2,000					$	4,000.00	$	1,000.00		$	3,000.00

EX-10.100

Exhibit No. 10.100

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and Ilan Kaufthal (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1           Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2           The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3           The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4           There is no assurance that any options will be granted to Optionee in the future.

2.5           Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6           Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7           Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8           Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2           Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3           Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4           Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5           Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6           Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7           Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:	/s/ JOHN D. WILLE
Name:	John D. Wille
Title:	Vice President and Chief Financial Officer
OPTIONEE
/s/ ILAN KAUFTHAL
Ilan Kaufthal

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Ilan Kaufthal

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount			Aggregate Option Purchase Price
									25		%
Vested Options:
1. Options granted on:	5/7/2003	2,000	$	33.72	$	2.00	$	4,000.00	$	1,000.00		$	3,000.00
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:
2. Options granted on:
TOTAL		2,000					$	4,000.00	$	1,000.00		$	3,000.00

EX-10.101

Exhibit No. 10-101

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and Charles Klatskin (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1           Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2           The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3           The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4           There is no assurance that any options will be granted to Optionee in the future.

2.5           Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6           Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7           Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8           Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2           Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3           Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4           Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5           Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6           Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this

Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7           Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:	/s/ JOHN D. WILLE
Name:	John D. Wille
Title:	Vice President and Chief Financial Officer
OPTIONEE
/s/ CHARLES KLATSKIN
Charles Klatskin

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Charles Klastskin

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount			Aggregate Option Purchase Price
									25		%
Vested Options:
1. Options granted on:	5/7/2003	2,000	$	33.72	$	2.00	$	4,000.00	$	1,000.00		$	3,000.00
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:
2. Options granted on:
TOTAL		2,000					$	4,000.00	$	1,000.00		$	3,000.00

EX-10.102

Exhibit No. 10.102

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and Sidney Slauson (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4There is no assurance that any options will be granted to Optionee in the future.

2.5Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:	/s/ JOHN D. WILLE
Name:	John D. Wille
Title:	Vice President and Chief Financial Officer
OPTIONEE
/s/ SIDNEY SLAUSON
Sidney Slauson

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Sidney Slauson

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount			Aggregate Option Purchase Price
									25		%
Vested Options:
1. Options granted on:	5/7/2003	2,000	$	33.72	$	2.00	$	4,000.00	$	1,000.00		$	3,000.00
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:
2. Options granted on:
TOTAL		2,000					$	4,000.00	$	1,000.00		$	3,000.00

EX-10.103

Exhibit No. 10.103

OPTION PURCHASE AND SALE AGREEMENT

Option Purchase and Sale Agreement (this “Agreement”), dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. (the “Company”) and Jeff Bialosky (the “Optionee”).

WHEREAS, on the terms and conditions contained in this Agreement, the Optionee agrees to sell, and the Company agrees to purchase, the options to purchase shares of Common Stock, stated value $0.10 per share, of the Company (“Common Stock”) held by the Optionee indicated on Schedule I hereto (the “Options”) for the Aggregate Option Purchase Price set forth thereon.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the Company and the Optionee hereby agree as follows:

ARTICLE I
PURCHASE OF OPTIONS

On the terms and subject to the conditions contained in this Agreement, in consideration of the surrender for cancellation of the Options set forth on Schedule I by the Optionee, the Company shall, upon such surrender, pay to the Optionee, by check, the amount indicated for such Optionee on Schedule I hereto as the Aggregate Option Purchase Price (which price shall be determined after deduction of applicable withholding amounts from the Pre-Tax Aggregate Option Purchase Price, as indicated on Schedule I hereto).

ARTICLE II
ACKNOWLEDGEMENTS AND REPRESENTATIONS

By executing and delivering this Agreement, the Optionee represents, acknowledges and agrees that:

2.1Upon the Company’s payment to the Optionee of the Aggregate Option Purchase Price set forth on Schedule I: all such Options and related option agreements with respect to such Options will be cancelled and Optionee will have no right to purchase shares of Common Stock under the cancelled Options or the cancelled option agreements;

2.2The Company will be entitled to withhold from the Pre-Tax Aggregate Option Purchase Price indicated on Schedule I the amount necessary to satisfy the amount of taxes required to be withheld under applicable law;

2.3The Optionee is relying on his or her or own business judgment and knowledge concerning the business, financial condition and prospects of the Company in making the decision to sell the Options.  The Optionee acknowledges that no person has been authorized to give any information or to make any representation relating to the Options or the Company, and, if given or made, information received from any person and any representation, may not be relied upon as having been authorized by the Company or any person acting on its behalf.

2.4There is no assurance that any options will be granted to Optionee in the future.

2.5Optionee gives up his or her entire ownership interest in the Options listed on Schedule I hereto.

2.6Any portion of an option to purchase shares of Common Stock held by the Optionee that is not being sold by the Optionee to the Company pursuant to this Agreement (“Remaining Options”) shall remain subject to the terms and conditions of its original grant, including, but not limited to, the vesting schedule, as if the original grant were solely for the Remaining Options (except that with respect to the vesting schedule, any portion of an option that was vested on the date of this Agreement shall remain vested thereafter).

2.7Optionee has full power and authority to sell the Options, and such Options are free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to their sale or transfer, other than pursuant to the applicable option agreements, and the Options are not subject to any adverse claims.

2.8Upon request, Optionee agrees to execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the purchase of the Options.

ARTICLE III
MISCELLANEOUS

3.1Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflicts of law principles thereof.

3.2Notices.  Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Company, addressed to the Company at 111 Bauer Drive, Oakland, New Jersey 07436, Attention:  John Wille, Chief Financial Officer, and if to the Optionee, addressed to such Optionee c/o the Company, or to such other persons or addresses as may be designated in writing by the party to receive such notice.

3.3Entire Agreement, etc.  This Agreement (a) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof, and (b) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto.

3.4Amendments and Waivers.  This Agreement may not be modified or amended except by a written instrument signed by authorized representatives of all parties affected by such modification or amendment and referring specifically to this Agreement.  No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach of the same or similar nature.

3.5Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto, but no party shall have either the right or the power to assign or delegate any rights or obligations hereunder without the prior written consent of the other party.

3.6Severability.  If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby and shall continue in full force and effect.

3.7Counterparts; Facsimilies.  For the convenience of the parties hereto, this Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.  A signature of this Agreement by facsimile shall be deemed an original signature.

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto on the date first hereinabove written.

RUSS BERRIE AND COMPANY, INC.
By:	/s/ JOHN D. WILLE
Name:	John D. Wille
Title:	Vice President and Chief Financial Officer
OPTIONEE
/s/ JEFF BIALOSKY
Jeff Bialosky

RUSS BERRIE AND COMPANY, INC.

OFFER TO SELL TO COMPANY

OPTIONS ISSUED “OUTSIDE” OF THE PLANS

SCHEDULE I

Name:  Jeff Bialosky

	Option Grant Date	Number of Options Surrendered	Option Exercise Price		Option Purchase Price Per Share		Pre-Tax Aggregate Option Purchase Price		Aggregate Withholding Amount		Aggregate Option Purchase Price
Vested Options:
1. Options granted on:	4/4/2003	5,000	$	32.59	$	0.25	$	1,250.00	See Total Below		—
2. Options granted on:
3. Options granted on:
4. Options granted on:
Unvested Options:
1. Options granted on:	4/4/2003	20,000	$	32.59	$	0.25	$	5,000.00	See Total Below		—
2. Options granted on:
TOTAL		25,000					$	6,250.00	$	2,090.63	$	4,159.37

EX-10.104

Exhibit 10.104

UNITED STATES BANKRUPTCY COURT

Central District of California

[GRAPHIC]	I hereby attest and certify that on Oct 15,2004 the attached reproduction(s), containing 36 pages, is a full, true and correct copy of the complete document entitled: Order Authorizing and approving Sale of “Applause” trademark and certain
	which includes:   o   Exhibits    ý   Attachments

on file in my office and in my legal custody at the marked location:

o	300 North Los Angeles Street	o	3420 Twelfth Street, Suite 125
	Los Angeles, CA 90012		Riverside, CA 92501-3819
o	411 West 4th Street, Suite 2074	o	1415 State Street
	Santa Ana, CA 92701-4593		Santa Barbara, CA 93101-2511
ý	21041 Burbank Boulevard
	Woodland Hills, CA 91367

	Jon D. Ceretto, Clerk of Court
By:	/s/ ELLEN HOLBART
	Deputy Clerk

THIS CERTIFICATION IS VALID ONLY WITH THE

UNITED STATES BANKRUPTCY COURT SEAL.

COPY

Howard J. Weg  (State Bar No. 91057)
Scott F. Gautier (State Bar No. 211745)
Lisa S. Tahk (State Bar No. 218401)
PEITZMAN, WEG & KEMPINSKY LLP
1801 Avenue of the Stars, Suite 1225
Los Angeles, CA 90067
Telephone: (310) 552-3100	[SEAL]	[SEAL]
Telecopier: (310) 552-3101	ENTERED	FILED
	OCT 15 2004	OCT 15 2004
Proposed Attorneys for Applause, LLC	Clerk U.S. Bankruptcy Court	Clerk U.S. Bankruptcy Court
Debtor and Debtor In Possession	Central District of California	Central District of California
	By                              Deputy Clerk	By                              Deputy Clerk

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

SAN FERNANDO VALLEY DIVISION

In re	Case No.: SV 04-15821-AG
APPLAUSE, LLC,	Chapter 11
Debtor.	ORDER AUTHORIZING AND
	APPROVING SALE OF “APPLAUSE”
	TRADEMARK AND CERTAIN RELATED
	ASSETS FREE AND CLEAR OF ALL
	LIENS, CLAIMS, ENCUMBRANCES AND
	OTHER INTERESTS PURSUANT TO
	SECTION 363 OF THE BANKRUPTCY
	CODE
Debtor’s Business Address:	Date:	October 14, 2004
23942 Lyons Avenue	Time:	2:30 p.m.
Newhall, CA 91321	Place:	Courtroom 302
		21041 Burbank Blvd.
Federal Tax I.D. No.: 95-4846994		Woodland Hills, CA

The Motion Of Debtor For Order Authorizing And Approving State Of “Applause” Trademark and Certain Related Assets Free And Clear Of All Liens, Claims, Encumbrances And Other Interest Pursuant To Section 363 Of The Bankruptcy Code (the “Motion”), filed by the above-captioned debtor (the “Debtor”), came on for hearing before the Honorable Arthur M. Greenwald, United States Bankruptcy Judge, on October 14, 2004, at 2.30 p.m. (the “Hearing”). Appearances were made as reflected in the Bankruptcy Court’s record. Capitalized terms used herein shall have the meanings ascribed to them in the Motion, unless otherwise defined in this Order.

Pursuant to the Motion, the Debtor seeks to sell to Russ Berric and Company, Inc. or the highest bidder all of the Debtor’s right, title and interest in certain of the Debtor’s intellectual property assets

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and related assets, as defined in the Motion (collectively, the “Acquired Intellectual Property”), and certain of the Debtor’s inventory products manufactured under specific licenses, as defined in the Motion (collectively, the “Inventory Assets” and together with the Acquired Intellectual Property, the “Purchased Assets”), free and clear of all liens, claims, encumbrances and other interests pursuant to an Amended and Restated Trademark Purchase Agreement, a copy of which was attached as Exhibit A to the Declaration of David W. Socha accompanying the Motion.

On or about September 20, 2004, the Debtor served notice of (1) the hearing date on the Motion and (2) the proposed Sale Procedures (the “Sale Notice”), by U.S. mail on the following entities: (i) the Office of the United States Trustee, (ii) all parties that have filed requests for special notice in this case, (iii) all parties identified on the Debtor’s Master Mailing Matrix , and (iv) all parties that may have asserted liens on or interests in the Purchased Assets.

On September 23, 2004, the Debtor filed and served the Motion Of the Debtor For Order: (1) Establishing Sale Procedures For Sale Of Certain of Debtor’s Intellectual Property Assets and Certain Related Properties, (2) Approving Break-Up Fee, And (3) Approving Form And Manner Of Notice Of Sale (the “Sale Procedures Motion”). The Sale Procedures Motion was granted on September 28, 2004 (the “Sale Procedures Order”). The Bankruptcy Court did not approve the proposed break-up fee in the Sales Procedures Order, but otherwise approved the Sale Procedures Motion proposed by the Debtor.

On September 30, 2004, the Debtor filed the Notice of Amendment to the Amended and Restated Trademark Purchase Agreements dated September 21, 2004 and served copies on (i) the Office of the United States Trustee, (ii) all parties that filed requests for special notice, (iii) all parties that may have asserted liens on, or interests in, the Purchased Assets and (iv) the Debtor’s 20 largest unsecured creditors.

On September 30, 2004, the debtor served an amended Notice of Proposed Sale and Court Approved Sale and Bidding Procedures for Sale of “Applause” Trademark and Certain Related Assets Free and Clear of Liens, Claims, Encumbrances and Other Interests (the “Amended Sale Notice”) by U.S. mail on all entities who received the Sale Notice.

On September 30, 2004, Mcllhenny Company served an Opposition to Motion of Debtor for Order Authorizing Sale of “Applause” Trademark and Certain Related Assets Free and Clear of All

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Liens, Claims, Encumbrances and Other Interests Pursuant to Section 363 of the Bankruptcy Code; Declaration of J. Rodgers Lunsford in Support Thereof (the “Opposition”). On October 7, 2004, the Debtor filed and served a reply to the Opposition (the “Reply”) and an objection to the Declaration of J. Rodgers Lunsford in Support of the Opposition (the “Objection”).

On October 12, 2004 the Debtor filed and served the Declaration of Gerard N. Casale, Jr. in Support of Motion of Debtor for an Order Authorizing and Approving Sale of “Applause” Trademark and Certain Related Assets (the “Marketing Declaration”).

At the hearing on the Sale Motion,  Russ Berrie and Company, Inc. (the “Buyer”) submitted the highest bid for the Purchased Assets in the amount of $7,550,000 (the “Purchase Price”) on the terms and conditions stated in the Amended and Restated Trademark Purchase Agreement, with any modifications either interlineated into the agreement and/or read into the record at the Sale Hearing (as modified, the “Sale Agreement”). A true and correct copy of the Sale Agreement is attached hereto as Exhibit A.

After consideration of the Motion and accompanying supporting papers, the Sale Procedures Order, the Sale Notice, the Amended Sale Notice, the Opposition, the Reply, the Objection, the Marketing Declaration, the bids submitted at the auction, the arguments of counsel, the files and records in this chapter 11 case, and sufficient cause appearing, the Bankruptcy Court made the Findings of Fact and Conclusions of Law entered concurrently herewith. Accordingly, it is hereby

ORDERED THAT:

A.The Opposition filed by Mcllheny Company and any other opposition to the Motion, to the extent not withdrawn at or prior to the Hearing, is hereby overruled.

B.The Debtor is authorized to enter into and perform the Sale Agreement and to sell, assign and transfer the Acquired Intellectual Property to Buyer pursuant to the Sale Agreement. On the Closing Date (as defined in the Sale Agreement) the Debtor shall sell, assign and transfer all rights, title and interest in and to the Acquired Intellectual Property to Buyer free and clear of all liens, claims, encumbrances and other interests (collectively the “Liens”) of any and every kind whatsoever pursuant to the terms of the Sale Agreement.

C.The Debtor is authorized to sell the Inventory Assets pursuant to the Sale Agreement.

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On the Closing Date (as defined in the Sale Agreement), the Debtor shall sell, assign and transfer all rights, title and interest in and to the Inventory Assets free and clear of all Liens of any and every kind whatsoever.

D.All Liens shall attach to the proceeds of the sale with the same priority, validity and enforceability, if any, as they had had against the Acquired Intellectual Property and the Inventory Assets.

E.From the proceeds of the sale authorized by this Order, the Debtor shall pay the amounts claimed by Wells Fargo Business Credit, Inc. (“Wells Fargo”) to be secured by the assets that are sold, under a full reservation of all rights and claims of the Debtor, all creditors and other parties in interest to object to, challenge or recover the claims and Liens asserted by Wells Fargo. Payment to Wells Fargo may be made as soon as Wells Fargo has agreed, and the Court has authorized the Debtor under section 364 of the Bankruptcy Code, to put in place a substituted and reduced secured revolving credit facility based on the Debtor’s receivables and inventory, consistent with the Debtor’s operations following the sale, and Wells Fargo’s lending criteria, or, if no such loan is agreed to or is approved by the Court, such funds may be disbursed based on further order of the Court on the motion of a party in interest (including Wells Fargo). Based upon any such objection or challenge, the Debtor or any creditor or party interest may by motion seek to require Wells Fargo to return any of the sale proceeds to the Debtor’s estate. Wells Fargo has agreed that it will remain subject to the jurisdiction of the Bankruptcy Court in this case and that it will immediately return to the estate any amount of the sales proceeds the Bankruptcy Court may reasonably determine it is not entitled to retain.

F.Buyer shall be entitled to the protections afforded a good faith purchaser under section 363(m) of the Bankruptcy Code with respect to the Buyer’s purchase of the Purchased Assets.

G.The Debtor is authorized to execute and deliver all documents and instruments and to take all actions necessary to effectuate the Sale Agreement, which Sale Agreement is approved in its entirety.

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H.The 10-day stay set forth in Rule 6004(g) of the Federal Rules of Bankruptcy Procedure shall not apply to this Order.

Dated: OCT 15 2004
			ARTHUR M. GREENWALD
			United States Bankruptcy Judge
SUBMITTED BY:
PEITZMAN, WEG & KEMPINSKY LLP
By:	/s/ Scott F. Gautier
		Scott F. Gautier
Proposed Attorneys for Applause, LLC
Debtor and Debtor in Possession

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EXHIBIT A

AMENDED AND RESTATED TRADEMARK PURCHASE AGREEMENT

THIS AMENDED AND RESTATED TRADEMARK PURCHASE AGREEMENT (“Agreement”) is made as of September 21, 2004, by and between Applause, LLC, a Delaware limited liability company (“Seller”), and Russ Berrie and Company, Inc., a New Jersey corporation (“Buyer”), with respect to the following facts:

A.Seller is engaged in the business of designing, manufacturing through third parties and marketing gift products throughout the United States of America and certain foreign countries (the “Business”).

B.On or about August 11, 2004, Seller and Buyer, together with Robert Solomon (“Mr. Solomon”) as the principal of Seller, entered into a Trademark Purchase Agreement with respect to the sale and assignment of the Acquired Intellectual Property (as defined below).

C.On or about August 20, 2004, Mr. Solomon died. Prior to his death, Mr. Solomon transferred all of his assets and property to the Robert G. Solomon Living Trust (the “Trust”).

D.On or about August 31, 2004, an involuntary bankruptcy petition was filed against Seller in the United States Bankruptcy Court for the Central District of California, San Fernando Valley Division (the “Bankruptcy Court”). Therefore, all references to Seller refer to Seller and Seller’s bankruptcy estate.

E.Pursuant to a stipulated order entered by the Bankruptcy Court on September 7, 2004, Seller is required to comply with the requirements of section 363(b)(l), (d), (f), (m) and (o) of the Bankruptcy Code with respect to the sale of property out of the ordinary course of business as contemplated by this Agreement.

F.Seller anticipates that it will consent to an order for relief under chapter 11 of the Bankruptcy Code on or about September 23, 2004.

G.Seller desires to sell to Buyer and Buyer desires to purchase from Seller, on the terms and subject to the conditions of this Agreement, the Acquired Intellectual Property (as defined below).

NOW, THEREFORE, subject to the approval of the Bankruptcy Court, the parties agree as follows:

1.CERTAIN DEFINITIONS

As used therein the following terms shall have the following meanings:

1.1  “Acquired Intellectual Property” means (i) the trade names and trademarks “Applause” and “Appaws” and all variations thereof (including all common law and federal, state and foreign trade name and trademark registrations and filings) including the registered trademarks listed on Schedule 1 attached hereto, (ii) all trade name and trademark registration

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applications, including the applications listed on Schedule 1, (iii) the good will associated with any of the foregoing described in clauses (i) and (ii), (iv) all domain names owned by Seller which include either the term “Applause” or the term “Appaws,” including “www.applause.com,” and (v) all claims for infringement on any of the Acquired Intellectual Property, whether now existing or hereafter arising and whether known or unknown.

1.2  “Applause Inventory” means any inventory of plush toys and other products on which there is a hangtag or other label utilizing any of the Acquired Intellectual Property other than any Dakin label sewn into a plush toy or other product or a Dakin hang tag attached to a plush toy or other product, which label or hang tag only uses the word “Applause” in the context of describing that Dakin is a division of Applause, LLC.

1.3  “Applause Legal Label Inventory” means any inventory of plush toys and other products (including “Dream Pets” plush toys) on which the only reference to any of the Acquired Intellectual Property is a Dakin label sewn into a plush toy, or other product or a Dakin hang tag attached to a plush toy or other product, which label or hang tag only uses the word “Applause” in the context of describing that Dakin is a division of Applause, LLC.

1.4  “Closing Date” means the date on which the Closing occurs.

1.5  “Closing Payment” means the amount necessary to complete the payment of the Purchase Price.

1.6  “Court Approval Order” has the meaning set forth in Section 5.5.4 below.

1.7  “Encumbrances” means any and all security interests, pledges, mortgages, liens, charges, encumbrances, licenses, adverse claims, preferential arrangements, obligations to sell, options or other rights to purchase, rights of first refusal or first negotiation or other restrictions of any kind, including any restriction on the use, transfer, receipt of income or other exercise of any attributes of ownership.

1.8  “Inventory Assets” means the items of Applause Inventory purchased by Buyer from Seller pursuant to Section 9.2 below.

1.9  “Inventory Purchase Price” means the amount to be paid by the Buyer for the purchase of the Inventory Assets pursuant to Section 9.2 below.

1.10  “Licenses” means (i) a license or agreement from Seller pursuant to which a third party is permitted to use any of the Acquired Intellectual Property or (ii) any license or agreement from a third party pursuant to which Seller is permitted to use any of the Acquired Intellectual Property.

1.11  “Purchase Price” has the meaning set forth in the First Amendment to Amended and Restated Trademark Purchase Agreement attached hereto.

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1.12  “Senior Encumbrances” means the Encumbrances in favor of the Secured Lender.

1.13  “Secured Lender” means Wells Fargo Business Credit, Inc.

1.14  “Taxes” means all federal, state, local and foreign taxes, including, gross, income, net income, gross receipts, net proceeds, alternative, add-on, minimum, ad valorem, value added, turnover, sales, uses, property, personal property (tangible and intangible), real property, stamp, customs, duties, excise, franchise, transfer, license, withholding, social security, unemployment, disability, payroll, employment, excess profits, and other taxes and including all interest and penalties imposed thereon.

1.15  “Trade name and Trademark Assignment” means a trade name and trademark assignment of Seller in the form reasonably satisfactory to Buyer.

1.16  “Transaction” means the sale, transfer, assignment, and delivery of the Acquired Intellectual Property and the Inventory Assets and the other transactions contemplated by this Agreement.

2.PURCHASE AND SALE OF THE ACQUIRED INTELLECTUAL PROPERTY.

2.1  Purchase and Sale. Subject to the terms and conditions of this Agreement, at the “Closing” (as defined below), Seller shall sell, transfer and assign to Buyer, and Buyer shall purchase from Seller all of the Acquired Intellectual Property and Inventory Assets for the Purchase Price. Except for the representations and warranties expressly set forth in this Agreement, the sale and assignment of the Acquired Intellectual Property and the Inventory Assets are being transferred to Buyer “AS IS, WHERE IS, WITH NO REPRESENTATIONS, WARRANTIES OR RECOURSE OF ANY KIND.”

2.2  Payment of Purchase Price. The Purchase Price shall be paid as follows:

2.2.1  Deposit. On or before September 30, 2004, Buyer shall deposit with Seller a non-refundable deposit in the sum of $200,000 (the “Deposit”), which shall be held by Seller in a segregated interest-bearing account. All interest accrued on the Deposit shall be deemed included in the Deposit. The Deposit shall be credited toward the Purchase Price at the Closing. The Deposit shall be in the form of cash, a cashier’s check drawn on good and sufficient funds on a federally insured bank in the State of California or a wire transfer of immediately available funds to an account designated by Seller (“Cash”) and shall be made payable to the order of Applause, LLC. The Deposit shall be nonrefundable to Buyer in the event of a material breach of this Agreement by Buyer. The Deposit, and interest accrued thereon, shall be refundable to Buyer in the event of Buyer’s termination of this Agreement due to a material breach of this Agreement by Seller, the failure of the Closing to occur on or before November 15, 2004, or the Closing of the Transaction with a successful overbidder for the Acquired Intellectual Property.

2.2.2  Closing Payment. At the Closing, Buyer shall make the Closing Payment to Seller in Cash.

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2.2.3  Closing. Subject to the satisfaction of the conditions set forth in Sections 7 and 8 or the waiver thereof, as provided in those Sections, the closing of the purchase and sale of the Acquired Intellectual Property and the Inventory Assets (the “Closing”) shall take place upon the first business day after all conditions to the Closing have been satisfied or waived at 10:00 a.m. at the offices of Mitchell Silberberg & Knupp LLP, 11377 West Olympic Boulevard, Los Angeles, California, or on such other date, and at such other place and time, as the parties hereto shall mutually agree.

2.3  No Assumption of Liabilities. Buyer shall not assume, be liable for or agree to pay, perform or discharge any liability or other obligation of Seller, whether known or unknown, including any (i) liability or obligation arising out of, incurred in connection with, related to or created as a result of this Agreement; (ii) liability arising out of actions or omissions of Seller on, prior to or after the Closing Date; (iii) liability resulting from breach of contract arising out of actions of Seller as a result of the sale of the Acquired Intellectual Property and Inventory Assets pursuant to this Agreement; (iv) liability of Seller for any Taxes arising on, prior to or after the Closing Date, or in connection with the sale of the Acquired Intellectual Property and Inventory Assets hereunder; (v) liability in connection with any of Seller’s employees, including salaries, benefits, commissions, any employee benefit plans of Seller or in which Seller’s employees participate, payroll taxes or any severance payments due as a result of Seller’s termination of its employees; and (vi) any other liability or obligation of Seller arising on, prior to or after the Closing Date in connection with the Business.

2.4  Excluded Property. Except for the Acquired Intellectual Property and Inventory Assets, Seller is not selling, transferring or assigning and Buyer is not acquiring any interest in any other property of Seller, including any accounts or other amounts owed to Seller on account of any sales of inventory by Seller.

3.REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer as follows:

3.1  Organization and Standing. Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller is duly qualified to do business as a foreign limited liability company (and is in good standing therein) in the State of California.

3.2  Capacity and Authority, No Violations. Upon entry of the Court Approval Order: (i) Seller has the requisite power, legal capacity and authority and the right to execute and deliver this Agreement and to carry out the terms and conditions applicable to Seller under this Agreement; (ii) This Agreement constitutes, and each other agreement and instrument to be executed and delivered by Seller pursuant to the terms of this Agreement (collectively, the “Seller’s Transaction Documents”) constitutes, the legal, valid and binding obligation of Seller enforceable in accordance with their respective terms; (iii) The execution, delivery and performance of this Agreement and the other Seller’s Transaction Documents have been duly authorized by all requisite action on the part of Seller; and (iv) This Agreement and all other Seller’s Transaction Documents have been duly executed and delivered by Seller. The execution and delivery of this Agreement and the other Seller’s Transaction Documents by Seller and

4

Seller’s consummation of the Transaction and performance of its obligations hereunder and thereunder will not (a) conflict with or result in the violation of any applicable law or rule or regulation affecting Seller or the Acquired Intellectual Property and Inventory Assets; (b) conflict with or result in the violation of any judgment, order, decree or award of any court, arbitrator, mediator or governmental agency or instrumentality to which Seller is a party or by which Seller or any of the Acquired Intellectual Property or Inventory Assets, is bound or affected; (c) conflict with, or result in the violation of, the Certificate of Formation, as amended, of Seller or the Limited Liability Company Agreement, as amended, of Seller; or (d) conflict with, result in the violation or termination of, or accelerate the performance required by, any contract, indenture, instrument or other agreement to which Seller is a party or by which Seller or any of the Acquired Intellectual Property or Inventory Assets may be bound or affected.

3.3  Ownership of Seller. The sole owners of record and beneficially of all outstanding membership interests and economic interests in Seller are the Trust and SAL, LLC.

3.4  Non-Foreign Status. Seller is not a foreign person or entity under section 1445 of the Internal Revenue Code of 1986, as amended.

3.5  Ownership of Acquired Intellectual Property; Infringements. Seller is the owner of, and has good and marketable title to, all of the Acquired Intellectual Property and Inventory Assets, free and clear of all Encumbrances other than the Senior Encumbrances and upon entry of the Court Approval Order and payment of the Purchase Price, Buyer will have good and marketable title to all of the Acquired Intellectual Property and Inventory Assets, free and clear of all Encumbrances, including the Senior Encumbrances. None of the Acquired Intellectual Property or Inventory Assets infringes on the intellectual property rights of any third party and Seller has not had any notice of or has any knowledge of any conflict with or infringement of the asserted rights of others with respect to any Acquired Intellectual Property. Seller has filed and paid for all necessary renewals, statements of use and requests for registration application extensions of any of the Acquired Intellectual Property described in Schedule 1 attached hereto, such that all such Acquired Intellectual Property remains in full force and effect.

3.6  No Licenses. Seller is not a party to any Licenses that relate to or are in any way connected with any of the Acquired Intellectual Property and none of the Acquired Intellectual Property is subject to any Licenses.

3.7  Litigation and Claims. Except for information previously provided to Buyer or its professionals, there is no pending or overtly threatened litigation or other legal proceeding or governmental investigation against Seller affecting any of the Acquired Intellectual Property or challenging the validity or propriety of, or seeking to enjoin or set aside, (a) the execution and delivery of this Agreement by Seller, (b) the consummation by Seller of the Transaction, or (c) the performance by Seller of its obligations hereunder. Seller is not a party to any judgment, order, decree or award of any court, arbitrator, mediator or governmental agency or instrumentality which would or might affect the Acquired Intellectual Property.

3.8  Consents and Approvals. Upon entry of the Court Approval Order, no other consent, approval, authorization or other action by, or filing or registration with, any federal, state, or local or foreign governmental authority, or any other person or entity is required in

5

connection with the execution and delivery by Seller of this Agreement and Seller’s Transaction Documents, the consummation by Seller of the Transaction contemplated hereby or thereby or the performance by Seller of its obligations hereunder or thereunder.

3.9  Inventory. All Applause Inventory, Applause Legal Label Inventory and Inventory Assets on the date of sale by Seller will be free of any defects and in compliance with all applicable laws, rules and regulations, and have been manufactured in accordance with all safety and other consumer product laws and are saleable in the ordinary and usual course of business and the Inventory Assets are of first quality.

3.10  Brokers and Finders. Other than the one broker or finder which Seller may or may not have engaged prior to August 11, 2004 (“Seller’s Possible Broker”), no broker or finder has acted for Seller in connection with this Agreement or the Transaction. No broker or finder other than Seller’s Possible Broker is entitled to claim any brokerage commission, finder’s fee or other compensation based on agreements or arrangement by Seller. It is understood and agreed that Buyer is not in any way responsible for the payment of any commission, finder’s fee or other compensation to Seller’s Possible Broker.

3.11  No Material Misstatements. No representation or warranty by Seller contained in this Agreement, or in any exhibit or schedule attached hereto, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

3.12  No Other Warranties by Seller. Other than as expressly set forth in this Agreement, Seller makes no representations or warranties of any kind, express or implied, either oral or written, with respect to the condition or value of the Acquired Intellectual Property or Inventory Assets. Other than as expressly set forth in this Agreement, Seller has made and hereby makes no warranty or representation whatsoever regarding the fitness for a particular purpose, quality, or merchantability of the Acquired Intellectual Property or Inventory Assets purchased by Buyer.

4.REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as follows:

4.1  Organization and Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of New Jersey.

4.2  Power and Authority, Consents. Buyer has the requisite corporate power and corporate authority to execute and deliver this Agreement and to carry out the terms and conditions applicable to it under this Agreement. The execution, delivery and performance of this Agreement by Buyer have been duly authorized by all requisite corporate action on the part of Buyer, and this Agreement has been duly executed and delivered by Buyer. This Agreement constitutes, and each other agreement or instrument to be executed and delivered by Buyer pursuant to the terms of this Agreement will, upon entry of the Court Approval Order, constitute, the legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their terms. The execution and delivery of this Agreement by Buyer, Buyer’s consummation of the Transaction and the performance of Buyer’s obligations hereunder will not (a) conflict with

6

or result in the violation of the certificate of incorporation or bylaws of Buyer; (b) conflict with or result in the violation of any applicable law, rule or regulation affecting Buyer; or (c) conflict with or result in the violation of any judgment, order, decree or award of any court, arbitrator, mediator, or governmental agency or instrumentality, to which Buyer is a party or by which Buyer is bound or affected. Except for entry of the Court Approval Order, no consent, approval, authorization or other action by, or filing or registration with, any federal, state or local governmental authority or any other person or entity, is required in connection with the execution and delivery by Buyer of this Agreement, the consummation by Buyer of the Transaction or the performance of Buyer’s obligations hereunder.

4.3  Litigation and Claims. Buyer is not a party to, nor is there, any pending or overtly threatened litigation or other legal proceeding or governmental investigation against Buyer challenging the validity or propriety of, or seeking to enjoin or set aside, (a) the execution and delivery of this Agreement by Buyer, (b) the consummation by Buyer of the Transaction, or (c) the performance by Buyer of Buyer’s obligations hereunder.

4.4  Brokers and Finders. No broker or finder has acted for Buyer in connection with this Agreement or the Transaction, and no broker or finder is entitled to any brokerage commission, finder’s fee or other compensation based on agreements or arrangements made by Buyer.

4.5  Buyer’s Investigation. Except for Seller’s express representations and warranties contained in this Agreement, Buyer has not relied in entering into this Agreement upon any oral or written information from Seller, or any of its employees, affiliates, agents, legal counsel, or other representatives. Buyer further acknowledges that no employee, affiliate, agent, legal counsel, or other representative of Seller has been authorized to make, and Buyer has not relied upon, any statement or representation other than those specifically set forth in this Agreement.

5.COVENANTS OF SELLER

5.1  Investigation. Seller agrees that, from the date of this Agreement through the Closing, (i) it shall make available to Buyer and its authorized representatives all books, papers and records relating to the Acquired Intellectual Property and (ii) upon reasonable prior notice to Seller, the Buyer may inspect the Inventory Assets of Seller that Buyer shall purchase at the Closing pursuant to Section 9.2 below. By no later than October 5, 2004, Seller shall deliver to Buyer an updated detailed list of all Applause Inventory and Applause Legal Label Inventory.

5.2  Conduct of Business. Seller agrees that, from the date of this Agreement through the Closing it will not (i) dispose of any of the Acquired Intellectual Property or (ii) commit any act that will have a materially adverse effect on the Acquired Intellectual Property or the Inventory Assets. Buyer understands and agrees that Seller shall otherwise continue to operate in the ordinary course of its business; provided, however, Seller shall not sell or otherwise dispose of any Applause Inventory at prices less than those set forth in Section 9.2.

5.3  Satisfying Conditions. Seller shall perform all of its covenants set forth herein which are conditions to Buyer’s obligation to purchase the Acquired Intellectual Property and the Inventory Assets on the first business day following entry of the Court Approval Order,

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including obtaining any and all consents, approvals, authorizations and other actions by, and completing any and all filings or registrations with, all federal, state and local governmental authorities which are necessary for Seller to consummate the Transaction, including the assignment or transfer of ownership of all Acquired Intellectual Property to Buyer.

5.4  Disclosure of Changes. Seller will refrain from knowingly taking any action which would render untrue any representation, warranty or covenant made by Seller contained in this Agreement, and will not knowingly omit to take any action, the omission of which would render untrue any such representation, warranty or covenant. Seller shall promptly notify Buyer in writing of (i) the commencement or overt threat of any lawsuit or claim against Seller affecting the Acquired Intellectual Property or Inventory Assets or challenging the validity or propriety of or seeking to enjoin or to set aside the Transaction; (ii) any adverse change in the Acquired Intellectual Property or Inventory Assets; and (iii) any change in any of the representations or warranties of Seller set forth in this Agreement or in any exhibit, certificate or other document delivered to Buyer by Seller pursuant to this Agreement. Notice to Buyer of any of the foregoing shall not be deemed an amendment to the representations and warranties of Seller set forth in this Agreement.

5.5  Possible Higher or Better Offers; Overbid Procedures and Break-Up Fee. Seller and Buyer acknowledge that the Agreement is subject to approval by the Bankruptcy Court and shall be noticed to all creditors and parties in interest in the Seller’s bankruptcy case. Seller and Buyer acknowledge and are aware that the sale contemplated by the Agreement is subject to any higher or better offers, as well as any objections by creditors and parties in interest. In making its recommendations to the Bankruptcy Court with respect to any overbids, Seller may consult with the Secured Lender and other parties in interest. Seller shall seek from the Bankruptcy Court the approval of the following “Overbid and Sale Procedures.” If the following overbid and sale procedures are not approved by the Bankruptcy Court prior to the Sale Hearing described below, Buyer may, by notice to Seller, terminate this Agreement and Seller shall thereupon return the Deposit to Buyer.

5.5.1  Minimum Overbids. The sale of the Acquired Intellectual Property Assets shall be subject to qualifying overbids. Potential overbidders must bid an initial amount of at least four million two hundred thousand dollars ($4,200,000) in Cash. At the in person auction to be conducted at the Sale Hearing, minimum bid increments beyond the initial overbid of four million two hundred thousand dollars ($4,200,000) shall be in increments of fifty thousand dollars ($50,000) in Cash. Initial overbids must be in writing and be received by Seller’s counsel no later than three business days prior to the hearing at which Seller shall seek approval of this Agreement and the Transaction (the “Sale Hearing”). Initial overbids must be accompanied by a Cash deposit in certified funds in the amount of two hundred thousand dollars ($200,000), which will be deposited into an interest bearing account and will either be applied to the Purchase Price to be paid by a successful overbidder, or will be returned to the overbidder within three business days following consummation of the Transaction with another purchaser.

5.5.2  Qualified Overbidders. All overbidders shall prequalify no later than three business days prior to the Sale Hearing, by providing to Seller’s counsel evidence of such overbidder’s ability to pay the new purchase price that may be established by the

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overbidding, complete the purchase of the Acquired Intellectual Property and perform the other Transaction under the overbidding procedures.

5.5.3  Break-Up Fee. In the event that Buyer is not the successful bidder at the Sale Hearing, and conditional upon Seller’s consummating the Transaction to the successful overbidder (“Purchaser”), from the proceeds of the sale Seller shall pay to the Buyer a break-up fee of one hundred, twenty-five thousand dollars ($125,000). Buyer shall have no other claim against Seller or Seller’s estate arising from the Agreement.

5.5.4  Court Approval Order. Seller shall seek the approval of the Bankruptcy Court for this Agreement and the Transaction pursuant to a motion to be filed and served in accordance with the Bankruptcy Code and applicable rules. In the motion, the Seller shall, among other things, request that the Bankruptcy Court enter an order in form and substance reasonably acceptable to Seller and Buyer authorizing and approving the sale and assignment of the Acquired Intellectual Property, the Inventory Assets and the Transaction contemplated by this Agreement free and clear of Encumbrances and including a determination that the Buyer is purchasing the Acquired Intellectual Property and the Inventory Assets in good faith within the meaning of section 363(m) of the Bankruptcy Code (the “Court Approval Order”), and the Bankruptcy Court has expressly waived the 10-day procedural stay of sale orders. If the Bankruptcy Court fails to enter the Court Approval Order in a form reasonably acceptable to Seller and Buyer, such form to encompass the substance of the terms of this Agreement, Buyer or Seller may terminate this Agreement and Seller shall thereupon promptly return the Deposit to Buyer.

6.COVENANTS OF BUYER

6.1  Satisfying Conditions. Buyer shall perform all of its covenants set forth herein which are conditions to Seller’s obligation to sell the Acquired Intellectual Property and the Inventory Assets on or before one business day following entry of the Court Approval Order, including obtaining any and all consents, approvals, authorizations and other actions by, and completing any and all filings or registrations with, all federal, state and local governmental authorities which are necessary for Buyer to consummate the Transaction.

7.CONDITIONS TO OBLIGATION OF BUYER TO PERFORM

The obligations of Buyer under this Agreement are subject to the satisfaction, on or before the Closing Date, of the following conditions, each of which may be waived by Buyer by delivery to Seller of a written notice of such waiver:

7.1  Representations and Warranties True on the Closing Date. The representations and warranties of Seller contained in this Agreement, in the Schedules and Exhibits hereto, and in any certificate, document or statement delivered pursuant to the provisions hereof, shall be true and correct on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date, and Seller shall have delivered to Buyer a certificate in

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form and substance reasonably satisfactory to Buyer, dated the Closing Date and signed by Seller to such effect.

7.2  Compliance with Agreement. Seller shall have performed and complied with all agreements, covenants, conditions and obligations required by this Agreement to be performed or complied with by Seller prior to or on the Closing Date. Seller shall have delivered to Buyer a certificate in form and substance reasonably satisfactory to Buyer, dated the Closing Date and signed by Seller to such effect.

7.3  Delivery of Documents. Seller shall have delivered to Buyer the following:

7.3.1  the Trade name and Trademark Assignments duly executed by Seller with notarized signature.

7.3.2  good standing certificates for Seller from the Secretary of State of Delaware and the Secretary of State of California.

7.3.3  an Amendment to Certificate of Formation, duly executed by Mr. Socha pursuant to which Seller’s name is changed to any name which does not include therein either the word “Applause” or the word “Appaws,” which Amendment Buyer is hereby authorized to file with the Delaware Secretary of State.

7.3.4  an updated Schedule 1 which is satisfactory to Buyer in its sole and absolute discretion, which shall then be deemed to be the relevant Schedule 1 for all purposes hereunder.

7.3.5  A list of the Applause Inventory and Applause Legal Label Inventory as of no earlier than two (2) days prior to the Closing Date.

7.3.6  Certificates of Insurance evidencing that Seller has obtained the liability insurance required pursuant to Section 9.3 and that Buyer has been named as an additional insured thereon.

7.4  No Material Adverse Changes. From the date hereof to the Closing Date, there shall have been no material adverse changes in the Acquired Intellectual Property or the Inventory Assets as determined in the good faith reasonable judgment of Buyer.

7.5  Entry of Court Approval Order; No Stay. The Court Approval Order shall be entered on the docket of the Bankruptcy Court in form and substance reasonably acceptable to Buyer and Seller, any appeal period applicable to the Court Approval Order shall have lapsed without timely filing of a notice of appeal and no stay of the Court Approval Order shall then be in effect. Buyer in its sole discretion may waive this condition or any portion of this condition, without affecting any other term or requirement of this Agreement.

7.6  Miscellaneous. Receipt by Buyer of all such additional instruments and documents as may reasonably be required by this Agreement or to consummate the Transaction.

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8.CONDITIONS TO OBLIGATION OF SELLER TO PERFORM

The obligations of Seller under this Agreement are subject to the satisfaction, on or before the Closing Date, of the following conditions, each of which may be waived by Seller by delivery to Buyer of a written notice of such waiver:

8.1  Representations and Warranties True on the Closing Date. The representations and warranties of Buyer contained in this Agreement, in the Schedules and Exhibits hereto, and in any certificate, document or statement delivered pursuant to the provisions hereof, shall be true and correct on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date, and Buyer shall have delivered to Seller a certificate in form and substance satisfactory to Seller, dated the Closing Date and signed by Buyer to such effect.

8.2  Compliance with Agreement. Buyer shall have performed and complied with all agreements, covenants, conditions and obligations required by this Agreement to be performed or complied with by Buyer prior to or on the Closing Date. Buyer shall have delivered to Seller a certificate in form and substance reasonably satisfactory to Seller, dated the Closing Date and signed by Buyer to such effect.

8.3  Entry of Court Approval Order; No Stay. The Court Approval Order shall be entered on the docket of the Bankruptcy Court in form and substance reasonably acceptable to Buyer and Seller and no stay of the Court Approval Order shall then be in effect.

8.4  Miscellaneous. Receipt by Seller of all such additional instruments and documents as may reasonably be required by this Agreement or to consummate the Transaction.

9.POST CLOSING COVENANTS

9.1  Sell-Off of “Applause” Inventory. For a period of six (6) months commencing on the Closing Date (“Sell-Off Period”), Seller shall be entitled to sell any Applause Inventory which Seller has on hand as of the Closing Date. Seller agrees that it will not sell any of the Applause Inventory at prices which reflect a discount off of its standard wholesale prices in excess of twenty-five percent (25%) at any time during the first three (3) months of the Sell-Off Period or in excess of Fifty Percent (50%) at any time during the second three (3) months of the Sell-Off Period. Any Applause Inventory on hand after the Sell-Off Period shall either be given to charity by Seller or destroyed by Seller. Promptly after the Sell-Off Period Seller will advise Buyer in writing of the manner in which it disposed of the remaining Applause Inventory. After the Closing, Seller shall not manufacture, purchase or otherwise acquire any additional Applause Legal Label Inventory. After the Closing, Seller may sell all Applause Legal Label Inventory that it then has on hand. There shall be no pricing restrictions regarding the Applause Legal Label Inventory. Every thirty (30) days during the Sell-Off Period and no later than two business (2) days after the end of the Sell-Off Period, Seller shall deliver to Buyer a then current list of all of the Applause Inventory then on hand. Every thirty (30) days after the Closing until all of the Applause Legal Label Inventory has been sold by Seller it shall deliver to Buyer a then current list of all Applause Legal Label Inventory that is on hand. Upon Seller’s sale or other disposal of all Applause Legal Label Inventory, Seller shall notify Buyer in writing of such fact.

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During the Sell-Off Period and thereafter, Seller shall not undertake any actions or activities inconsistent with the provisions of this Agreement. Furthermore, Seller shall not at any time undertake any actions or activities which could adversely impact the goodwill in the Acquired Intellectual Property or Buyer’s rights therein in any manner whatsoever.

9.2  Purchase of Certain Inventory. As of the Closing Date, if the Buyer purchases the Acquired Intellectual Property, the Buyer shall also purchase certain of the Applause Inventory that comply with the requirements in Section 3.9 above and that were manufactured under a license to use any of the following names or marks: “Curious George,” “Hush Puppies,” “Wolverine,” “Scoobie Doo” or “Raggedy Anne and Andy.” For the avoidance of doubt, Buyer shall not be obligated to purchase (or pay for) any products which Buyer deems to not meet the representations and warranties set forth in Section 3.9 herein relating to quality and safety. The purchase price per unit of product purchased by Buyer pursuant to this Section 9.2 shall be the lesser of (i) 30% off Seller’s standard wholesale price or (ii) the actual out-of-pocket cost of Seller to procure and ship such product to the port in Los Angeles, California, i.e., “landed costs.” Upon Seller’s receipt of payment for the products so purchased, Seller shall ship the products to Buyer at Buyer’s cost pursuant to shipping instructions received by Seller from Buyer. Subject to the final inventory of Inventory Assets, the purchase price for the Inventory Assets shall not be more than $250,000 unless the Seller and Buyer agree to the sale and purchase of inventory in excess of $250,000.

9.3  Additional Insured. From the Closing date until three (3) years after Seller sells or otherwise disposes of its last item of Applause Inventory and Applause Legal Label Inventory, (i) Seller will maintain product liability and general liability insurance policies in commercially reasonable amounts, but in no event providing coverage of less than Three Million Dollars ($3,000,000) per occurrence or claim, (ii) Seller will cause Buyer to be listed as an additional insured on all such liability insurance policies of Seller, and (iii) Seller shall, upon request of Buyer, from time to time provide Buyer with certificates of insurance evidencing such coverage.

10.TERMINATION

10.1  Termination In Absence Of A Default. This Agreement may be terminated at any time by the written agreement of Seller and Buyer. This Agreement will terminate automatically and without notice to the other parties upon the closing of the sale of the Acquired Intellectual Property to a party other than Buyer. In the event the Closing does not occur on or before November 15, 2004, for any reason and neither Buyer, on the one hand, nor Seller, on the other hand, is in breach of its respective obligations hereunder, then any party hereto may terminate this Agreement and none of Seller or Buyer will have any further obligation to the other(s). In the absence of any existing default by Buyer, Seller shall return the Deposit to Buyer within three (3) business days after the Agreement is terminated.

10.2  Termination As A Result Of A Default. If any party breaches any covenant or representation or is otherwise in default under this Agreement, any other party may terminate the Agreement by providing written notice to the other party. If the Agreement is terminated by Seller as a result of a default by Buyer, Seller shall be entitled to retain the Deposit, as liquidated damages and other than retaining the Deposit, Seller shall have no other right or remedy against Buyer, all of which are expressly waived hereby. Upon termination of the Agreement under this

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Section by Buyer as a result of a default by Seller, Seller shall return the Deposit to Buyer within three (3) business days after the Agreement is terminated, and Buyer shall be able to seek its rights and remedies against Seller under applicable law, including specific performance or other equitable relief.

11.INDEMNIFICATION

11.1  Indemnification by Seller and Buyer. Subject to Sections 11.2 and 11.3, Seller will indemnify, hold harmless, defend and bear all costs of defending Buyer, together with its successors and permitted assigns, from, against, and with respect to, any and all damage, loss, deficiency, and related expense (including any reasonable attorney and accountant fees, and related expenses), action, suit, proceedings, demand, assessment or judgment to or against Buyer (collectively, “Buyer’s Aggregate Net Loss”) arising out of or in connection with (i) any breach or violation of, or nonperformance by Seller of any of its representations, warranties, covenants or agreements contained in this Agreement or in any agreement, document, certificate or schedule required to be furnished pursuant to this Agreement, (ii) any obligation, debt or liability of Seller, (iii) all Taxes arising out of the purchase and sale of the Acquired Intellectual Property, (iv) any products liability defects, liability or claim made in connection with any of the Applause Inventory, Applause Legal Label Inventory or inventory sold to Buyer by Applause pursuant to Section 9.2, (v) any fees, commissions or expense reimbursements due Seller’s Possible Broker.

Subject to Section 11.2, Buyer will indemnify, hold harmless, defend and bear all costs of defending Seller, together with its, successors and permitted assigns, from, against and with respect to any and all damage, loss, deficiency, expense (including any reasonable attorney and accountant fees and related expenses), action, suit, proceedings, demand, assessment or judgment to or against Seller (collectively, “Seller’s Aggregate Net Loss”) arising out of or in connection with (i) any breach or violation of, or nonperformance by, Buyer of any of its representations, warranties, covenants or agreements contained in this Agreement or in any agreement, document, certificate or schedule required to be furnished pursuant to this Agreement and (ii) the Acquired Intellectual Property and any other property acquired pursuant to this Agreement and arising on or after the Closing.

11.2  Third-Party Claims. If any third-party claim (“Third-Party Claim”) is made by or against a party (the “Claiming Party”) that, if sustained, would give rise to a liability of the other party or parties hereunder (collectively, the “Indemnifying Party”), that Claiming Party will promptly cause written notice of the claim to be delivered to the Indemnifying Party and will afford the Indemnifying Party and its counsel (who must be reasonably acceptable to the Claiming Party), at the Indemnifying Party’s sole expense, the opportunity to defend or settle the Third-Party Claim. Any notice of a Third-Party Claim will state, with reasonable specification, the alleged basis for the claim and the amount of liability asserted by or against the Claiming Party or Claiming Parties by reason of the Third-Party Claim. If such notice is not given, it will not release the Indemnifying Party, in whole or in part, from its obligations under this Section 11, except to the extent that the Indemnifying Party’s ability to defend against such Third-Party Claim is actually prejudiced thereby. Alternatively, if notice is given and the Indemnifying Party fails to assume the defense of such claim within ten (10) days after receipt thereof with counsel reasonably satisfactory to the Claiming Party, the Third-Party Claim may be defended, compromised or settled by the Claiming Party without the consent of the Indemnifying Party and

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the Indemnifying Party will remain liable under this Section 11. The Claiming Party will fully cooperate with counsel for the Indemnifying Party. The Indemnifying Party will cause its counsel to consult with the Claiming Party, as appropriate, as to the defense of such claim, and the Claiming Party may, at its own expense, participate in such defense, assistance or enforcement, but the Indemnifying Party will control such defense, assistance or enforcement.

The Indemnifying Party may settle any Third-Party Claim that it is defending pursuant to this Section 11.2 if such Third-party Claim solely involves monetary damages and only if the amount of such settlement is to be paid entirely by the Indemnifying Party pursuant to this Section 11. The Indemnifying Party will not enter into a settlement of a Third-Party Claim that involves a non-monetary remedy or that will not be paid entirely by the Indemnifying Party pursuant to this Section 11 without the written consent of the Claiming Party, which consent will not be unreasonably withheld.

11.3  Not Sole and Exclusive Remedy. Notwithstanding anything herein to the contrary, the indemnification provided in this Section 11 shall not be the sole and exclusive remedy of Buyer and Seller with respect to matters described in Section 11; each party hereto shall have such additional rights and remedies as are available at law or in equity.

11.4  Limitations of Liability. Notwithstanding anything herein to the contrary, except for fraud for which there will be no limitation (i) Seller’s maximum liability and Buyer’s maximum liability for any breach of this Agreement and any obligation arising under Section 11 of this Agreement shall not exceed $500,000 and (ii) Seller’s obligation to indemnify, hold harmless, defend and bear all costs of defending Buyer and Buyer’ s obligation to indemnify, hold harmless, defend and bear all costs of defending Seller as described in Section 11 herein shall terminate on the one-year anniversary of the Closing Date.

12.GENERAL PROVISIONS

12.1  Expenses. Except as otherwise specifically provided, each party shall be responsible for its own fees, costs and other expenses incurred in negotiating and preparing this Agreement and in closing and carrying out the Transaction.

12.2  Survival of Representations, Warranties and Covenants. The respective representations, warranties and covenants of Buyer and Seller made herein or in any certificate or other document delivered pursuant to this Agreement shall survive the Closing Date and the consummation of the Transaction, notwithstanding (except as otherwise expressly provided otherwise in this Agreement) any examination made by or for the party to whom such representations, warranties or covenants were made or, the knowledge of any officers, directors, employees or agents of the party, or the acceptance of any certificate or opinion.

12.3  Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made (i) as of the date delivered if delivered personally or if sent by facsimile, provided that the facsimile is promptly confirmed by written confirmation sent by registered or certified U.S. mail (postage prepaid, return receipt requested), (ii) three (3) days after being mailed if mailed by registered or certified U.S. mail (postage prepaid, return receipt requested), or (iii) one (1) day after being sent by a

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nationally recognized overnight air courier such as FedEx or DHL to the parties hereto at the following addresses (or at such other address for a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt):

if to Seller:	Dakin & Co.
	23942 Lyons Avenue
	Newhall, California 91321
	facsimile: (661) 254-2051
	Attn:  David Socha, General Manager
with a copy to:	Casale Alliance, LLP
	1158 26th Street #325
	Santa Monica, California 90403-4698
	facsimile:  (310) 919-2810
	Attn:  Gerard Casale, Jr., Esq.
if to Buyer:	Russ Berrie and Company, Inc.
	111 Bauer Drive
	Oakland, New Jersey 07436
	facsimile:  (201) 405-7905
	Attn: President
with a copy to:	Russ Berrie and Company, Inc.
	111 Bauer Drive
	Oakland, New Jersey 07436
	facsimile:  (201) 405-7377
	Attn:  General Counsel
with a copy to:	Mitchell Silberberg & Knupp LLP
	11377 West Olympic Boulevard
	Los Angeles, California 90064
	facsimile: (310) 231-8386
	Attn:  Anthony A. Adler, Esq.

12.4  Attorneys’ Fees. In the event any suit is brought by any party hereto to enforce the terms of this Agreement, the  prevailing party shall be entitled to the payment of its reasonable attorneys’ fees and costs, as determined by the judge of the Court.

12.5  Entire Agreement; Modification. This Agreement and the other agreements contemplated herein constitute the entire agreement between the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof, including the Trademark Purchase Agreement made as of August 11, 2004. This Agreement may not be amended or modified except by an instrument in writing signed by all parties hereto.

12.6  Counterparts; Facsimile. This Agreement may be executed in one or more counterparts, each of which when executed shall be deemed to be an original, but all of which

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taken together shall constitute one and the same agreement. Signatures made by facsimile shall be deemed original signatures. Notwithstanding the foregoing, upon the request of any party hereto the other parties hereto shall provide promptly their ink original signatures to this Agreement.

12.7  Governing Law; Jurisdiction; Venue. This Agreement shall be governed by and construed in accordance with the laws of the United States of America and the State of New Jersey without giving effect to that State’s choice of law rules. Any proceeding to interpret or enforce this Agreement or that is related to the Transaction, whether in contract, tort, equity or otherwise, shall be brought in a court of competent jurisdiction. Each party hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner specified by law.

12.8  Parties in Interest. Nothing in this Agreement, whether expressed or implied, is intended to confer upon any person other than the parties hereto and their respective heirs, representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement, nor is anything in this Agreement intended to relieve or discharge the liability of any party hereto, nor shall any provision hereof give any person any right of subrogation against or action over or against any party.

12.9  Successors in Interest. This Agreement may not be assigned or transferred by Seller without the prior written consent of Buyer. Buyer may assign any and all of its rights and obligations under this Agreement to any third party; provided, however, Buyer shall remain primarily and directly liable for all of its obligations hereunder notwithstanding such assignment. Except as otherwise provided herein, all provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective heirs, executors, administrators, personal representatives, and successors and permitted assigns of any of the parties to this Agreement, including any trustee appointed in Seller’s bankruptcy case.

12.10  Further Assurances. Each party will promptly execute and deliver such further documents and take such further actions as may be reasonably required to carry out the intent and purpose of this Agreement.

12.11  Interpretation. The Article titles and Section headings are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of any of the provisions of this Agreement. All references to Sections contained in this Agreement refer to the Sections of this Agreement. All references to the words “include” or “including” mean “including without limitation.” There will be no presumption against any party (or its counsel) on the ground that such party (or its counsel) was responsible for preparing this Agreement or any part of it. All pronouns and any variations thereof will be deemed to refer to the masculine, feminine, neuter, singular or plural as the context may require.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above.

SELLER:	APPLAUSE, LLC
	By:	/s/ David Socha
			David Socha, General Manager
BUYER:	RUSS BERRIE AND COMPANY, INC.
	By:	/s/ Arnold Bloom
			Arnold Bloom, Vice President

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EX-10.105

Exhibit 10.105

AMENDED AND RESTATED TRADEMARK PURCHASE AGREEMENT

THIS AMENDED AND RESTATED TRADEMARK PURCHASE AGREEMENT (“Agreement”) is made as of September 21, 2004, by and between Applause, LLC, a Delaware limited liability company (“Seller”), and Russ Berrie and Company, Inc., a New Jersey corporation (“Buyer”), with respect to the following facts:

A.Seller is engaged in the business of designing, manufacturing through third parties and marketing gift products throughout the United States of America and certain foreign countries (the “Business”).

B.On or about August 11, 2004, Seller and Buyer, together with Robert Solomon (“Mr. Solomon”) as the principal of Seller, entered into a Trademark Purchase Agreement with respect to the sale and assignment of the Acquired Intellectual Property (as defined below).

C.On or about August 20, 2004, Mr. Solomon died. Prior to his death, Mr. Solomon transferred all of his assets and property to the Robert G. Solomon Living Trust (the “Trust”).

D.On or about August 31, 2004, an involuntary bankruptcy petition was filed against Seller in the United States Bankruptcy Court for the Central District of California, San Fernando Valley Division (the “Bankruptcy Court”). Therefore, all references to Seller refer to Seller and Seller’s bankruptcy estate.

E.Pursuant to a stipulated order entered by the Bankruptcy Court on September 7, 2004, Seller is required to comply with the requirements of section 363(b)(l), (d), (f), (m) and (o) of the Bankruptcy Code with respect to the sale of property out of the ordinary course of business as contemplated by this Agreement.

F.Seller anticipates that it will consent to an order for relief under chapter 11 of the Bankruptcy Code on or about September 23, 2004.

G.Seller desires to sell to Buyer and Buyer desires to purchase from Seller, on the terms and subject to the conditions of this Agreement, the Acquired Intellectual Property (as defined below).

NOW, THEREFORE, subject to the approval of the Bankruptcy Court, the parties agree as follows:

1.CERTAIN DEFINITIONS

As used therein the following terms shall have the following meanings:

1.1  “Acquired Intellectual Property” means (i) the trade names and trademarks “Applause” and “Appaws” and all variations thereof (including all common law and federal, state and foreign trade name and trademark registrations and filings) including the registered trademarks listed on Schedule 1 attached hereto, (ii) all trade name and trademark registration

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applications, including the applications listed on Schedule 1, (iii) the good will associated with any of the foregoing described in clauses (i) and (ii), (iv) all domain names owned by Seller which include either the term “Applause” or the term “Appaws,” including “www.applause.com,” and (v) all claims for infringement on any of the Acquired Intellectual Property, whether now existing or hereafter arising and whether known or unknown.

1.2  “Applause Inventory” means any inventory of plush toys and other products on which there is a hangtag or other label utilizing any of the Acquired Intellectual Property other than any Dakin label sewn into a plush toy or other product or a Dakin hang tag attached to a plush toy or other product, which label or hang tag only uses the word “Applause” in the context of describing that Dakin is a division of Applause, LLC.

1.3  “Applause Legal Label Inventory” means any inventory of plush toys and other products (including “Dream Pets” plush toys) on which the only reference to any of the Acquired Intellectual Property is a Dakin label sewn into a plush toy, or other product or a Dakin hang tag attached to a plush toy or other product, which label or hang tag only uses the word “Applause” in the context of describing that Dakin is a division of Applause, LLC.

1.4  “Closing Date” means the date on which the Closing occurs.

1.5  “Closing Payment” means the amount necessary to complete the payment of the Purchase Price.

1.6  “Court Approval Order” has the meaning set forth in Section 5.5.4 below.

1.7  “Encumbrances” means any and all security interests, pledges, mortgages, liens, charges, encumbrances, licenses, adverse claims, preferential arrangements, obligations to sell, options or other rights to purchase, rights of first refusal or first negotiation or other restrictions of any kind, including any restriction on the use, transfer, receipt of income or other exercise of any attributes of ownership.

1.8  “Inventory Assets” means the items of Applause Inventory purchased by Buyer from Seller pursuant to Section 9.2 below.

1.9  “Inventory Purchase Price” means the amount to be paid by the Buyer for the purchase of the Inventory Assets pursuant to Section 9.2 below.

1.10  “Licenses” means (i) a license or agreement from Seller pursuant to which a third party is permitted to use any of the Acquired Intellectual Property or (ii) any license or agreement from a third party pursuant to which Seller is permitted to use any of the Acquired Intellectual Property.

1.11  “Purchase Price” has the meaning set forth in the First Amendment to Amended and Restated Trademark Purchase Agreement attached hereto.

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1.12  “Senior Encumbrances” means the Encumbrances in favor of the Secured Lender.

1.13  “Secured Lender” means Wells Fargo Business Credit, Inc.

1.14  “Taxes” means all federal, state, local and foreign taxes, including, gross, income, net income, gross receipts, net proceeds, alternative, add-on, minimum, ad valorem, value added, turnover, sales, uses, property, personal property (tangible and intangible), real property, stamp, customs, duties, excise, franchise, transfer, license, withholding, social security, unemployment, disability, payroll, employment, excess profits, and other taxes and including all interest and penalties imposed thereon.

1.15  “Trade name and Trademark Assignment” means a trade name and trademark assignment of Seller in the form reasonably satisfactory to Buyer.

1.16  “Transaction” means the sale, transfer, assignment, and delivery of the Acquired Intellectual Property and the Inventory Assets and the other transactions contemplated by this Agreement.

2.PURCHASE AND SALE OF THE ACQUIRED INTELLECTUAL PROPERTY.

2.1  Purchase and Sale. Subject to the terms and conditions of this Agreement, at the “Closing” (as defined below), Seller shall sell, transfer and assign to Buyer, and Buyer shall purchase from Seller all of the Acquired Intellectual Property and Inventory Assets for the Purchase Price. Except for the representations and warranties expressly set forth in this Agreement, the sale and assignment of the Acquired Intellectual Property and the Inventory Assets are being transferred to Buyer “AS IS, WHERE IS, WITH NO REPRESENTATIONS, WARRANTIES OR RECOURSE OF ANY KIND.”

2.2  Payment of Purchase Price. The Purchase Price shall be paid as follows:

2.2.1  Deposit. On or before September 30, 2004, Buyer shall deposit with Seller a non-refundable deposit in the sum of $200,000 (the “Deposit”), which shall be held by Seller in a segregated interest-bearing account. All interest accrued on the Deposit shall be deemed included in the Deposit. The Deposit shall be credited toward the Purchase Price at the Closing. The Deposit shall be in the form of cash, a cashier’s check drawn on good and sufficient funds on a federally insured bank in the State of California or a wire transfer of immediately available funds to an account designated by Seller (“Cash”) and shall be made payable to the order of Applause, LLC. The Deposit shall be nonrefundable to Buyer in the event of a material breach of this Agreement by Buyer. The Deposit, and interest accrued thereon, shall be refundable to Buyer in the event of Buyer’s termination of this Agreement due to a material breach of this Agreement by Seller, the failure of the Closing to occur on or before November 15, 2004, or the Closing of the Transaction with a successful overbidder for the Acquired Intellectual Property.

2.2.2  Closing Payment. At the Closing, Buyer shall make the Closing Payment to Seller in Cash.

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2.2.3  Closing. Subject to the satisfaction of the conditions set forth in Sections 7 and 8 or the waiver thereof, as provided in those Sections, the closing of the purchase and sale of the Acquired Intellectual Property and the Inventory Assets (the “Closing”) shall take place upon the first business day after all conditions to the Closing have been satisfied or waived at 10:00 a.m. at the offices of Mitchell Silberberg & Knupp LLP, 11377 West Olympic Boulevard, Los Angeles, California, or on such other date, and at such other place and time, as the parties hereto shall mutually agree.

2.3  No Assumption of Liabilities. Buyer shall not assume, be liable for or agree to pay, perform or discharge any liability or other obligation of Seller, whether known or unknown, including any (i) liability or obligation arising out of, incurred in connection with, related to or created as a result of this Agreement; (ii) liability arising out of actions or omissions of Seller on, prior to or after the Closing Date; (iii) liability resulting from breach of contract arising out of actions of Seller as a result of the sale of the Acquired Intellectual Property and Inventory Assets pursuant to this Agreement; (iv) liability of Seller for any Taxes arising on, prior to or after the Closing Date, or in connection with the sale of the Acquired Intellectual Property and Inventory Assets hereunder; (v) liability in connection with any of Seller’s employees, including salaries, benefits, commissions, any employee benefit plans of Seller or in which Seller’s employees participate, payroll taxes or any severance payments due as a result of Seller’s termination of its employees; and (vi) any other liability or obligation of Seller arising on, prior to or after the Closing Date in connection with the Business.

2.4  Excluded Property. Except for the Acquired Intellectual Property and Inventory Assets, Seller is not selling, transferring or assigning and Buyer is not acquiring any interest in any other property of Seller, including any accounts or other amounts owed to Seller on account of any sales of inventory by Seller.

3.REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer as follows:

3.1  Organization and Standing. Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller is duly qualified to do business as a foreign limited liability company (and is in good standing therein) in the State of California.

3.2  Capacity and Authority, No Violations. Upon entry of the Court Approval Order: (i) Seller has the requisite power, legal capacity and authority and the right to execute and deliver this Agreement and to carry out the terms and conditions applicable to Seller under this Agreement; (ii) This Agreement constitutes, and each other agreement and instrument to be executed and delivered by Seller pursuant to the terms of this Agreement (collectively, the “Seller’s Transaction Documents”) constitutes, the legal, valid and binding obligation of Seller enforceable in accordance with their respective terms; (iii) The execution, delivery and performance of this Agreement and the other Seller’s Transaction Documents have been duly authorized by all requisite action on the part of Seller; and (iv) This Agreement and all other Seller’s Transaction Documents have been duly executed and delivered by Seller. The execution and delivery of this Agreement and the other Seller’s Transaction Documents by Seller and

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Seller’s consummation of the Transaction and performance of its obligations hereunder and thereunder will not (a) conflict with or result in the violation of any applicable law or rule or regulation affecting Seller or the Acquired Intellectual Property and Inventory Assets; (b) conflict with or result in the violation of any judgment, order, decree or award of any court, arbitrator, mediator or governmental agency or instrumentality to which Seller is a party or by which Seller or any of the Acquired Intellectual Property or Inventory Assets, is bound or affected; (c) conflict with, or result in the violation of, the Certificate of Formation, as amended, of Seller or the Limited Liability Company Agreement, as amended, of Seller; or (d) conflict with, result in the violation or termination of, or accelerate the performance required by, any contract, indenture, instrument or other agreement to which Seller is a party or by which Seller or any of the Acquired Intellectual Property or Inventory Assets may be bound or affected.

3.3  Ownership of Seller. The sole owners of record and beneficially of all outstanding membership interests and economic interests in Seller are the Trust and SAL, LLC.

3.4  Non-Foreign Status. Seller is not a foreign person or entity under section 1445 of the Internal Revenue Code of 1986, as amended.

3.5  Ownership of Acquired Intellectual Property; Infringements. Seller is the owner of, and has good and marketable title to, all of the Acquired Intellectual Property and Inventory Assets, free and clear of all Encumbrances other than the Senior Encumbrances and upon entry of the Court Approval Order and payment of the Purchase Price, Buyer will have good and marketable title to all of the Acquired Intellectual Property and Inventory Assets, free and clear of all Encumbrances, including the Senior Encumbrances. None of the Acquired Intellectual Property or Inventory Assets infringes on the intellectual property rights of any third party and Seller has not had any notice of or has any knowledge of any conflict with or infringement of the asserted rights of others with respect to any Acquired Intellectual Property. Seller has filed and paid for all necessary renewals, statements of use and requests for registration application extensions of any of the Acquired Intellectual Property described in Schedule 1 attached hereto, such that all such Acquired Intellectual Property remains in full force and effect.

3.6  No Licenses. Seller is not a party to any Licenses that relate to or are in any way connected with any of the Acquired Intellectual Property and none of the Acquired Intellectual Property is subject to any Licenses.

3.7  Litigation and Claims. Except for information previously provided to Buyer or its professionals, there is no pending or overtly threatened litigation or other legal proceeding or governmental investigation against Seller affecting any of the Acquired Intellectual Property or challenging the validity or propriety of, or seeking to enjoin or set aside, (a) the execution and delivery of this Agreement by Seller, (b) the consummation by Seller of the Transaction, or (c) the performance by Seller of its obligations hereunder. Seller is not a party to any judgment, order, decree or award of any court, arbitrator, mediator or governmental agency or instrumentality which would or might affect the Acquired Intellectual Property.

3.8  Consents and Approvals. Upon entry of the Court Approval Order, no other consent, approval, authorization or other action by, or filing or registration with, any federal, state, or local or foreign governmental authority, or any other person or entity is required in

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connection with the execution and delivery by Seller of this Agreement and Seller’s Transaction Documents, the consummation by Seller of the Transaction contemplated hereby or thereby or the performance by Seller of its obligations hereunder or thereunder.

3.9  Inventory. All Applause Inventory, Applause Legal Label Inventory and Inventory Assets on the date of sale by Seller will be free of any defects and in compliance with all applicable laws, rules and regulations, and have been manufactured in accordance with all safety and other consumer product laws and are saleable in the ordinary and usual course of business and the Inventory Assets are of first quality.

3.10  Brokers and Finders. Other than the one broker or finder which Seller may or may not have engaged prior to August 11, 2004 (“Seller’s Possible Broker”), no broker or finder has acted for Seller in connection with this Agreement or the Transaction. No broker or finder other than Seller’s Possible Broker is entitled to claim any brokerage commission, finder’s fee or other compensation based on agreements or arrangement by Seller. It is understood and agreed that Buyer is not in any way responsible for the payment of any commission, finder’s fee or other compensation to Seller’s Possible Broker.

3.11  No Material Misstatements. No representation or warranty by Seller contained in this Agreement, or in any exhibit or schedule attached hereto, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

3.12  No Other Warranties by Seller. Other than as expressly set forth in this Agreement, Seller makes no representations or warranties of any kind, express or implied, either oral or written, with respect to the condition or value of the Acquired Intellectual Property or Inventory Assets. Other than as expressly set forth in this Agreement, Seller has made and hereby makes no warranty or representation whatsoever regarding the fitness for a particular purpose, quality, or merchantability of the Acquired Intellectual Property or Inventory Assets purchased by Buyer.

4.REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as follows:

4.1  Organization and Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of New Jersey.

4.2  Power and Authority, Consents. Buyer has the requisite corporate power and corporate authority to execute and deliver this Agreement and to carry out the terms and conditions applicable to it under this Agreement. The execution, delivery and performance of this Agreement by Buyer have been duly authorized by all requisite corporate action on the part of Buyer, and this Agreement has been duly executed and delivered by Buyer. This Agreement constitutes, and each other agreement or instrument to be executed and delivered by Buyer pursuant to the terms of this Agreement will, upon entry of the Court Approval Order, constitute, the legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their terms. The execution and delivery of this Agreement by Buyer, Buyer’s consummation of the Transaction and the performance of Buyer’s obligations hereunder will not (a) conflict with

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or result in the violation of the certificate of incorporation or bylaws of Buyer; (b) conflict with or result in the violation of any applicable law, rule or regulation affecting Buyer; or (c) conflict with or result in the violation of any judgment, order, decree or award of any court, arbitrator, mediator, or governmental agency or instrumentality, to which Buyer is a party or by which Buyer is bound or affected. Except for entry of the Court Approval Order, no consent, approval, authorization or other action by, or filing or registration with, any federal, state or local governmental authority or any other person or entity, is required in connection with the execution and delivery by Buyer of this Agreement, the consummation by Buyer of the Transaction or the performance of Buyer’s obligations hereunder.

4.3  Litigation and Claims. Buyer is not a party to, nor is there, any pending or overtly threatened litigation or other legal proceeding or governmental investigation against Buyer challenging the validity or propriety of, or seeking to enjoin or set aside, (a) the execution and delivery of this Agreement by Buyer, (b) the consummation by Buyer of the Transaction, or (c) the performance by Buyer of Buyer’s obligations hereunder.

4.4  Brokers and Finders. No broker or finder has acted for Buyer in connection with this Agreement or the Transaction, and no broker or finder is entitled to any brokerage commission, finder’s fee or other compensation based on agreements or arrangements made by Buyer.

4.5  Buyer’s Investigation. Except for Seller’s express representations and warranties contained in this Agreement, Buyer has not relied in entering into this Agreement upon any oral or written information from Seller, or any of its employees, affiliates, agents, legal counsel, or other representatives. Buyer further acknowledges that no employee, affiliate, agent, legal counsel, or other representative of Seller has been authorized to make, and Buyer has not relied upon, any statement or representation other than those specifically set forth in this Agreement.

5.COVENANTS OF SELLER

5.1  Investigation. Seller agrees that, from the date of this Agreement through the Closing, (i) it shall make available to Buyer and its authorized representatives all books, papers and records relating to the Acquired Intellectual Property and (ii) upon reasonable prior notice to Seller, the Buyer may inspect the Inventory Assets of Seller that Buyer shall purchase at the Closing pursuant to Section 9.2 below. By no later than October 5, 2004, Seller shall deliver to Buyer an updated detailed list of all Applause Inventory and Applause Legal Label Inventory.

5.2  Conduct of Business. Seller agrees that, from the date of this Agreement through the Closing it will not (i) dispose of any of the Acquired Intellectual Property or (ii) commit any act that will have a materially adverse effect on the Acquired Intellectual Property or the Inventory Assets. Buyer understands and agrees that Seller shall otherwise continue to operate in the ordinary course of its business; provided, however, Seller shall not sell or otherwise dispose of any Applause Inventory at prices less than those set forth in Section 9.2.

5.3  Satisfying Conditions. Seller shall perform all of its covenants set forth herein which are conditions to Buyer’s obligation to purchase the Acquired Intellectual Property and the Inventory Assets on the first business day following entry of the Court Approval Order,

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including obtaining any and all consents, approvals, authorizations and other actions by, and completing any and all filings or registrations with, all federal, state and local governmental authorities which are necessary for Seller to consummate the Transaction, including the assignment or transfer of ownership of all Acquired Intellectual Property to Buyer.

5.4  Disclosure of Changes. Seller will refrain from knowingly taking any action which would render untrue any representation, warranty or covenant made by Seller contained in this Agreement, and will not knowingly omit to take any action, the omission of which would render untrue any such representation, warranty or covenant. Seller shall promptly notify Buyer in writing of (i) the commencement or overt threat of any lawsuit or claim against Seller affecting the Acquired Intellectual Property or Inventory Assets or challenging the validity or propriety of or seeking to enjoin or to set aside the Transaction; (ii) any adverse change in the Acquired Intellectual Property or Inventory Assets; and (iii) any change in any of the representations or warranties of Seller set forth in this Agreement or in any exhibit, certificate or other document delivered to Buyer by Seller pursuant to this Agreement. Notice to Buyer of any of the foregoing shall not be deemed an amendment to the representations and warranties of Seller set forth in this Agreement.

5.5  Possible Higher or Better Offers; Overbid Procedures and Break-Up Fee. Seller and Buyer acknowledge that the Agreement is subject to approval by the Bankruptcy Court and shall be noticed to all creditors and parties in interest in the Seller’s bankruptcy case. Seller and Buyer acknowledge and are aware that the sale contemplated by the Agreement is subject to any higher or better offers, as well as any objections by creditors and parties in interest. In making its recommendations to the Bankruptcy Court with respect to any overbids, Seller may consult with the Secured Lender and other parties in interest. Seller shall seek from the Bankruptcy Court the approval of the following “Overbid and Sale Procedures.” If the following overbid and sale procedures are not approved by the Bankruptcy Court prior to the Sale Hearing described below, Buyer may, by notice to Seller, terminate this Agreement and Seller shall thereupon return the Deposit to Buyer.

5.5.1  Minimum Overbids. The sale of the Acquired Intellectual Property Assets shall be subject to qualifying overbids. Potential overbidders must bid an initial amount of at least four million two hundred thousand dollars ($4,200,000) in Cash. At the in person auction to be conducted at the Sale Hearing, minimum bid increments beyond the initial overbid of four million two hundred thousand dollars ($4,200,000) shall be in increments of fifty thousand dollars ($50,000) in Cash. Initial overbids must be in writing and be received by Seller’s counsel no later than three business days prior to the hearing at which Seller shall seek approval of this Agreement and the Transaction (the “Sale Hearing”). Initial overbids must be accompanied by a Cash deposit in certified funds in the amount of two hundred thousand dollars ($200,000), which will be deposited into an interest bearing account and will either be applied to the Purchase Price to be paid by a successful overbidder, or will be returned to the overbidder within three business days following consummation of the Transaction with another purchaser.

5.5.2  Qualified Overbidders. All overbidders shall prequalify no later than three business days prior to the Sale Hearing, by providing to Seller’s counsel evidence of such overbidder’s ability to pay the new purchase price that may be established by the

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overbidding, complete the purchase of the Acquired Intellectual Property and perform the other Transaction under the overbidding procedures.

5.5.3  Break-Up Fee. In the event that Buyer is not the successful bidder at the Sale Hearing, and conditional upon Seller’s consummating the Transaction to the successful overbidder (“Purchaser”), from the proceeds of the sale Seller shall pay to the Buyer a break-up fee of one hundred, twenty-five thousand dollars ($125,000). Buyer shall have no other claim against Seller or Seller’s estate arising from the Agreement.

5.5.4  Court Approval Order. Seller shall seek the approval of the Bankruptcy Court for this Agreement and the Transaction pursuant to a motion to be filed and served in accordance with the Bankruptcy Code and applicable rules. In the motion, the Seller shall, among other things, request that the Bankruptcy Court enter an order in form and substance reasonably acceptable to Seller and Buyer authorizing and approving the sale and assignment of the Acquired Intellectual Property, the Inventory Assets and the Transaction contemplated by this Agreement free and clear of Encumbrances and including a determination that the Buyer is purchasing the Acquired Intellectual Property and the Inventory Assets in good faith within the meaning of section 363(m) of the Bankruptcy Code (the “Court Approval Order”), and the Bankruptcy Court has expressly waived the 10-day procedural stay of sale orders. If the Bankruptcy Court fails to enter the Court Approval Order in a form reasonably acceptable to Seller and Buyer, such form to encompass the substance of the terms of this Agreement, Buyer or Seller may terminate this Agreement and Seller shall thereupon promptly return the Deposit to Buyer.

6.COVENANTS OF BUYER

6.1  Satisfying Conditions. Buyer shall perform all of its covenants set forth herein which are conditions to Seller’s obligation to sell the Acquired Intellectual Property and the Inventory Assets on or before one business day following entry of the Court Approval Order, including obtaining any and all consents, approvals, authorizations and other actions by, and completing any and all filings or registrations with, all federal, state and local governmental authorities which are necessary for Buyer to consummate the Transaction.

7.CONDITIONS TO OBLIGATION OF BUYER TO PERFORM

The obligations of Buyer under this Agreement are subject to the satisfaction, on or before the Closing Date, of the following conditions, each of which may be waived by Buyer by delivery to Seller of a written notice of such waiver:

7.1  Representations and Warranties True on the Closing Date. The representations and warranties of Seller contained in this Agreement, in the Schedules and Exhibits hereto, and in any certificate, document or statement delivered pursuant to the provisions hereof, shall be true and correct on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date, and Seller shall have delivered to Buyer a certificate in

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form and substance reasonably satisfactory to Buyer, dated the Closing Date and signed by Seller to such effect.

7.2  Compliance with Agreement. Seller shall have performed and complied with all agreements, covenants, conditions and obligations required by this Agreement to be performed or complied with by Seller prior to or on the Closing Date. Seller shall have delivered to Buyer a certificate in form and substance reasonably satisfactory to Buyer, dated the Closing Date and signed by Seller to such effect.

7.3  Delivery of Documents. Seller shall have delivered to Buyer the following:

7.3.1  the Trade name and Trademark Assignments duly executed by Seller with notarized signature.

7.3.2  good standing certificates for Seller from the Secretary of State of Delaware and the Secretary of State of California.

7.3.3  an Amendment to Certificate of Formation, duly executed by Mr. Socha pursuant to which Seller’s name is changed to any name which does not include therein either the word “Applause” or the word “Appaws,” which Amendment Buyer is hereby authorized to file with the Delaware Secretary of State.

7.3.4  an updated Schedule 1 which is satisfactory to Buyer in its sole and absolute discretion, which shall then be deemed to be the relevant Schedule 1 for all purposes hereunder.

7.3.5  A list of the Applause Inventory and Applause Legal Label Inventory as of no earlier than two (2) days prior to the Closing Date.

7.3.6  Certificates of Insurance evidencing that Seller has obtained the liability insurance required pursuant to Section 9.3 and that Buyer has been named as an additional insured thereon.

7.4  No Material Adverse Changes. From the date hereof to the Closing Date, there shall have been no material adverse changes in the Acquired Intellectual Property or the Inventory Assets as determined in the good faith reasonable judgment of Buyer.

7.5  Entry of Court Approval Order; No Stay. The Court Approval Order shall be entered on the docket of the Bankruptcy Court in form and substance reasonably acceptable to Buyer and Seller, any appeal period applicable to the Court Approval Order shall have lapsed without timely filing of a notice of appeal and no stay of the Court Approval Order shall then be in effect. Buyer in its sole discretion may waive this condition or any portion of this condition, without affecting any other term or requirement of this Agreement.

7.6  Miscellaneous. Receipt by Buyer of all such additional instruments and documents as may reasonably be required by this Agreement or to consummate the Transaction.

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8.CONDITIONS TO OBLIGATION OF SELLER TO PERFORM

The obligations of Seller under this Agreement are subject to the satisfaction, on or before the Closing Date, of the following conditions, each of which may be waived by Seller by delivery to Buyer of a written notice of such waiver:

8.1  Representations and Warranties True on the Closing Date. The representations and warranties of Buyer contained in this Agreement, in the Schedules and Exhibits hereto, and in any certificate, document or statement delivered pursuant to the provisions hereof, shall be true and correct on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date, and Buyer shall have delivered to Seller a certificate in form and substance satisfactory to Seller, dated the Closing Date and signed by Buyer to such effect.

8.2  Compliance with Agreement. Buyer shall have performed and complied with all agreements, covenants, conditions and obligations required by this Agreement to be performed or complied with by Buyer prior to or on the Closing Date. Buyer shall have delivered to Seller a certificate in form and substance reasonably satisfactory to Seller, dated the Closing Date and signed by Buyer to such effect.

8.3  Entry of Court Approval Order; No Stay. The Court Approval Order shall be entered on the docket of the Bankruptcy Court in form and substance reasonably acceptable to Buyer and Seller and no stay of the Court Approval Order shall then be in effect.

8.4  Miscellaneous. Receipt by Seller of all such additional instruments and documents as may reasonably be required by this Agreement or to consummate the Transaction.

9.POST CLOSING COVENANTS

9.1  Sell-Off of “Applause” Inventory. For a period of six (6) months commencing on the Closing Date (“Sell-Off Period”), Seller shall be entitled to sell any Applause Inventory which Seller has on hand as of the Closing Date. Seller agrees that it will not sell any of the Applause Inventory at prices which reflect a discount off of its standard wholesale prices in excess of twenty-five percent (25%) at any time during the first three (3) months of the Sell-Off Period or in excess of Fifty Percent (50%) at any time during the second three (3) months of the Sell-Off Period. Any Applause Inventory on hand after the Sell-Off Period shall either be given to charity by Seller or destroyed by Seller. Promptly after the Sell-Off Period Seller will advise Buyer in writing of the manner in which it disposed of the remaining Applause Inventory. After the Closing, Seller shall not manufacture, purchase or otherwise acquire any additional Applause Legal Label Inventory. After the Closing, Seller may sell all Applause Legal Label Inventory that it then has on hand. There shall be no pricing restrictions regarding the Applause Legal Label Inventory. Every thirty (30) days during the Sell-Off Period and no later than two business (2) days after the end of the Sell-Off Period, Seller shall deliver to Buyer a then current list of all of the Applause Inventory then on hand. Every thirty (30) days after the Closing until all of the Applause Legal Label Inventory has been sold by Seller it shall deliver to Buyer a then current list of all Applause Legal Label Inventory that is on hand. Upon Seller’s sale or other disposal of all Applause Legal Label Inventory, Seller shall notify Buyer in writing of such fact.

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During the Sell-Off Period and thereafter, Seller shall not undertake any actions or activities inconsistent with the provisions of this Agreement. Furthermore, Seller shall not at any time undertake any actions or activities which could adversely impact the goodwill in the Acquired Intellectual Property or Buyer’s rights therein in any manner whatsoever.

9.2  Purchase of Certain Inventory. As of the Closing Date, if the Buyer purchases the Acquired Intellectual Property, the Buyer shall also purchase certain of the Applause Inventory that comply with the requirements in Section 3.9 above and that were manufactured under a license to use any of the following names or marks: “Curious George,” “Hush Puppies,” “Wolverine,” “Scoobie Doo” or “Raggedy Anne and Andy.” For the avoidance of doubt, Buyer shall not be obligated to purchase (or pay for) any products which Buyer deems to not meet the representations and warranties set forth in Section 3.9 herein relating to quality and safety. The purchase price per unit of product purchased by Buyer pursuant to this Section 9.2 shall be the lesser of (i) 30% off Seller’s standard wholesale price or (ii) the actual out-of-pocket cost of Seller to procure and ship such product to the port in Los Angeles, California, i.e., “landed costs.” Upon Seller’s receipt of payment for the products so purchased, Seller shall ship the products to Buyer at Buyer’s cost pursuant to shipping instructions received by Seller from Buyer. Subject to the final inventory of Inventory Assets, the purchase price for the Inventory Assets shall not be more than $250,000 unless the Seller and Buyer agree to the sale and purchase of inventory in excess of $250,000.

9.3  Additional Insured. From the Closing date until three (3) years after Seller sells or otherwise disposes of its last item of Applause Inventory and Applause Legal Label Inventory, (i) Seller will maintain product liability and general liability insurance policies in commercially reasonable amounts, but in no event providing coverage of less than Three Million Dollars ($3,000,000) per occurrence or claim, (ii) Seller will cause Buyer to be listed as an additional insured on all such liability insurance policies of Seller, and (iii) Seller shall, upon request of Buyer, from time to time provide Buyer with certificates of insurance evidencing such coverage.

10.TERMINATION

10.1  Termination In Absence Of A Default. This Agreement may be terminated at any time by the written agreement of Seller and Buyer. This Agreement will terminate automatically and without notice to the other parties upon the closing of the sale of the Acquired Intellectual Property to a party other than Buyer. In the event the Closing does not occur on or before November 15, 2004, for any reason and neither Buyer, on the one hand, nor Seller, on the other hand, is in breach of its respective obligations hereunder, then any party hereto may terminate this Agreement and none of Seller or Buyer will have any further obligation to the other(s). In the absence of any existing default by Buyer, Seller shall return the Deposit to Buyer within three (3) business days after the Agreement is terminated.

10.2  Termination As A Result Of A Default. If any party breaches any covenant or representation or is otherwise in default under this Agreement, any other party may terminate the Agreement by providing written notice to the other party. If the Agreement is terminated by Seller as a result of a default by Buyer, Seller shall be entitled to retain the Deposit, as liquidated damages and other than retaining the Deposit, Seller shall have no other right or remedy against Buyer, all of which are expressly waived hereby. Upon termination of the Agreement under this

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Section by Buyer as a result of a default by Seller, Seller shall return the Deposit to Buyer within three (3) business days after the Agreement is terminated, and Buyer shall be able to seek its rights and remedies against Seller under applicable law, including specific performance or other equitable relief.

11.INDEMNIFICATION

11.1  Indemnification by Seller and Buyer. Subject to Sections 11.2 and 11.3, Seller will indemnify, hold harmless, defend and bear all costs of defending Buyer, together with its successors and permitted assigns, from, against, and with respect to, any and all damage, loss, deficiency, and related expense (including any reasonable attorney and accountant fees, and related expenses), action, suit, proceedings, demand, assessment or judgment to or against Buyer (collectively, “Buyer’s Aggregate Net Loss”) arising out of or in connection with (i) any breach or violation of, or nonperformance by Seller of any of its representations, warranties, covenants or agreements contained in this Agreement or in any agreement, document, certificate or schedule required to be furnished pursuant to this Agreement, (ii) any obligation, debt or liability of Seller, (iii) all Taxes arising out of the purchase and sale of the Acquired Intellectual Property, (iv) any products liability defects, liability or claim made in connection with any of the Applause Inventory, Applause Legal Label Inventory or inventory sold to Buyer by Applause pursuant to Section 9.2, (v) any fees, commissions or expense reimbursements due Seller’s Possible Broker.

Subject to Section 11.2, Buyer will indemnify, hold harmless, defend and bear all costs of defending Seller, together with its, successors and permitted assigns, from, against and with respect to any and all damage, loss, deficiency, expense (including any reasonable attorney and accountant fees and related expenses), action, suit, proceedings, demand, assessment or judgment to or against Seller (collectively, “Seller’s Aggregate Net Loss”) arising out of or in connection with (i) any breach or violation of, or nonperformance by, Buyer of any of its representations, warranties, covenants or agreements contained in this Agreement or in any agreement, document, certificate or schedule required to be furnished pursuant to this Agreement and (ii) the Acquired Intellectual Property and any other property acquired pursuant to this Agreement and arising on or after the Closing.

11.2  Third-Party Claims. If any third-party claim (“Third-Party Claim”) is made by or against a party (the “Claiming Party”) that, if sustained, would give rise to a liability of the other party or parties hereunder (collectively, the “Indemnifying Party”), that Claiming Party will promptly cause written notice of the claim to be delivered to the Indemnifying Party and will afford the Indemnifying Party and its counsel (who must be reasonably acceptable to the Claiming Party), at the Indemnifying Party’s sole expense, the opportunity to defend or settle the Third-Party Claim. Any notice of a Third-Party Claim will state, with reasonable specification, the alleged basis for the claim and the amount of liability asserted by or against the Claiming Party or Claiming Parties by reason of the Third-Party Claim. If such notice is not given, it will not release the Indemnifying Party, in whole or in part, from its obligations under this Section 11, except to the extent that the Indemnifying Party’s ability to defend against such Third-Party Claim is actually prejudiced thereby. Alternatively, if notice is given and the Indemnifying Party fails to assume the defense of such claim within ten (10) days after receipt thereof with counsel reasonably satisfactory to the Claiming Party, the Third-Party Claim may be defended, compromised or settled by the Claiming Party without the consent of the Indemnifying Party and

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the Indemnifying Party will remain liable under this Section 11. The Claiming Party will fully cooperate with counsel for the Indemnifying Party. The Indemnifying Party will cause its counsel to consult with the Claiming Party, as appropriate, as to the defense of such claim, and the Claiming Party may, at its own expense, participate in such defense, assistance or enforcement, but the Indemnifying Party will control such defense, assistance or enforcement.

The Indemnifying Party may settle any Third-Party Claim that it is defending pursuant to this Section 11.2 if such Third-party Claim solely involves monetary damages and only if the amount of such settlement is to be paid entirely by the Indemnifying Party pursuant to this Section 11. The Indemnifying Party will not enter into a settlement of a Third-Party Claim that involves a non-monetary remedy or that will not be paid entirely by the Indemnifying Party pursuant to this Section 11 without the written consent of the Claiming Party, which consent will not be unreasonably withheld.

11.3  Not Sole and Exclusive Remedy. Notwithstanding anything herein to the contrary, the indemnification provided in this Section 11 shall not be the sole and exclusive remedy of Buyer and Seller with respect to matters described in Section 11; each party hereto shall have such additional rights and remedies as are available at law or in equity.

11.4  Limitations of Liability. Notwithstanding anything herein to the contrary, except for fraud for which there will be no limitation (i) Seller’s maximum liability and Buyer’s maximum liability for any breach of this Agreement and any obligation arising under Section 11 of this Agreement shall not exceed $500,000 and (ii) Seller’s obligation to indemnify, hold harmless, defend and bear all costs of defending Buyer and Buyer’ s obligation to indemnify, hold harmless, defend and bear all costs of defending Seller as described in Section 11 herein shall terminate on the one-year anniversary of the Closing Date.

12.GENERAL PROVISIONS

12.1  Expenses. Except as otherwise specifically provided, each party shall be responsible for its own fees, costs and other expenses incurred in negotiating and preparing this Agreement and in closing and carrying out the Transaction.

12.2  Survival of Representations, Warranties and Covenants. The respective representations, warranties and covenants of Buyer and Seller made herein or in any certificate or other document delivered pursuant to this Agreement shall survive the Closing Date and the consummation of the Transaction, notwithstanding (except as otherwise expressly provided otherwise in this Agreement) any examination made by or for the party to whom such representations, warranties or covenants were made or, the knowledge of any officers, directors, employees or agents of the party, or the acceptance of any certificate or opinion.

12.3  Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made (i) as of the date delivered if delivered personally or if sent by facsimile, provided that the facsimile is promptly confirmed by written confirmation sent by registered or certified U.S. mail (postage prepaid, return receipt requested), (ii) three (3) days after being mailed if mailed by registered or certified U.S. mail (postage prepaid, return receipt requested), or (iii) one (1) day after being sent by a

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nationally recognized overnight air courier such as FedEx or DHL to the parties hereto at the following addresses (or at such other address for a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt):

if to Seller:	Dakin & Co.
	23942 Lyons Avenue
	Newhall, California 91321
	facsimile: (661) 254-2051
	Attn:  David Socha, General Manager
with a copy to:	Casale Alliance, LLP
	1158 26th Street #325
	Santa Monica, California 90403-4698
	facsimile:  (310) 919-2810
	Attn:  Gerard Casale, Jr., Esq.
if to Buyer:	Russ Berrie and Company, Inc.
	111 Bauer Drive
	Oakland, New Jersey 07436
	facsimile:  (201) 405-7905
	Attn: President
with a copy to:	Russ Berrie and Company, Inc.
	111 Bauer Drive
	Oakland, New Jersey 07436
	facsimile:  (201) 405-7377
	Attn:  General Counsel
with a copy to:	Mitchell Silberberg & Knupp LLP
	11377 West Olympic Boulevard
	Los Angeles, California 90064
	facsimile: (310) 231-8386
	Attn:  Anthony A. Adler, Esq.

12.4  Attorneys’ Fees. In the event any suit is brought by any party hereto to enforce the terms of this Agreement, the  prevailing party shall be entitled to the payment of its reasonable attorneys’ fees and costs, as determined by the judge of the Court.

12.5  Entire Agreement; Modification. This Agreement and the other agreements contemplated herein constitute the entire agreement between the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and undertakings, both written and oral, with respect to the subject matter hereof, including the Trademark Purchase Agreement made as of August 11, 2004. This Agreement may not be amended or modified except by an instrument in writing signed by all parties hereto.

12.6  Counterparts; Facsimile. This Agreement may be executed in one or more counterparts, each of which when executed shall be deemed to be an original, but all of which

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taken together shall constitute one and the same agreement. Signatures made by facsimile shall be deemed original signatures. Notwithstanding the foregoing, upon the request of any party hereto the other parties hereto shall provide promptly their ink original signatures to this Agreement.

12.7  Governing Law; Jurisdiction; Venue. This Agreement shall be governed by and construed in accordance with the laws of the United States of America and the State of New Jersey without giving effect to that State’s choice of law rules. Any proceeding to interpret or enforce this Agreement or that is related to the Transaction, whether in contract, tort, equity or otherwise, shall be brought in a court of competent jurisdiction. Each party hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner specified by law.

12.8  Parties in Interest. Nothing in this Agreement, whether expressed or implied, is intended to confer upon any person other than the parties hereto and their respective heirs, representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement, nor is anything in this Agreement intended to relieve or discharge the liability of any party hereto, nor shall any provision hereof give any person any right of subrogation against or action over or against any party.

12.9  Successors in Interest. This Agreement may not be assigned or transferred by Seller without the prior written consent of Buyer. Buyer may assign any and all of its rights and obligations under this Agreement to any third party; provided, however, Buyer shall remain primarily and directly liable for all of its obligations hereunder notwithstanding such assignment. Except as otherwise provided herein, all provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective heirs, executors, administrators, personal representatives, and successors and permitted assigns of any of the parties to this Agreement, including any trustee appointed in Seller’s bankruptcy case.

12.10  Further Assurances. Each party will promptly execute and deliver such further documents and take such further actions as may be reasonably required to carry out the intent and purpose of this Agreement.

12.11  Interpretation. The Article titles and Section headings are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of any of the provisions of this Agreement. All references to Sections contained in this Agreement refer to the Sections of this Agreement. All references to the words “include” or “including” mean “including without limitation.” There will be no presumption against any party (or its counsel) on the ground that such party (or its counsel) was responsible for preparing this Agreement or any part of it. All pronouns and any variations thereof will be deemed to refer to the masculine, feminine, neuter, singular or plural as the context may require.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above.

SELLER:	APPLAUSE, LLC
	By:	/s/ David Socha
			David Socha, General Manager
BUYER:	RUSS BERRIE AND COMPANY, INC.
	By:	/s/ Arnold Bloom
			Arnold Bloom, Vice President

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Andrew Gatto, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Russ Berrie and Company, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 9, 2004	/s/ Andrew Gatto
	Andrew Gatto
	Chief Executive Officer

 A signed original of this written statement has been provided to Russ Berrie and Company, Inc. and will be retained by Russ Berrie and Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, John D. Wille, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Russ Berrie and Company, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a.     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 9, 2004	/s/ John D. Wille
	John D. Wille
	Vice President and Chief Financial Officer

A signed original of this written statement has been provided to Russ Berrie and Company, Inc. and will be retained by Russ Berrie and Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Russ Berrie and Company, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew Gatto, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  November 9, 2004	/s/  Andrew Gatto
	Andrew Gatto
	Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Russ Berrie and Company, Inc. and will be retained by Russ Berrie and Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Russ Berrie and Company, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John D. Wille, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  November 9, 2004	/s/  John D. Wille
	John D. Wille
	Vice President and  Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Russ Berrie and Company, Inc. and will be retained by Russ Berrie and Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.