10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2003

OR

¨ 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 0-7704

REFAC

(Exact name of registrant as specified in its charter)

Delaware	13-1681234
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer (Identification No.)

One Bridge Plaza, Suite 605

Fort Lee, New Jersey 07024-7102

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (201) 585-0600

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  x    No  ¨

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

The number of shares outstanding of the Registrant’s Common Stock, par value $.001 per share, as of November 10, 2003 was 6,983,393.

REFAC

INDEX

	Page
PART I.   FINANCIAL INFORMATION	3
Item 1.   Financial Statements	3
Condensed Balance Sheets September 30, 2003 (unaudited) and December 31, 2002	3
Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 2003 and 2002 (unaudited)	4
Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2003 and 2002 (unaudited)	5
Notes to Condensed Consolidated Financial Statements (unaudited)	6-17
Item 2.   Management’s Discussion and Analysis of Financial Conditions and Results of Operations	18-21
Item 3.   Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.   Controls and Procedures	22
PART II.   OTHER INFORMATION	23
Item 6.   Exhibits and Reports on Form 8-K	23

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REFAC

CONDENSED BALANCE SHEETS

	September 30, 2003		December 31, 2002*
	(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents	$848,000		$3,330,000
Royalties receivable	357,000		524,000
Accounts receivable, net	45,000		143,000
Notes receivable, current portion	352,000		296,000
Investments being held to maturity	29,073,000		11,714,000
Income taxes receivable	641,000		3,909,000
Prepaid expenses and other current assets	137,000		128,000
Deferred incentive compensation, current portion	553,000		—
Deferred income taxes, current portion	397,000		357,000
Total current assets	32,403,000		20,401,000
Property and equipment, net	858,000		1,184,000
Notes receivable	221,000		424,000
Deferred incentive compensation	68,000		1,666,000
Deferred income taxes	430,000		604,000
Restricted investments being held to maturity	4,765,000		—
Other assets	13,000		13,000
Total Assets	$38,758,000		$24,292,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$11,000		$109,000
Accrued expenses	475,000		411,000
Amounts payable under service agreements	—		78,000
Deferred incentive compensation, current portion	300,000		—
Deferred revenue	59,000		135,000
Other liabilities	150,000		219,000
Total current liabilities	995,000		952,000
Deferred incentive compensation	1,046,000		2,000,000
Temporary Equity	4,765,000		—
Stockholders’ Equity
Common stock, $.10 par value; authorized 20,000,000 shares; issued 5,453,637 as of December 31, 2002	—		545,000
Common stock, $.001 par value; authorized 20,000,000 shares; issued 6,983,393 as of September 30, 2003	7,000		—
Additional paid-in capital	22,720,000		9,991,000
Retained earnings	9,748,000		25,043,000
Treasury stock, at cost	(158,000	)	(13,874,000	)
Receivable from issuance of common stock	(365,000	)	(365,000	)
Total stockholders’ equity	31,952,000		21,340,000
Total Liabilities and Stockholders’ Equity	$38,758,000		$24,292,000

See accompanying Notes to the unaudited condensed financial statements.

* Certain prior period amounts have been reclassified to conform to current presentations.

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REFAC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
	2003		2002		2003		2002
Revenues
Licensing-related activities	$346,000		$337,000		$1,340,000		$1,587,000
Gains on sale of licensing rights and intellectual properties	—		4,374,000		—		4,374,000
Dividend and interest income	102,000		129,000		221,000		221,000
Total revenues	448,000		4,840,000		1,561,000		6,182,000
Costs and Expenses
Licensing-related activities	30,000		73,000		87,000		289,000
Selling, general and administrative expenses	594,000		829,000		3,586,000		1,225,000
Total costs and expenses	624,000		902,000		3,673,000		1,514,000
Income (loss) before provision for taxes on income	(176,000	)	3,938,000		(2,112,000	)	4,668,000
Provision (benefit) for taxes on income	(80,000	)	1,518,000		(658,000	)	1,766,000
Net income (loss) from continuing operations	(96,000	)	2,420,000		(1,454,000	)	2,902,000
Income (loss) from discontinued operations - net of taxes	4,000		(848,000	)	32,000		(3,985,000	)
Cumulative effect of change in accounting principle - net of $1,073,000 tax benefit	—		—		—		(2,083,000	)
Net income (loss)	$(92,000	)	$1,572,000		$(1,422,000	)	$(3,166,000	)
Basic and diluted earnings (loss) per share:
From continuing operations	$(0.01	)	$0.63		$(0.28	)	$0.76
From discontinued operations	—		(0.22	)	0.01		(1.04	)
From cumulative effect of change in accounting principle	—		—		—		(0.55	)
Net income (loss) per share	$(0.01	)	$0.41		$(0.27	)	$(0.83	)
Basic weighted average shares outstanding	6,983,393		3,812,294		5,290,402		3,801,170
Diluted weighted average shares outstanding	6,983,393		3,827,849		5,290,402		3,813,057

See accompanying Notes to the unaudited condensed financial statements.

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REFAC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2003		2002*
Cash Flows from Operating Activities	$2,796,000		$6,099,000
Cash Flows from Investing Activities
Notes receivable	147,000		(670,000	)
Purchase of investments being held to maturity	(22,124,000	)	(8,918,000	)
Purchase and sale of fixed assets	(22,000	)	12,000
Net cash used in investing activities	(21,999,000	)	(9,576,000	)
Cash Flows from Financing Activities
Stock issuance	16,869,000		—
Appraisal settlement	(187,000	)	—
Proceeds from other financing activities	39,000		17,000
Net cash provided by financing activities	16,721,000		17,000
Net decrease in cash and cash equivalents	(2,482,000	)	(3,460,000	)
Cash and cash equivalents at beginning of period	3,330,000		8,687,000
Cash and cash equivalents at end of period	$848,000		$5,227,000

See accompanying Notes to the unaudited condensed financial statements.

* Certain prior period amounts have been reclassified to conform to current presentations.

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1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of Refac (the “Company”) at September 30, 2003, and the results of its operations and its cash flows for interim periods presented.

2. On March 22, 2002, the Company announced that it was repositioning itself for sale or liquidation. Since that date, the Company has disposed of its operating segments with the exception of its licensing business and it has limited the operations of that segment to managing certain existing license agreements and related contracts. Currently, the Company’s operating assets principally consist of cash, government securities, accounts receivable, notes receivable, income taxes receivable, contract rights receivable, agreements related to its licensing business and its leasehold. Since December 31, 2002, the Company has not had any subsidiary corporations. The statements of operations for the periods reflect the restatement for discontinued operations.

3. On August 19, 2002, the Company entered into a merger agreement with Palisade Concentrated Equity Partnership, L.P. (“Palisade”), which provided for the merger of a Palisade subsidiary with the Company. On February 28, 2003, the Company’s shareholders adopted the merger agreement, as amended, and the merger was consummated. See Note 17.

4. The accounting policies followed by the Company are set forth in Note l to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, which is incorporated herein by reference.

5. The results of operations for the three and nine month periods ended September 30, 2003 are not indicative of the results to be expected for the full year as certain expenses associated with the Company’s merger and repositioning, which were completed in the first half of 2003, are nonrecurring.

6. The Company has adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123.” The Statement requires prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company accounts for stock compensation awards under the intrinsic method of Accounting Principles Board Opinion No. 25. Opinion No. 25 requires compensation cost to be recognized based on the excess, if any, between the quoted market price of the stock at the date of grant and the amount an employee must pay to acquire the stock. All options awarded under all of the Company’s plans are granted with an exercise price at least equal to the fair market value on the date of the grant. The following table presents the effect on the Company’s net earnings and earnings per share for the nine and three month periods ended September 30, 2003 and 2002 had it adopted the fair value method of accounting for stock-based compensation under SFAS No. 123, “Accounting for Stock-Based Compensation”.

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	Three Months Ended September 30,				Nine Months Ended September 30,
Description	2003		2002		2003		2002
Net income (loss), as reported	$(92,000	)	$1,572,000		$(1,422,000	)	$(3,166,000	)
Less: Total stock-based employee compensation expense determined under fair value based on methods for awards granted, modified, or settled, net of related tax effect	(20,000	)	(37,000	)	(113,000	)	(184,000	)
Add: Additional compensation expense included in net income for modification of non-employee director stock options	—		—		48,000		—
Proforma net income (loss)	$(112,000	)	$1,535,000		$(1,487,000	)	$(3,350,000	)
Income (loss) per share, as reported
Basic	$(0.01	)	$(0.41	)	$(0.27	)	$(0.83	)
Diluted	$(0.01	)	$(0.41	)	$(0.27	)	$(0.83	)
Proforma income (loss) per share
Basic	$(0.02	)	$(0.40	)	$(0.28	)	$(0.88	)
Diluted	$(0.02	)	$(0.40	)	$(0.28	)	$(0.88	)

In May, 2003, the Company granted 110,000 options to non-employee directors. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-pricing model. There were no options granted in 2002.

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7. The following table reconciles the numerators and denominators of the basic and diluted earnings per share computations pursuant to SFAS No. 128, “Earnings Per Share”.

	Three Months Ended September 30,			Nine Months Ended September 30,
Description	2003		2002	2003		2002
Basic shares	6,983,393		3,812,294	5,290,402		3,801,170
Dilution: stock options and warrants	—		15,555	—		11,887
Diluted shares	6,983,393		3,827,849	5,290,402		3,813,057
Income (loss) from continuing operations	$(96,000	)	$2,420,000	$(1,454,000	)	$2,902,000
Basic earnings (loss)	$(0.01	)	$0.63	$(0.27	)	$0.76
Diluted earnings (loss)	$(0.01	)	$0.63	$(0.27	)	$0.76

There are 5,617 and 9,051 options excluded from the earnings per share computation for the three and nine month periods ended September 30, 2003, respectively, since their effect would be anti-dilutive.

8. In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” the Company’s Creative Consulting Services and Manufacture and Marketing of Consumer Products groups, both of which were disposed of during 2002, are included in the statement of operations as discontinued operations, net of taxes.

The Company’s operations in the licensing of intellectual property rights are not considered held for sale because of the Company’s intent to manage certain outstanding licensing-related agreements through their termination. While the Company’s licensing operations are still considered a continuing business, it has not undertaken any new technology licensing projects during the current or preceding four fiscal years and it is unlikely that it will undertake any such projects in the future. The statement of operations reflects the results of the licensing of intellectual property rights in its results of continuing operations.

9. Business Combinations and Intangible Assets - Accounting for Goodwill

In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, “Business Combinations” and in July 2001, SFAS 142, “Goodwill and Other Intangible Assets.” These standards require that all business combinations initiated after June 30, 2001 must be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives are no longer subject to amortization,

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but are now subject to at least an annual assessment for impairment by applying a fair value based test. The Company adopted SFAS 142 as of January 1, 2002 and in compliance therewith discontinued the amortization of goodwill. With the sale of the Company’s Creative Consulting Services and Manufacture and Marketing of Consumer Products Groups in the third quarter of 2002, the Company no longer has any goodwill on its balance sheet.

During the quarter ended June 30, 2002, the Company completed the steps required to assess the carrying value of goodwill existing at January 1, 2002. As a result, a non-cash charge of $2,083,000, net of tax, or ($0.83) per share was recorded as a cumulative effect of change in accounting principle in the statement of operations for the six months ended June 30, 2002. At June 30, 2002, the Company designated the Creative Consulting Services and Manufacture and Marketing of Consumer Products segments as Assets Held for Sale under provisions of SFAS 144. Based on the actual terms of the sale of the Graphic Design Group, which took place on August 5, 2002, and terms that were discussed with a nonaffiliated potential buyer of the Product Design Group, the Company determined the fair values of the reporting units were less than the book values and recorded a goodwill impairment charge of $2,811,000 in the fiscal quarter ended June 30, 2002. The Company has recorded this impairment charge, net of tax benefits, in losses from discontinued operations during the fiscal quarter ended June 30, 2002. The Company subsequently sold the Product Design Group on September 20, 2002.

10. Accounting for the Impairment or Disposal of Long-lived Assets

The Company has historically estimated the recoverability of its long-term assets by consideration of the estimated future undiscounted cash flow from the operations of the business segments to which those long-term assets relate.

As of January 1, 2002, the Company adopted the provisions of SFAS 144, and now evaluates the recoverability of its long-term assets under the provisions of SFAS 144. While such provisions retain the considerations the Company has previously made in evaluating the recoverability of its long-term assets as discussed above, SFAS 144 provides an additional triggering event to require an impairment test — a current expectation that, more likely than not, a long-term asset or asset group will be sold or disposed of significantly before the end of its previously estimated useful life. Assets that are considered to be “held for sale” are measured at the lower of carrying amount or fair value, less the costs to sell. Once an asset is determined to be “held for sale,” depreciation on such asset ceases. Long-term assets to be disposed of by sale may not be classified as held for sale, however, until the period in which all of the following criteria are met:

• management commits to a plan to sell the asset or group,

• the asset or group is available for immediate sale in its present condition,

• actions to complete the plan to sell have been initiated,

• it is probable the sale will be completed within one year,

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• the asset or group is being actively marketed at a reasonable price, and

• it is unlikely that significant change will be made to the plan or that it will be withdrawn.

Based upon the above criteria, the assets of the Creative Consulting Services and the Manufacture and Marketing of Consumer Products Groups became considered held for sale during the second quarter of 2002 and have been evaluated under SFAS 144. In such valuation, the actual terms of the sale of the Graphic Design Group were used (see Note 12 below) and terms that were then being discussed with Product Genesis, LLC for the Product Design Group were used.

In connection with SFAS 144, the following table summarizes the revenues and pretax loss for the nine and three month periods ended September 30, 2002 of the discontinued operations:

Three Months Ended September 30, 2002	Graphic Design Group		Product Design Group		Consumer Products Group		Total Discontinued Operations
Revenues	$99,000		$275,000		$1,295,000		$1,669,000
Pretax Loss	(812,000	)	(3,811,000	)	(494,000	)	(5,117,000	)

Nine Months Ended September 30, 2002	Graphic Design Group		Product Design Group		Consumer Products Group		Total Discontinued Operations
Revenues	$785,000		$1,469,000		$2,168,000		$4,422,000
Pretax Loss	(1,821,000	)	(6,122,000	)	(1,927,000	)	(9,870,000	)

11. Accounting for Costs Associated with Exit or Disposal Activities

In June 2002, the Financial Accounting Standards Board issued SFAS 146, “Accounting for Exit or Disposal Activities.” SFAS 146 addresses the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including costs related to termination of a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated received under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 requires liabilities associated with exit and disposal activities to be expensed as incurred. SFAS 146 is effective for exit or disposal activities of the Company that are initiated after December 31, 2002.

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12. Sale of the Graphic Design Group

In furtherance of its plan to reposition itself for sale or liquidation, the Company sold certain assets, including certain accounts receivable, furniture and equipment, customer lists and goodwill, subject to certain liabilities, of the Graphic Design Group to a company formed by its President and former owner. The transaction was effective as of August 1, 2002 and the purchase price was $371,360 consisting of a lump-sum payment due on or before August 31, 2002 of $54,180 and a 6% promissory note for $317,180, which is payable in sixty (60) equal consecutive monthly installments of $6,250 commencing January 1, 2003.

As part of this transaction, as of July 31, 2002, the employment agreement with the President of the Graphic Design Group and stock options granted to him to purchase 30,000 shares of the Company’s stock were terminated in consideration of a lump-sum payment of $96,097. The Company also entered into a sublease with the acquiring company for 3,492 square feet of commercial rentable space. The sublease expires in mid-November 2009, which is co-terminus with the Company’s master lease. As of September 30, 2003, the rent for the remaining term of this sublease was $497,000.

13. Sale of Licensing-Related Assets

On August 19, 2002, Refac International, Ltd. (“RIL”) sold its Gough licensing property and royalties receivable to Gough Holdings (Engineering), Ltd. (“GHE”) for $450,000, payable in five semi-annual installments, without interest, commencing September 30, 2002. GHE paid the first two installments aggregating $140,000 but asked the Company for an accommodation on the $100,000 third installment which was due on September 30, 2003. The Company agreed to accept payment of $30,000 in cash and GHE’s promissory note for the balance of $70,000. This note is payable in seven (7) equal consecutive monthly installments of $10,000 each, with interest at the rate of 10% per annum, with the first installment becoming due on November 1, 2003. The $30,000 payment was received in October 2003 and the first installment payment was received in November 2003.

As of September 30, 2003, the unpaid balance of the original note receivable is reflected on the Company’s financial statements at $292,000, which represents its present value using a 6% discount rate.

On August 19, 2002, RIL sold its Heli-Coil and Dodge licensing rights, related sublicense agreements and monies due thereunder after June 30, 2002 to Newfrey LLC (formerly Emhart LLC) for $4,000,000. The proceeds from this sale were received in August 2002.

14. OXO International

On September 20, 2002, RIL amended its agreement with OXO International (“OXO”), a division of World Kitchen, Inc. This amendment, which was approved by the court overseeing OXO’s bankruptcy, provides for payments to the Company of $550,000 of which $10,000 is for past due royalties; $180,000 for royalties for the six month period ending December 31, 2002 and $360,000 for royalties for the year ending December 31, 2003. As of September 30, 2003, the Company had received $306,000 pursuant to the amended agreement.

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15. Sale of the Product Design Group

On September 20, 2002, RIL sold its Product Design Group to Product Genesis, LLC for a variable purchase price based upon 2 ¹/2% of net revenues up to an aggregate of $300,000. Due to the uncertainties of collection of the purchase price, the Company has not allocated any cost basis to this contract right and records any monies that it receives from Product Genesis, LLC with respect thereto as income from such discontinued operations. As of September 30, 2003, the Company has received $31,000. The Company also entered into a sublease with Product Genesis, LLC for 9,574 square feet of commercial rentable space. The sublease expires in mid-November 2009, which is co-terminus with the Company’s master lease. As of September 30, 2003, the rent for the remaining term of this sublease is $1,534,000. In connection with the sale of the Product Design Group, the Company recorded a book loss of approximately $274,000 in the third quarter of 2002.

16. Sale of Refac International, Ltd.

On September 30, 2002, the Company completed the transfer of the assets and assumption of the liabilities of its subsidiary, RIL, to the Company, excluding the capital stock of Refac Consumer Products, Inc. (“RCP”), a manufacturer of a line of consumer electronics products, and certain trademarks, patents and a patent application relating to RCP’s business. After such transfer, the Company sold RIL to RCP Products, LLC, a limited liability company established by a former employee, for $50,000 plus a variable purchase price based upon 2 ¹/2% of the revenues received in excess of $1 million from the sale of its consumer electronics products during the eight year period commencing January 1, 2003, up to a maximum of $150,000 in any given year and a cumulative total of $575,000. Due to the uncertainties of collection of the purchase price, the Company has not allocated any cost basis to this contract right and will record any monies that it may receive from RCP Products, LLC with respect thereto as income from such discontinued operations. In connection with the sale of RIL, the Company recorded a book loss of approximately $625,000 in the third quarter of 2002. As of September 30, 2003, the Company had not received any payments from the purchaser with respect to the variable purchase price.

17. Accounting Treatment of Merger

On February 28, 2003, the Company completed a merger with a wholly-owned subsidiary of Palisade. Under the terms of the merger, for each share of the Company’s common stock, par value $.10 per share (“Old Refac Common Stock”), owned immediately prior to the effective time of the merger, stockholders (other than Palisade and stockholders who properly exercised appraisal rights) received or are expected to receive (i) $3.60 in cash, (ii) 0.2 shares of common stock, par value $.001 per share (“New Refac Common Stock”), and (iii) the non-transferable right (the “Payment Right”) to sell the shares of the New Refac Common Stock to the Company for a price (the “Payment Amount”) which depends upon the Company’s liquid distributable assets (“LDA”) as of June 30, 2005. This right to sell the shares is limited to stockholders who hold their shares until the amount of liquid distributable assets at June 30, 2005 is determined.

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The Company has treated the merger as a recapitalization for accounting purposes and has adjusted the difference in the par value of the Old Refac Common Stock and the New Refac Common Stock from common stock to additional paid-in capital. Pursuant to the merger agreement, the treasury stock owned by the Company at the effective time of the merger has been cancelled with a corresponding decrease to the Company’s retained earnings.

As the Payment Right represents a non-transferable right of shareholders to sell to the Company their shares of New Refac Common Stock received in the merger for cash, the estimated Payment Amount ($7.06 per share as of September 30, 2003) has been reflected on the balance sheet as temporary equity with a similar amount reducing additional paid-in capital. Subsequent changes in the estimated Payment Amount through June 30, 2005, computed on a quarterly basis, will increase or decrease the temporary equity amount with an offsetting increase or decrease in additional paid-in capital.

Pursuant to the merger agreement with Palisade, the Company has restricted a portion of its investments being held to maturity to maintain the Contingent Fund (as defined in the merger agreement) reserved to pay the Payment Amount.

18. Employment Agreements and Management Incentive Compensation

The Company’s employment agreement with its President and Chief Executive Officer extends through March 31, 2004. The agreement provided for minimum annual compensation and incentive compensation for repositioning the Company for sale or liquidation equal to an aggregate 16% of the excess, if any, of the fair market value of the cash and securities available to be distributed to the Company’s shareholders (or otherwise realized by the shareholders) over $10 million. Effective upon the closing of the Company’s merger agreement with Palisade on February 28, 2003, the employment agreement was amended and restated to provide for the continuation of the minimum annual compensation, a signing bonus of $800,000 and retention payments of $100,000 on January 1, 2004, $200,000 on February 28, 2004 and $200,000 on March 31, 2004, provided that he is employed by the Company at the time such payments become due. In addition, he is entitled to incentive compensation equal to an aggregate of 16% of “GLDA”. “GLDA” is defined in the employment agreement as the sum of the following:

• the liquid distributable assets of the Company as of June 30, 2005, as calculated under the merger agreement, plus

• the signing bonus, retention and incentive compensation payments paid or payable to him and the signing bonus and incentive compensation payments paid or payable to the Company’s Vice President as a result of the merger, less

• the sum of $17,843,602.

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On March 21, 2002, the Company entered into an employment agreement with its Vice President and Chief Financial Officer, which extends through March 31, 2004. The agreement provided for minimum annual compensation and incentive compensation for repositioning the Company for sale or liquidation equal to an aggregate 4% of the excess, if any, of the fair market value of the cash and securities available to be distributed to the Company’s shareholders (or otherwise realized by the shareholders) over $10 million. Effective upon the closing of the Company’s merger agreement with Palisade, the employment agreement was amended to provide for the continuation of the minimum annual compensation and a signing bonus of $313,744. In addition, he is entitled to the payment of incentive compensation equal to an aggregate of 4% of “GLDA”. “GLDA” is determined in the same manner as under the President and Chief Executive Officer’s employment agreement.

As a result of such amendments to the employment agreements, these officers received signing bonuses aggregating $1,113,744 on February 28, 2003. Additionally, as of September 30, 2003, the Company estimated that the management incentive compensation payable could aggregate $846,000. This amount (subject to quarterly adjustment) plus the $500,000 retention payments required to be made to the Company’s President and Chief Executive Officer is being amortized over the thirteen month period ending March 31, 2004.

See Note 26 for information regarding the extension of these employment agreements.

19. Amendment to Edgewater Leasehold

In May 1999, the Company relocated its corporate headquarters and creative studios to a newly-constructed leased facility located at The Hudson River Pier, 115 River Road, Edgewater, New Jersey, which encompasses approximately 29,850 usable square feet or approximately 34,400 rentable square feet. As of December 31, 2002, the Company had subleased all of the space to three subtenants except for approximately 9,757 rentable square feet, a portion of which it was using for its corporate offices. In February 2003, the Company and its landlord amended the real estate lease to reduce the leased premises by 9,757 rentable square feet effective May 1, 2003 (See Note 22). Based upon the Company’s decision to relocate its corporate offices, the Company accelerated the depreciation of its leasehold improvements related to the 9,757 square feet and recorded a $183,000 charge in the quarter ending March 31, 2003 and a $91,000 charge in the quarter ending June 30, 2003. The Company also sold furniture and fixtures located at the premises for $22,000.

20. Income Taxes

Tax Refund

During the three month period ended June 30, 2003, the Company filed its consolidated federal income tax return, together with an application for a quick refund of taxes from the carrying back of the net capital loss related to its sale of RIL and its net operating loss. As a result, the Company received refund checks of $3,665,682 in June 2003 and $588,724 in July 2003. It should be noted that the payment of the requested refund does not mean that IRS has

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accepted the Company’s application as correct. The Company remains subject to IRS audit and should there be an assessment for any amounts determined to have been erroneously refunded, interest would be payable on the amount assessed. While the Company believes that its tax return and refund claim are correct, the calculation of the Company’s tax basis in RIL is subject to complex IRS regulations and the Company has established a reserve pending the passage of the statute of limitations or the outcome of any audit that IRS may initiate.

Income Tax Provision

For the nine months ending September 30, 2003, the Company had a loss before taxes from continuing operations of $2,112,000 and a tax benefit of $658,000 or approximately 31% of such loss. This tax benefit consists of federal income tax refunds received ($84,000) and expected ($647,000), a decrease in deferred taxes during the period of $122,000 and net state and local income tax refunds of $49,000. The effective tax rate on continuing operations during the nine months ended September 30, 2002 was 38%. The effective tax rate in both periods was affected by expenses, principally merger related, that were deducted for financial reporting purposes but are not deductible for federal income tax purposes.

21. Stock Purchase Agreement

On March 28, 2003, the Company entered into a stock purchase agreement with Palisade. The Palisade stock purchase transaction closed on May 19, 2003. On such date, Palisade acquired 3,469,387 shares of New Refac Common Stock, at a price of $4.90 per share, or an aggregate price of $17 million. Following the completion of the stock purchase transaction, Palisade owns approximately 90% of the Company’s outstanding shares. The purpose of the stock purchase transaction was to provide the Company with additional capital for making acquisitions.

22. New Leasehold

On May 1, 2003, the Company relocated its corporate office to One Bridge Plaza, Fort Lee, New Jersey. The new space, which encompasses approximately 1,185 rentable square feet, is being subleased from Palisade Capital Securities, L.L.C. (“PCS”), an affiliate of Palisade. The lease extends until January 31, 2006 at an annual rate of $32,587 through January 31, 2005 and at an annual rate of $33,772 thereafter. The rent is subject to adjustment for increases in operating costs, real estate taxes and utility and energy costs. The Company is subleasing these premises from PCS at the same rate PCS is being charged under its lease and, in the opinion of the Company, the rent is consistent with asking rates for the building at the time it entered into the sublease.

23. Appraisal Settlement

In April 2003, the Company settled a claim with dissenting stockholders who had demanded appraisal rights in connection with the Company’s merger with a subsidiary of Palisade. Under the terms of the settlement, the Company purchased the 113,280 shares of Old Refac Common Stock held by such dissenting stockholders for $594,720 or $5.25 per share. The

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Company then exchanged these shares for the merger consideration consisting of $407,808 and 22,656 shares of New Refac Common Stock. No other stockholders have appraisal rights with respect to this merger.

24. Wrench versus Taco Bell Litigation

By Agreement, dated as of January 31, 2002, the Company and Ms. Arlene Scanlan, who was then President of Refac Licensing, Inc. (“RL”), agreed to a termination of her employment agreement and stock options and to a conveyance of her 19% interest in RL to the Company. This termination agreement also requires Ms. Scanlan to pay the Company 50% of the first $3,000,000 that she, or any entity controlled by her, may receive relating to a certain lawsuit against Taco Bell Corp., entitled Wrench LLC, Joseph Shields and Thomas Rinks v. Taco Bell Corp. which was filed in the United States District Court for the Western District of Michigan. On June 4, 2003, the jury awarded $30 million to the plaintiffs and, on September 30, 2003, the Court amended the judgment to include pre-judgment interest of $12 million. Based upon Ms. Scanlan’s interest in this judgment, when and if the judgment is paid, the Company would be entitled to the maximum of $1,500,000. While YUM! Brands, Inc. (“YUM”), which owns Taco Bell, has recorded a charge of $42 million on it books, it maintains that the plaintiff’s claims are without merit and has appealed the verdict to the Sixth Circuit Court of Appeals. Due to the uncertainty as to the ultimate outcome of this litigation, the Company has not accrued any income with respect thereto.

25. Recent Accounting Pronouncements

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 is not expected to have an effect on the Company’s financial statements.

26. Subsequent Event

On November 7, 2003, the Company’s employment agreements with its President and Chief Executive Officer and its Vice President and Chief Financial Officer were amended and restated to extend their respective termination dates from March 31, 2004 to March 31, 2005. The amendments do not affect the base compensation and fringe benefits and, notwithstanding the extended term, the incentive compensation provided for in their prior agreements will continue to be deemed earned as of March 31, 2004, subject, to the actual computation of “GLDA” as described in Note 18.

With respect to the amendment to the President and Chief Executive Officer’s agreement, retention bonuses aggregating $500,000 which were scheduled to be paid prior to March 31,

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2004 under the prior agreement will now be payable in fifteen (15) equal consecutive monthly installments of $33,333.33 with the first installment becoming due on January 1, 2004. As of September 30, 2003, the Company’s financial statements reflected an unamortized balance for such retention bonuses of $231,000, which was being amortized at the monthly rate of $38,000 per month to the March 31, 2004 termination date. As a result of the restatement, this balance will be amortized starting November 2003 over the extended term at a monthly amortization of $11,000.

On the same date, the Company also granted incentive stock options to the President and Chief Executive Officer and the Vice President and Chief Financial Officer to purchase 25,000 and 15,000 shares of Refac common stock, respectively, at an exercise price per share of $5.02. The option term is five years and one-third ( ¹/3) of the shares are immediately exercisable; one third ( ¹/3) will become exercisable on the first anniversary of the date of grant and the remaining one-third ( ¹/3) will become exercisable on the second anniversary of the date of grant.

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Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Results of Continuing Operations

Revenues from continuing operations for the three months ended September 30, 2003 were $448,000, as compared to revenues of $4,840,000 for the same period in 2002. The decrease in revenues is primarily due to the sale of the Heli-Coil, Dodge and Gough licensing properties for $4,374,000 during the quarter ended September 30, 2002 and a decline of interest and dividend income of $27,000. Offsetting this decline was an increase in licensing revenues of $9,000.

Revenues from continuing operations for the nine months ended September 30, 2003 were $1,561,000, as compared to revenues of $6,182,000 for the same period in 2002. The decrease in revenues is due to the Company’s sale of its Heli-Coil, Dodge and Gough licensing properties during the quarter ended September 30, 2002 for $4,374,000. Thus, these properties, which accounted for $417,000 of licensing revenues in the nine months ended September 30, 2002, did not contribute any licensing revenues during the same period in 2003. Offsetting this decline was a net increase of $170,000 in other licensing revenues, which was principally attributable to an increase of $260,000 in royalties from OXO International (See Note 14) offset by a decline in revenues of $65,000 from Patlex.

Revenues from continuing operations for the three and nine months are summarized as follows:

	For the Three Months Ended September 30				For the Nine Months Ended September 30
Description	2003		2002		2003		2002
Revenues from licensing-related activities	77	%	7	%	86	%	26	%
Gains on sale of licensing rights	—		90	%	—		71	%
Dividends and interest	23	%	3	%	14	%	3	%
Total	100	%	100	%	100	%	100	%

With the sale of the Heli-Coil, Dodge and Gough properties, the Company’s significant licensing properties are its agreements with Patlex Corporation (“Patlex”) and OXO International (“OXO”). The Company’s income from its contract with Patlex is variable and is based upon revenues derived by Patlex from the licensing of two laser patents, the first of which expires in November 2004 and the second of which expires in May 2005. While the amount of the income is uncertain and Patlex has not provided the Company with any projections, the Company currently estimates that it will have quarterly revenues of approximately $270,000 through 2004 and aggregate residual revenues for years after 2004 of approximately $540,000. The OXO Agreement provides for a royalty of $360,000 during 2003, after which no further royalties shall be payable. Other license agreements are expected to provide gross revenues of approximately $58,000 in the fourth quarter, $213,000 and $211,000 during 2004 and 2005, respectively, after which the revenues will decrease significantly.

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Expenses from the licensing of intellectual property rights consist principally of amounts paid to licensors at contractually stipulated percentages of the Company’s licensing revenues and, expenses related to the administration of the license rights and related licenses. These expenses decreased by $43,000 for the three months ended September 30, 2003, due to a decrease in salaries and contractual payments to licensors. As a percentage of licensing revenues, these expenses were 8.7% and 21.7% in 2003 and 2002, respectively. Expenses related to the licensing of intellectual property rights decreased $202,000 for the nine months ended September 30, 2003. The expense decrease was primarily due to a decrease in salaries and contractual payments to licensors.

General and administrative expenses decreased by $235,000 in the three month period ended September 30, 2003 as compared to the previous year. The decrease is primarily because the Company did not incur any liquidation and merger expenses in the quarter, as opposed to the quarter ending September 30, 2002 when such costs aggregated $584,000. This decrease was partially offset by the amortization of management incentive compensation ($310,544).

General and administrative expenses increased by $2,361,000 in the nine month period ended September 30, 2003 as compared to the previous year. The increase is primarily due to the amortization of management incentive compensation ($1,505,000) and the accelerated depreciation of leasehold improvements ($274,000). The increase in general and administrative expenses was partially offset by a decrease in costs associated with the merger with a wholly-owned subsidiary of Palisade of $201,000. Additionally, a portion of the Company’s remaining general and administrative expenses was allocated to discontinued operations in 2002.

Income Tax Provision - For the nine months ending September 30, 2003, the Company had a loss before taxes from continuing operations of $2,112,000 and a tax benefit of $658,000 or approximately 31% of such loss. This tax benefit consists of federal income tax refunds received ($84,000) and expected ($647,000), a decrease in deferred taxes during the period of $122,000 and net state and local income tax refunds of $49,000. The effective tax rate on continuing operations during the nine month period ended September 30, 2002 was 38%. The effective tax rate in both periods was affected by expenses, principally merger related, that were deducted for financial reporting purposes but are not deductible for federal income tax purposes.

Results of Discontinued Operations - In furtherance of its plan to reposition itself for sale or liquidation, the Company sold its Creative Consulting Services and Manufacture and Marketing of Consumer Products groups in the third quarter of 2002. Net income from discontinued operations relates to the Company’s sale of its product design group. (See Note 15).

Inflation - The Company’s income from licensing operations has not in the past been materially affected by inflation. Income from current licensing activities is derived from domestic sources only.

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Liquidity and Capital Resources

Cash and cash equivalents decreased by $2,482,000 from $3,330,000 at December 31, 2002 to $848,000 at September 30, 2003. Short-term investments being held to maturity increased by $17,359,000 from $11,714,000 at December 31, 2002 to $29,073,000 at September 30, 2003. The Company believes its liquidity position is adequate to meet all its current and anticipated financial needs.

Operations provided $2,796,000 of cash during the nine months ended September 30, 2003 whereas during the same period in 2002 operations provided $6,099,000 of cash. The principal source of net cash flows from operating activities for the nine months ended September 30, 2003 was the realization of income tax refunds due to the Company.

Net cash used in investing activities aggregated $21,999,000 during the nine months ended September 30, 2003 principally for the purchase of investments being held to maturity as compared to the same period in 2002 when $9,576,000 was used in investing activities principally for the purchase of investments being held to maturity.

Net cash provided by financing activities was $16,721,000 during the nine months ended September 30, 2003 principally from the Stock Purchase Agreement with Palisade (see Note 21) as compared to the same period in 2002 when $17,000 was provided from the repayment of an officer loan and the exercise of stock options.

The Company has commitments under leases covering its facilities (see Notes to the Consolidated Financial Statements) and under a 1996 Retirement Agreement with its founder and former chief executive officer, which provides an annuity of $100,000 per annum during his life as well as medical and health benefits for him and his spouse during their lives. Provision was made for amounts payable under the Retirement Agreement in the Company’s 1996 financial statements based upon his then life expectancy. The following table reflects the unamortized balance of such liability as of September 30, 2003. Any payments beyond such amount will be treated as a current charge in the year made.

	Payments Due By Period
Contractual Obligations	Total	Less than one year	1 - 3 years	4 - 5 years	After 5 years
Operating lease Obligations	$3,137,000	$523,000	$1,530,000	$1,019,000	$65,000
Other long-term Obligations	$27,000	27,000	—	—	—
Management Incentive Compensation (see Note 18)	$1,346,000	300,000	1,046,000	—	—

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The Company had no long-term investments as of September 30, 2003; however, pursuant to the Company’s merger agreement with Palisade, it has restricted $4,765,000 of its investments being held to maturity to maintain the Contingent Fund (as defined in the merger agreement). This amount is being shown as a long-term asset on the balance sheet as the Payment Right is not determinable and payable until after June 30, 2005.

Critical Accounting Policies

Pursuant to the Company’s merger agreement with Palisade, the Company’s projected LDA is required for the calculation of the Payment Right, and the related Contingent Fund and temporary equity account as well as the management incentive compensation accrual. This calculation of LDA is dependent upon management’s judgments and estimates of the future operations of the Company’s activities at the time of the merger through June 30, 2005. Management continually revises these estimates based on changes in actual results as they occur. The LDA is reviewed quarterly and adjusted to reflect any material changes in the estimate. Any changes in the LDA will also change the related Payment Right, Contingent Fund and management incentive compensation accrual.

FORWARD LOOKING STATEMENTS

This document includes certain statements of the Company that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and which are made pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements and other information relating to the Company are based upon the beliefs of management and assumptions made by and information currently available to the Company. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, or performance, as well as underlying assumptions and statements that are other than statements of historical fact. When used in this document, the words “expects,” “anticipates,” “estimates,” “plans,” “intends,” “projects,” “predicts,” “believes,” “may” or “should,” and similar expressions, are intended to identify forward-looking statements. These statements reflect the current view of the Company’s management with respect to future events. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements. Some of the aforementioned risks are further described in reports that the Company files with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Within 90 days prior to the filing of this Quarterly Report on Form 10-Q the Registrant’s principal executive officer and principal financial officer evaluated the effectiveness of the design and operation of Registrant’s disclosure controls and procedure (as defined in Rules 13a-14 (c)and 15d-14 (c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) ) and concluded that the Registrant’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to Registrant’s management, including its officers, as appropriate to allow timely decisions regarding required disclosure, and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Controls

The Registrant’s principal executive officer and principal financial officer have also concluded there were no significant changes in the Registrant’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II. OTHER INFORMATION

Item 6. Exhibit and Reports on Form 8-K

(a) EXHIBIT INDEX

Exhibit No.
10 (a)	Fifth Amended and Restated Employment Agreement between Robert L. Tuchman and Refac, dated as of November 7, 2003.
10 (b)	Amended and Restated Employment Agreement between Raymond A. Cardonne, Jr. and Refac, dated as of November 7, 2003.
27	Note 1 to the Company’s consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 is incorporated herein by reference.
31	Certification pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Signatures

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	REFAC
November 12, 2003	/s/ Robert L. Tuchman
	Robert L. Tuchman, President and Chief Executive Officer
November 12, 2003	/s/ Raymond A. Cardonne, Jr.
	Raymond A. Cardonne, Jr., Vice President and Chief Financial Officer (Principal Financial Officer)

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EX-10.(A)

Exhibit 10 (a)

FIFTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT

BETWEEN

ROBERT L. TUCHMAN

AND

REFAC

Dated as of November 7, 2003

THIS FIFTH AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) made as of November 7, 2003 (the “Effective Date”) between REFAC, a Delaware corporation (“REFAC”), and Robert L. Tuchman (“TUCHMAN”).

TUCHMAN is currently employed by REFAC under a Fourth Amended and Restated Employment Agreement dated as of January 23, 2003 (the “Prior Agreement”).

REFAC entered into an Agreement and Plan of Merger by and among REFAC, Palisade Concentrated Equity Partnership, L.P. (“Palisade”) and Palisade Merger Corp. (the “Merger Sub”), as amended (the “Merger Agreement”), pursuant to which Merger Sub merged with and into REFAC and REFAC became a subsidiary of Palisade.

The parties hereto desire to modify the contractual arrangements between them and replace them with this Agreement effective as of the Effective Date.

In consideration of the premises and the respective agreements of the parties herein contained, the parties hereto, intending to be legally bound, agree as follows:

1. Employment. Subject to the provisions hereof, following the Effective Date, REFAC shall continue to employ TUCHMAN and TUCHMAN shall continue to serve as the Chief Executive Officer, President, and General Counsel of REFAC with full responsibility for the supervision of all corporate affairs.

2. Term. The employment of TUCHMAN by REFAC hereunder will continue from the Effective Date until March 31, 2005, (the “Employment Period”) unless further extended by agreement of TUCHMAN and REFAC or until sooner terminated as hereinafter provided.

3. Duties.

(a) Regular Duties. During the Employment Period, TUCHMAN will continue to perform such duties and have such powers as are customary for the chief executive officer, president and general counsel of publicly-held corporations of a size and engaging in a business comparable to REFAC. In addition, TUCHMAN will provide services in accordance with any consulting agreement that REFAC may enter into with any entity, including any of its affiliates or any company in which REFAC or any of its affiliates may have a present or potential interest.

(b) Liquidation. In addition to the services rendered under Section 3(a) above, TUCHMAN shall be responsible for REFAC’s efforts to convert its assets into cash and securities in order to maximize the payment available to REFAC’s stockholders pursuant to Section 2.01(d) of the Merger Agreement.

(c) Responsible to the Board. TUCHMAN will report and be directly responsible to the Board of Directors of REFAC (the “Board”).

(d) Time Devoted to REFAC’s Affairs. TUCHMAN will devote substantially all his

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working time and efforts to the business and affairs of REFAC and will not, without the prior authorization of the Board, have any active engagement in or responsibility with respect to any business or commercial enterprise other than REFAC or a subsidiary of REFAC.

(e) Post Employment Services. It is contemplated that some of REFAC’s assets may be sold in exchange for contract rights that include periodic payments and that some of the royalty agreements might be collected until maturity rather than sold. In such event and with respect to such contracts, TUCHMAN agrees to be responsible for the contract administration, which shall include invoicing (where appropriate), collecting the periodic payments, monitoring performance, and record keeping. TUCHMAN shall be reimbursed for all of his out-of-pocket costs associated therewith and will perform these services on a part-time basis.

4. Place of Performance. In connection with TUCHMAN’s employment by REFAC, TUCHMAN will be based in the New York City metropolitan area, except for required travel on REFAC’s business to an extent consistent with REFAC’s business requirements and his responsibilities hereunder.

5. Base Salary and Incentive Compensation.

(a) Base Salary. During the Employment Period, TUCHMAN’s salary will be $300,000 per annum. Payment of such salary will be made in accordance with REFAC’s customary pay practices for senior officers and will be subject to such payroll deductions as are required by law or by the terms of any applicable benefit plan of REFAC.

(b) Incentive Compensation. During the Employment Period, TUCHMAN shall use reasonable efforts, consistent with prudent and reasonable business judgment, to convert REFAC’s assets into cash and securities in order to maximize the payment available to REFAC’s stockholders pursuant to Section 2.01(d) of the Merger Agreement. As incentive compensation for this undertaking, TUCHMAN (or in the case of death, TUCHMAN’s estate) will be entitled to receive a bonus (a “Success Bonus”) in consideration of his successful performance of his duties described. Such Success Bonus shall be an amount equal to 16% of the “GLDA” (as hereinafter defined), if any, provided, however, that TUCHMAN shall not be entitled to such Success Bonus if TUCHMAN’S employment is terminated prior to March 31, 2004 (1) by TUCHMAN without Good Reason (as hereinafter defined or (2) by REFAC for Cause (as hereinafter defined).

As used herein “GLDA” shall mean an amount equal to:

1. the “Liquid Distributable Assets” as of June 30, 2005, as calculated under Section 2.01(d) of the Merger Agreement, PLUS

2. any incentive compensation payable to TUCHMAN and/or Raymond A. Cardonne, PLUS

3. any signing bonuses or retention payments previously made to TUCHMAN and/or Raymond A. Cardonne LESS

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4. the sum of $17,843,602.

(c) Payment of Success Bonus. REFAC shall pay TUCHMAN his Success Bonus, if any, at the same time that shareholders become entitled to amounts described in Section 2.01(d) of the Merger Agreement, regardless of whether such Success Bonus becomes payable after the expiration of the Employment Period. Notwithstanding anything contained in Sections 10 and 11 of this Agreement, in the event that TUCHMAN’S employment is terminated for any reason following March 31, 2004, TUCHMAN will remain entitled to receive any Success Bonus payable pursuant to this Section 5.

6. Stock Options. As soon as practicable following the Effective Date, REFAC will grant TUCHMAN an option for 25,000 shares of REFAC common stock with terms substantially as set forth in Attachment A hereto.

7. Retention Payments. REFAC will pay to TUCHMAN a monthly retention payment of $33,333.33 (each, a “Retention Payment”) within seven (7) days following the first day of each calendar month during the Employment Period beginning with January 1, 2004 (each, a “Retention Payment Date”), provided that TUCHMAN is employed by REFAC, Palisade or one of their respective subsidiaries on such Retention Payment Date.

8. Fringe Benefits, Expenses and Related Matters.

(a) Expenses. During Employment Period, TUCHMAN will be entitled to receive prompt reimbursement for all reasonable expenses incurred by TUCHMAN in performing services hereunder, including all reasonable expenses of travel and living expenses while away from home on business or at the request of and in the service of REFAC, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by REFAC.

(b) Automobile. During the Employment Period, REFAC will provide TUCHMAN with an automobile with a maximum monthly lease payment of $650.

(c) Other Benefits. TUCHMAN will be entitled to participate in or receive benefits under any employee benefit plan or arrangement now or in the future made available by REFAC generally to its executive employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements, including health insurance and life insurance benefits.

(d) Vacations. TUCHMAN will be entitled to four weeks of paid vacation per calendar year, prorated for any portion thereof and to all paid holidays given by REFAC in accordance with REFAC’s regular paid holidays policy.

9. Facilities and Support Services Furnished. REFAC will furnish TUCHMAN with office space, secretarial assistance and such other facilities and services as shall be suitable to TUCHMAN’s position and adequate for the performance of his duties as herein set forth.

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10. Termination. TUCHMAN’s employment hereunder may be terminated under the following circumstances:

(a) Death. TUCHMAN’s employment hereunder will terminate immediately upon his death.

(b) Disability. REFAC may terminate TUCHMAN’s employment hereunder if TUCHMAN should become permanently disabled. For the purposes of this Agreement, permanent disability (“Disability”) means TUCHMAN’s inability, by virtue of physical or mental illness or injury, to perform his regular duties on a full-time, continuous basis for 120 consecutive days. TUCHMAN’s disability will be established if a qualified medical doctor selected by the parties so certifies in writing. If the parties are unable to agree on the selection of such a doctor, each party will designate a qualified medical doctor who together will select a third doctor who will make the determination. TUCHMAN will make himself available for an examination by a doctor selected in accordance with this paragraph (b).

(c) Cause. REFAC may terminate TUCHMAN’s employment hereunder for Cause at any time during the Employment Period hereof as hereinafter set forth. For purposes of this Agreement, REFAC will have “Cause” to terminate TUCHMAN’s employment hereunder upon (i) the willful and continued failure, in the reasonable judgment of the Board, by TUCHMAN to perform substantially his duties with REFAC (other than any such failure resulting from his death or Disability) after a written demand for substantial performance is delivered to TUCHMAN by the Board which specifically identifies the manner in which it is believed that TUCHMAN has not substantially performed his duties or (ii) the conviction of TUCHMAN (or the entering by TUCHMAN of a plea of guilty or nolo contendere) for any felony or any lesser crime which involved REFAC or its property. For purposes of clause (i) of this definition, no act, or failure to act, on TUCHMAN’s part shall be deemed “willful” unless done, or omitted to be done, by TUCHMAN not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of REFAC. Notwithstanding the foregoing, TUCHMAN will not be deemed to have been terminated for Cause within the meaning of clause (i) without (1) reasonable notice to TUCHMAN setting forth the reasons for REFAC’s intention to terminate for Cause, (2) an opportunity for TUCHMAN, together with his counsel, to be heard before the Board, and (3) delivery to TUCHMAN of a Notice of Termination, as defined in paragraph (e) of this Section 10, from the Board finding that, in the good faith opinion of the Board, clause (i) hereof may be invoked, and specifying the particulars thereof in detail.

(d) Good Reason. TUCHMAN may terminate his employment with REFAC for Good Reason at any time during the Employment Period. For purposes of this Agreement, TUCHMAN will have “Good Reason” to terminate his employment with REFAC upon: (i) the assignment to TUCHMAN of any duties materially inconsistent with his status as Chief Executive Officer of REFAC or a substantial adverse alteration in the nature or status of his responsibilities, giving due regard to the intention of Palisade for REFAC to acquire new businesses which may not be under the management control of TUCHMAN; (ii) a reduction by REFAC in TUCHMAN’s Base Salary set forth in Section 5 hereof; (iii) the relocation of

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TUCHMAN’s principal place of employment to a location more than thirty-five (35) miles from TUCHMAN’s principal place of employment; (iv) the failure by REFAC to pay to TUCHMAN any portion of TUCHMAN’s compensation hereunder within seven (7) days of the date such compensation is due; and (v) any other material breach of this Agreement by REFAC which is not cured within ten (10) days of a written notice by TUCHMAN. TUCHMAN’s right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. TUCHMAN’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.

(e) Notice of Termination. Any termination of TUCHMAN’s employment by REFAC or by TUCHMAN (other than termination pursuant to Section 10(a)) during the Employment Period will be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” means a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of TUCHMAN’s employment under the provision so indicated.

(f) Date of Termination. “Date of Termination” shall mean (i) if TUCHMAN’s employment is terminated by his death, the date of his death, (ii) if TUCHMAN’s employment is terminated pursuant to paragraph (b) of this Section 10, three weeks after Notice of Termination, (iii) if TUCHMAN’s employment is terminated pursuant to paragraph (c) or (d) of this Section 10, the date specified in the Notice of Termination, and (iv) if TUCHMAN’s employment is terminated for any other reason, the date specified in the Notice of Termination.

(g) TUCHMAN Cooperation. From and after the earlier to occur of (i) delivery of a Notice of Termination and (ii) termination of TUCHMAN’s employment hereunder (other than termination due to TUCHMAN’s death) TUCHMAN will, to the best of his knowledge, disclose or provide for the disclosure to REFAC or any successor thereof, orally or in writing as appropriate, all information of a material nature relating to existing or prospective clients and licensees and as to any other matters in which TUCHMAN shall prior to his Date of Termination have been personally involved or as to which TUCHMAN will have acquired special knowledge, and TUCHMAN will thereafter answer to the best of his knowledge any questions that REFAC may from time to time submit with respect to any such aforesaid matters.

11. Compensation Upon Termination or During Disability.

(a) Disability. During any period that TUCHMAN fails or is unable to perform his duties hereunder as a result of Disability, TUCHMAN will continue to receive his full salary at the rate then in effect for such period until his employment is terminated, provided that such payments will be reduced by the amounts, if any, paid to TUCHMAN under any disability benefit plans of REFAC or under the Social Security disability insurance program. Following the termination of his employment, TUCHMAN’s benefits will be determined in accordance with REFAC’s retirement, insurance, and other applicable programs and plans then in effect, if any. Following the termination of TUCHMAN’s employment due to Disability, (i) REFAC will pay to TUCHMAN a lump sum equal to all Retention Payments (including Retention Payments in

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respect of dates following the Date of Termination) not previously paid to TUCHMAN and (ii) TUCHMAN will remain entitled to receive any Success Bonus payable pursuant to Section 5 of this Agreement and any compensation deferred in accordance with Section 13 hereof.

(b) Death. If TUCHMAN’s employment should be terminated by his death, REFAC will (i) pay any accrued salary and other compensation and benefits through the date of death to TUCHMAN’s spouse, or, if he leaves no spouse, to his estate, (ii) pay to TUCHMAN’s spouse, or, if he leaves no spouse, to his estate, without duplication, a lump sum equal to all Retention Payments (including Retention Payments in respect of dates following the Date of Termination) not previously paid to TUCHMAN, (iii) pay or cause the payment to TUCHMAN’s beneficiary, or if he specified no beneficiary, to his estate, the death benefits payable pursuant to REFAC’s life insurance program in effect at the date of death, if any, (iv) pay any Success Bonus payable to TUCHMAN pursuant to Section 5 of this Agreement, and (v) pay any compensation deferred in accordance with Section 13 hereof, to TUCHMAN’s spouse, or, if he leaves no spouse, to his estate.

(c) Cause. If TUCHMAN’s employment should be terminated by REFAC for Cause or by TUCHMAN during the Employment Period, REFAC will pay TUCHMAN his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus any compensation deferred in accordance with Section 13 hereof and all other amounts to which TUCHMAN is entitled as of the Date of Termination under any benefit plan of REFAC at the time such payments are due, and REFAC will have no further obligations to TUCHMAN under this Agreement. Notwithstanding the foregoing, in the event that TUCHMAN’S employment is terminated for any reason following March 31, 2004, TUCHMAN will remain entitled to receive any Success Bonus payable pursuant to Section 5 of this Agreement.

(d) Without Cause. TUCHMAN’s employment with REFAC may not be terminated by REFAC during the Employment Period for reasons other than those described in Section 10(a), 10(b) or 10(c) unless, prior to such termination TUCHMAN has together with his counsel had an opportunity to appear and be heard at a meeting of the Board which was called and held (after reasonable notice to TUCHMAN) for the purpose of considering such a termination. In the event that TUCHMAN’s employment is terminated by REFAC during the Employment Period for reasons other than those described in Section 10(a), 10(b) or 10(c), REFAC will (i) pay TUCHMAN a lump sum equal to the sum of (A) his full salary that would have been payable for the remainder of the Employment Period absent such termination at the rate in effect at the time Notice of Termination is given and (B) all Retention Payments (including Retention Payments in respect of dates following the Date of Termination) not previously paid and (ii) provide, except to the extent that TUCHMAN shall receive similar benefits from a subsequent employer, the life, health and similar welfare benefits which TUCHMAN would have been entitled to during the remainder of the Employment Period absent such termination under any such benefit plan of REFAC. Following the termination of TUCHMAN’S employment by REFAC without Cause, TUCHMAN shall remain entitled to receive any Success Bonus payable pursuant to Section 5 of this Agreement and any compensation deferred in accordance with Section 13 hereof.

(e) Good Reason. In the event that TUCHMAN’s employment is terminated by

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TUCHMAN during the Employment Period for Good Reason, REFAC will (i) pay TUCHMAN a lump sum equal to the sum of (A) his full salary that would have been payable for the remainder of the Employment Period absent such termination at the rate in effect at the time Notice of Termination is given and (B) all Retention Payments (including Retention Payments in respect of dates following the Date of Termination) not previously paid and (ii) will provide, except to the extent that TUCHMAN shall receive similar benefits from a subsequent employer, the life, health and similar welfare benefits which TUCHMAN would have been entitled to during the remainder of the Employment Period absent such termination under any such benefit plan of REFAC. Following the termination of TUCHMAN’S employment by TUCHMAN for Good Reason, TUCHMAN shall remain entitled to receive any Success Bonus payable pursuant to Section 5 of this Agreement and any compensation deferred in accordance with Section 13 hereof.

(f) Mitigation of Payments. TUCHMAN will not be required to mitigate the amount of any lump sum payment or bonus entitlement provided for in this Section 11 by reducing it by the amount of any compensation earned by TUCHMAN as the result of employment by another employer after the Date of Termination, or otherwise. However, he will be required to mitigate the costs of the other benefits provided for in this Section.

12. Noncompetition. TUCHMAN will not, except as hereinafter set forth, engage in any Competitive Activity (as hereinafter defined) during the Employment Period. For purposes of this Section, “Competitive Activity” will mean directly or indirectly: owning, managing, controlling, investing in, or otherwise being connected with, in any manner, whether as an officer, director, employee, partner, investor, consultant, lender or otherwise, any business entity or activity which is engaged in, or is in any way related to, the business of establishing, acquiring or administrating manufacturing licenses and joint ventures from or with third parties in the United States; it will also mean the direct or indirect solicitation or representation for any such business purpose of or for any existing or prospective client of REFAC or any of its subsidiaries. Nothing herein contained will prohibit TUCHMAN from investing in securities of a business entity if the securities of such entity are listed for trading on a national securities exchange or traded in the over-the-counter market and TUCHMAN’s holdings therein represent less than five (5%) percent of the total number of shares or principal amount of other securities of such entity outstanding.

13. Section 162 (m). In the event that any payment or benefit received or to be received by TUCHMAN in connection with his employment by REFAC would otherwise not be deductible (in whole or part), by REFAC as a result of the operation of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the delivery of the non-deductible portion of such payment or benefit to TUCHMAN by REFAC shall be deferred until the earliest date on which it may be delivered to TUCHMAN without being subject to the limit on deductibility imposed by Section 162(m) of the Code. TUCHMAN will be paid any amount deferred pursuant to the Prior Agreement in accordance with the terms of this Section 13.

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14. Successors; Binding Agreement.

(a) Should any entity succeed (whether by purchase, merger, consolidation or similar transaction) to all or substantially all of the business and/or assets of REFAC, TUCHMAN shall continue to perform all of his duties and obligations hereunder.

(b) REFAC will require any successor (whether by purchase, merger, consolidation or similar transaction) to all or substantially all of the business and/or assets of REFAC, by agreement in form and substance reasonably satisfactory to TUCHMAN, to expressly assume and agree to perform this Agreement in substantially the same manner and to substantially the same extent that REFAC would be required to perform it if no such succession had taken place.

(c) This Agreement and all rights of TUCHMAN hereunder shall inure to the benefit of and be enforceable by TUCHMAN’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If TUCHMAN should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to TUCHMAN’s devisee, legatee, or other designee or, if there be no such designee, to TUCHMAN’s estate.

15. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows:

If to TUCHMAN:

Robert L. Tuchman

1 Vultee Drive

Florham Park, NJ 07932

If to REFAC:

REFAC

1 Bridge Plaza – Suite 605

Fort Lee , New Jersey 07024

Copy to:

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036

Attention: Stephen Banker, Esq.

or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

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16. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by TUCHMAN and such other officer of REFAC as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. All compensation payable to TUCHMAN pursuant to this Agreement shall be subject to all applicable withholding taxes, normal payroll withholding and any other amounts required by law to be withheld.

17. Validity. If any term or provision of this Agreement or the application thereof to any person, entity or circumstance should to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to any person, entity or circumstance other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement (including, to the extent permitted by law, any such term or provision which has been held to be otherwise invalid or unenforceable) shall be deemed valid and enforceable to the fullest extent permitted by law.

18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

19. Arbitration. Any dispute or controversy arising under or in connection with this Agreement will be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

20. Confidentiality. As an officer and director of REFAC, TUCHMAN is privy to information generally regarded as confidential and often proprietary with respect to REFAC, its business relationships, negotiations and activities. Such information may include details of REFAC’s business and client relationships (past, present and prospective) and related REFAC and client plans, products, property rights, technical and market data.

By reason of the foregoing:

(a) TUCHMAN will not at any time divulge or negligently permit the communication of any of the foregoing types of information in any way that could conflict with the interests of REFAC and its clients and the responsibilities of REFAC to its clients and business associates.

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(b) For a period of two (2) years after any Date of Termination, TUCHMAN will not without REFAC’s prior written approval by a designated REFAC officer, directly or indirectly, either as a principal, agent, employee or employer or in any other capacity, solicit, serve, engage or assist in the business of any REFAC client or business associate or of any prospective client or business associate with whom REFAC shall have been in contact for business purposes at any time prior to the termination date of TUCHMAN’s employment by REFAC.

(c) For a period of two (2) years after any Date of Termination, neither TUCHMAN nor any company which TUCHMAN directly or indirectly owns, controls or manages shall employ or solicit the employment of any present or future REFAC employee.

21. Breach of Confidentiality Covenant. Each of the parties hereto acknowledges that in the event of any breach of Section 20 of this Agreement by TUCHMAN, REFAC would be irreparably harmed and could not be made whole by monetary damages. Therefore REFAC, in addition to any other remedy to which it may be entitled at law or in equity, may compel specific performance of Section 20 of this Agreement. TUCHMAN hereby acknowledges and agrees that the covenants contained in Section 20 of this Agreement are reasonable and fully necessary for the protection of the legitimate interests of REFAC and are not oppressive to the interest of TUCHMAN.

22. Entire Agreement. As of the Effective Date, this Agreement shall supersede the Prior Agreement in its entirety and the Prior Agreement shall be of no further force or effect. Subject to the foregoing, this Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, agreements, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto.

23. Survival. The obligations of the parties set forth in Sections 3(e), 5 (other than 5(a)), 10(g), 11, 13, 14, 15, 16, 17, 19, 20, 21 and 22 of this Agreement shall survive the expiration of the Employment Period.

IN WITNESS WHEREOF, the parties have executed this Agreement as of November 7, 2003.

/s/ Robert L. Tuchman
Robert L. Tuchman
REFAC
By: /s/ Mark S. Hoffman
Name:	Mark S. Hoffman
Title:	Director

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EX-10.(B)

Exhibit 10 (b)

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

BETWEEN

RAYMOND A. CARDONNE, JR.

AND

REFAC

(formerly REFAC TECHNOLOGY DEVELOPMENT CORPORATION)

Dated as of November 7, 2003

THIS EMPLOYMENT AGREEMENT (the “Agreement”) made as of November 7, 2003 (the “Effective Date”) between REFAC, a Delaware corporation (“REFAC”), and Raymond A. Cardonne (“CARDONNE”).

CARDONNE is currently employed by REFAC pursuant to the terms of an employment agreement dated March 21, 2002, as amended on October 22, 2002, and January 23, 2003 (the “Prior Agreement”).

REFAC entered into an Agreement and Plan of Merger by and among REFAC, Palisade Concentrated Equity Partnership, L.P. (“Palisade”) and Palisade Merger Corp. (the “Merger Sub”), as amended (the “Merger Agreement”), pursuant to which Merger Sub merged with and into REFAC and REFAC became a subsidiary of Palisade.

The parties hereto desire to modify the contractual arrangements between them and replace them with this Agreement effective as of the Effective Date.

In consideration of the premises and the respective agreements of the parties herein contained, the parties hereto, intending to be legally bound, agree as follows:

1. Employment. Subject to the provisions hereof, REFAC shall continue to employ CARDONNE and CARDONNE shall continue to serve as the Chief Financial Officer of REFAC.

2. Term. The employment of CARDONNE by REFAC hereunder will continue until March 31, 2005, unless further extended by agreement of CARDONNE and REFAC or until sooner terminated as hereinafter provided.

3. Duties.

(a) Regular Duties. CARDONNE will continue to perform such duties and have such powers as are customary for the chief financial officer of a publicly-held corporations of a size and engaging in a business comparable to REFAC. In addition, CARDONNE will provide services in accordance with any consulting agreement that REFAC may enter into with any entity, including any of its affiliates or any company in which REFAC or any of its affiliates may have a present or potential interest.

(b) Liquidation. In addition to the services rendered under Section 3(a) above, CARDONNE shall be responsible for REFAC’s efforts to convert its assets into cash and securities in order to maximize the payment available to REFAC’s stockholders pursuant to Section 2.01(d) of the Merger Agreement.

(c) Responsible to the Board. CARDONNE will report and be directly responsible to the Board of Directors of REFAC (the “Board”) or the Chief Executive Officer of REFAC

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(d) Time devoted to REFAC’s Affairs. CARDONNE will devote substantially all his working time and efforts to the business and affairs of REFAC and will not, without the prior authorization of the Board, have any active engagement in or responsibility with respect to any business or commercial enterprise other than REFAC or a subsidiary of REFAC.

(e) Post Employment Services. It is contemplated that some of REFAC’s assets may be sold in exchange for contract rights that include periodic payments and that some of the royalty agreements might be collected until maturity rather than sold. In such event and with respect to such contracts, CARDONNE agrees to assist the Chief Executive Officer of REFAC in the contract administration, which shall include invoicing (where appropriate), collecting the periodic payments, monitoring performance, and record keeping. CARDONNE shall be reimbursed for all of his out-of-pocket costs associated therewith and will perform these services on a part-time basis.

4. Place of Performance. In connection with CARDONNE’s employment by REFAC, CARDONNE will be based in the New York City metropolitan area, except for required travel on REFAC’s business to an extent consistent with REFAC’s business requirements and his responsibilities hereunder.

5. Base Salary and Incentive Compensation.

(a) Base Salary. CARDONNE’s salary will be $175,000 per annum. Payment of such salary will be made in accordance with REFAC’s customary pay practices for senior officers and will be subject to such payroll deductions as are required by law or by the terms of any applicable benefit plan of REFAC.

(b) Incentive Compensation. During the Employment Period, CARDONNE shall use reasonable efforts, consistent with prudent and reasonable business judgment, to convert REFAC’s assets into cash and securities in order to maximize the payment available to REFAC’s stockholders pursuant to Section 2.01(d) of the Merger Agreement. As incentive compensation for this undertaking, CARDONNE (or in the case of death, CARDONNE’s estate) will be entitled to receive a bonus (a “Success Bonus”) in consideration of his successful performance of his duties described. Such Success Bonus shall be an amount equal to 4% of the “GLDA” (as hereinafter defined), if any, provided, however, that CARDONNE shall not be entitled to such Success Bonus if CARDONNE’S employment is terminated prior to March 31, 2004 (1) by CARDONNE for any reason other than Disability (as hereinafter defined), death or REFAC’s material breach of this Agreement or (2) by REFAC for Cause (as hereinafter defined).

As used herein “GLDA” shall mean an amount equal to:

1. the “Liquid Distributable Assets” as of June 30, 2005, as calculated under Section 2.01(d) of the Merger Agreement, PLUS

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2. any incentive compensation payable to Robert Tuchman and/or CARDONNE, PLUS

3. any signing bonuses or retention payments previously made to Robert Tuchman and/or CARDONNE LESS

4. the sum of $17,843,602.

(c) Payment of Success Bonus. REFAC shall pay CARDONNE his Success Bonus, if any, at the same time that shareholders become entitled to amounts described in Section 2.01(d) of the Merger Agreement, regardless of whether such Success Bonus becomes payable after the expiration of the Employment Period. Notwithstanding anything contained in Sections 8 and 9 of this Agreement, in the event that CARDONNE’S employment is terminated for any reason following March 31, 2004, CARDONNE will remain entitled to receive any Success Bonus payable pursuant to this Section 5.

(d) Stock Options. As soon as practicable following the Effective Date, REFAC will grant CARDONNE an option for 15,000 shares of REFAC common stock with terms substantially as set forth in Attachment A hereto.

6. Fringe Benefits, Expenses and Related Matters.

(a) Expenses. During the term of CARDONNE’s employment hereunder, CARDONNE will be entitled to receive prompt reimbursement for all reasonable expenses incurred by CARDONNE in performing services hereunder, including all reasonable expenses of travel and living expenses while away from home on business or at the request of and in the service of REFAC, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by REFAC.

(b) Other Benefits. CARDONNE will be entitled to participate in or receive benefits under any employee benefit plan or arrangement now or in the future made available by REFAC generally to its executive employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangement, including health insurance and life insurance benefits.

(c) Vacations. CARDONNE will be entitled to four weeks of paid vacation per calendar year, prorated for any portion thereof and to all paid holidays given by REFAC in accordance with REFAC’s regular paid holidays policy.

7. Facilities and Support Services Furnished. REFAC will furnish CARDONNE with office space, secretarial assistance and such other facilities and services as shall be suitable to CARDONNE’s position and adequate for the performance of his duties as herein set forth.

8. Termination. CARDONNE’s employment hereunder may be terminated under the following circumstances:

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(a) Death. CARDONNE’s employment hereunder will terminate immediately upon his death.

(b) Disability. REFAC may terminate CARDONNE’s employment hereunder if CARDONNE should become permanently disabled. For the purposes of this Agreement, permanent disability (“Disability”) means CARDONNE’s inability, by virtue of physical or mental illness or injury, to perform his regular duties on a full-time, continuous basis for 120 consecutive days. CARDONNE’s disability will be established if a qualified medical doctor selected by the parties so certifies in writing. If the parties are unable to agree on the selection of such a doctor, each party will designate a qualified medical doctor who together will select a third doctor who will make the determination. CARDONNE will make himself available for an examination by a doctor selected in accordance with this paragraph (b).

(c) Cause. REFAC may terminate CARDONNE’s employment hereunder for Cause at any time during the term hereof as hereinafter set forth. For purposes of this Agreement, REFAC will have “Cause” to terminate CARDONNE’s employment hereunder upon (i) the willful and continued failure, in the reasonable judgment of the Board, by CARDONNE to perform substantially his duties with REFAC (other than any such failure resulting from his death or Disability) after a written demand for substantial performance is delivered to CARDONNE by the Board which specifically identifies the manner in which it is believed that CARDONNE has not substantially performed his duties, (ii) the willful engaging by CARDONNE in conduct which in the reasonable opinion of the Board is materially and demonstrably injurious to REFAC or (iii) the conviction of CARDONNE (or the entering by CARDONNE of a plea of guilty or nolo contendere) for any felony or any lesser crime which involved REFAC or its property. Notwithstanding the foregoing, CARDONNE will not be deemed to have been terminated for Cause within the meaning of clauses (i) and (ii) without (1) reasonable notice to CARDONNE setting forth the reasons for REFAC’s intention to terminate for Cause, (2) an opportunity for CARDONNE, together with his counsel, to be heard before the Board, and (3) delivery to CARDONNE of a Notice of Termination, as defined in paragraph (e) of this Section 9, from the Board finding that, in the good faith opinion of the Board, clause (i) or (ii) hereof may be invoked, and specifying the particulars thereof in detail.

(d) Notice of Termination. Any termination of CARDONNE’s employment by REFAC or by CARDONNE (other than termination pursuant to Section 9(a)) will be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” means a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of CARDONNE’s employment under the provision so indicated.

(e) Date of Termination. “Date of Termination” shall mean (i) if CARDONNE’s employment is terminated by his death, the date of his death, (ii) if CARDONNE’s employment is terminated pursuant to paragraph (b) of this Section 8, three weeks after Notice of Termination, (iii) if CARDONNE’s employment is terminated pursuant to paragraph (c) of this Section 8, the date specified in the Notice of Termination, and (iv) if CARDONNE’s employment is terminated for any other reason, the date specified in the Notice of Termination.

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(f) CARDONNE Cooperation. From and after the earlier to occur of (i) delivery of a Notice of Termination and (ii) termination of CARDONNE’s employment hereunder (other than termination due to CARDONNE’s death) CARDONNE will, to the best of his knowledge, disclose or provide for the disclosure to REFAC or any successor thereof, orally or in writing as appropriate, all information of a material nature relating to existing or prospective clients and licensees and as to any other matters in which CARDONNE shall prior to his Date of Termination have been personally involved or as to which CARDONNE will have acquired special knowledge, and CARDONNE will thereafter answer to the best of his knowledge any questions that REFAC may from time to time submit with respect to any such aforesaid matters.

9. Compensation Upon Termination or During Disability.

(a) Disability. During any period that CARDONNE fails or is unable to perform his duties hereunder as a result of Disability, CARDONNE will continue to receive his full salary at the rate then in effect for such period until his employment is terminated, provided that such payments will be reduced by the amounts, if any, paid to CARDONNE under any disability benefit plans of REFAC or under the Social Security disability insurance program. Following the termination of his employment, CARDONNE’s benefits will be determined in accordance with REFAC’s retirement, insurance, and other applicable programs and plans then in effect, if any. Following the termination of CARDONNE’s employment due to Disability, CARDONNE will remain entitled to receive any Success Bonus payable pursuant to Section 5 of this Agreement.

(b) Death. If CARDONNE ‘s employment should be terminated by his death, REFAC will (i) pay any accrued salary and other compensation and benefits through the date of death to CARDONNE ‘s spouse, or, if he leaves no spouse, to his estate, (ii) pay or cause the payment to CARDONNE’s beneficiary, or if he specified no beneficiary, to his estate, the death benefits payable pursuant to REFAC’s life insurance program in effect at the date of death, if any, and (iii) pay any Success Bonus payable to CARDONNE pursuant to Section 5 of this Agreement, to CARDONNE’s spouse, or, if he leaves no spouse, to his estate.

(c) Cause. If CARDONNE’s employment should be terminated by REFAC for Cause or by CARDONNE prior to the expiration date hereof, REFAC will pay CARDONNE his full salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which CARDONNE is entitled as of the Date of Termination under any benefit plan of REFAC at the time such payments are due, and REFAC will have no further obligations to CARDONNE under this Agreement. Notwithstanding the foregoing, in the event that CARDONNE ‘S employment is terminated for any reason following March 31, 2004, CARDONNE will remain entitled to receive any Success Bonus payable pursuant to Section 5 of this Agreement.

(d) Without Cause. CARDONNE’s employment with REFAC may not be terminated prior to March 31, 2004 for reasons other than those described in Section 8(a), 8(b) or 8(c) unless, prior to such termination CARDONNE has together with his counsel had an opportunity to appear and be heard at a meeting of the Board which was called and held (after reasonable notice to CARDONNE) for the purpose of considering such a termination. In the event that CARDONNE’s employment is terminated prior to March 31, 2004 for reasons other than those

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described in Section 8(a), 8(b) or 8(c), REFAC will pay CARDONNE a lump sum equal to his full salary that would have been payable absent such termination for the period of time commencing on the Date of Termination and ending on March 31, 2004 at the rate in effect at the time Notice of Termination is given and will provide, except to the extent that CARDONNE shall receive similar benefits from a subsequent employer, the life, health and similar welfare benefits which CARDONNE would have been entitled to through the expiration date of the Agreement under any such benefit plan of REFAC. Following the termination of CARDONNE’S employment by REFAC without Cause, CARDONNE shall remain entitled to receive any Success Bonus payable pursuant to Section 5 of this Agreement.

(e) Mitigation of Payments. CARDONNE will not be required to mitigate the amount of any lump sum payment or bonus entitlement provided for in this Section 9 by reducing it by the amount of any compensation earned by CARDONNE as the result of employment by another employer after the Date of Termination, or otherwise. However, he will be required to mitigate the costs of the other benefits provided for in this Section 9.

10. Noncompetition. CARDONNE will not, except as hereinafter set forth, engage in any Competitive Activity (as hereinafter defined) during the term of this Agreement. For purposes of this Section, “Competitive Activity” will mean directly or indirectly: owning, managing, controlling, investing in, or otherwise being connected with, in any manner, whether as an officer, director, employee, partner, investor, consultant, lender or otherwise, any business entity or activity which is engaged in, or is in any way related to, the business of establishing, acquiring or administrating manufacturing licenses and joint ventures from or with third parties in the United States; it will also mean the direct or indirect solicitation or representation for any such business purpose of or for any existing or prospective client of REFAC or any of its subsidiaries. Nothing herein contained will prohibit CARDONNE from (i) investing in securities of a business entity if the securities of such entity are listed for trading on a national securities exchange or traded in the over-the-counter market and CARDONNE’s holdings therein represent less than five (5%) percent of the total number of shares or principal amount of other securities of such entity outstanding or (ii) at any time subsequent to the termination of this Agreement, engaging in the design, development and licensing of children’s toys, games, stationery products and characters in or with which REFAC, prior to such termination, shall not have been directly, indirectly or prospectively engaged for REFAC’s own account or in the normal course of REFAC’s business.

11. Section 162 (m). In the event that any payment or benefit received or to be received by CARDONNE in connection with his employment by REFAC would otherwise not be deductible (in whole or part), by REFAC as a result of the operation of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the delivery of the non-deductible portion of such payment or benefit to CARDONNE by REFAC shall be deferred until the earliest date on which it may be delivered to CARDONNE without being subject to the limit on deductibility imposed by Section 162(m) of the Code.

12. Successors; Binding Agreement.

(a) Should any entity succeed (whether by purchase, merger, consolidation or similar transaction) to all or substantially all of the business and/or assets of REFAC, CARDONNE shall continue to perform all of his duties and obligations hereunder.

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(b) REFAC will require any successor (whether by purchase, merger, consolidation or similar transaction) to all or substantially all of the business and/or assets of REFAC, by agreement in form and substance reasonably satisfactory to CARDONNE, to expressly assume and agree to perform this Agreement in substantially the same manner and to substantially the same extent that REFAC would be required to perform it if no such succession had taken place.

(c) This Agreement and all rights of CARDONNE hereunder shall inure to the benefit of and be enforceable by CARDONNE’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If CARDONNE should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to CARDONNE’s devisee, legatee, or other designee or, if there be no such designee, to CARDONNE’s estate.

13. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows:

If to CARDONNE:

Raymond A. Cardonne

81 Katydid Drive

Branchburg NJ 08876

If to REFAC:

REFAC

1 Bridge Plaza – Suite 605

Fort Lee, New Jersey 07024

Copy to:

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036

Attention: Stephen Banker, Esq.

or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

Page 7

14. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by CARDONNE and such other officer of REFAC as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. All compensation payable to CARDONNE pursuant to this Agreement shall be subject to all applicable withholding taxes, normal payroll withholding and any other amounts required by law to be withheld.

15. Validity. If any term or provision of this Agreement or the application thereof to any person, entity or circumstance should to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to any person, entity or circumstance other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement (including, to the extent permitted by law, any such term or provision which has been held to be otherwise invalid or unenforceable) shall be deemed valid and enforceable to the fullest extent permitted by law.

16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

17. Arbitration. Any dispute or controversy arising under or in connection with this Agreement will be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

18. Confidentiality. As an officer and director of REFAC, CARDONNE is privy to information generally regarded as confidential and often proprietary with respect to REFAC, its business relationships, negotiations and activities. Such information may include details of REFAC’s business and client relationships (past, present and prospective) and related REFAC and client plans, products, property rights, technical and market data.

By reason of the foregoing:

(a) CARDONNE will not at any time divulge or negligently permit the communication of any of the foregoing types of information in any way that could conflict with the interests of REFAC and its clients and the responsibilities of REFAC to its clients and business associates.

(b) For a period of two (2) years after termination, CARDONNE will not without REFAC’s prior written approval by a designated REFAC officer, directly or indirectly, either as a principal, agent, employee or employer or in any other capacity, solicit, serve, engage or assist in

Page 8

the business of any REFAC client or business associate or of any prospective client or business associate with whom REFAC shall have been in contact for business purposes at any time prior to the termination date of CARDONNE’s employment by REFAC.

(c) For a period of two (2) years after termination, neither CARDONNE nor any company which CARDONNE directly or indirectly owns, controls or manages shall employ or solicit the employment of any present or future REFAC employee.

19. Breach of Confidentiality Covenant. Each of the parties hereto acknowledges that in the event of any breach of Section 17 of this Agreement by CARDONNE, REFAC would be irreparably harmed and could not be made whole by monetary damages. Therefore REFAC, in addition to any other remedy to which it may be entitled at law or in equity, may compel specific performance of such Sections of this Agreement. CARDONNE hereby acknowledges and agrees that the covenants contained in Section 17 of this Agreement are reasonable and fully necessary for the protection of the legitimate interests of REFAC and are not oppressive to the interest of CARDONNE.

20. Entire Agreement. As of the Effective Date, this Agreement shall supersede the Prior Agreement in its entirety and the Prior Agreement shall be of no further force or effect. Subject to the foregoing, this Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, agreements, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and canceled.

21. Survival. The obligations of the parties set forth in Sections 3(e), 5 (other than Section 5(a)), 8(f), 9, 11, 12, 13, 14, 15, 17, 18, 19 and 20 of this Agreement shall survive the expiration of the term of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.

/s/ Raymond A. Cardonne, Jr.
Raymond A. Cardonne, Jr.
REFAC
By:	/s/ Mark S. Hoffman
Name: Mark S. Hoffman
Title:   Director

Page 9

EX-31

Exhibit 31

SECTION 302 CERTIFICATIONS

I, Robert L. Tuchman, Chief Executive Officer of Refac, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Refac (the “Registrant”);

2. Based on my knowledge, this quarterly 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 quarterly 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 officers 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 quarterly 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 upon 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 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 officers 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 Registrant’s board of directors (or persons performing the 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 12, 2003	/s/ Robert L. Tuchman
	Robert L. Tuchman
	Chief Executive Officer

I, Raymond A. Cardonne, Jr., Chief Financial Officer of Refac, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Refac (the “Registrant”);

2. Based on my knowledge, this quarterly 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 quarterly 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 officers 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 quarterly 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 upon 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 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 officers 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 Registrant’s board of directors (or persons performing the 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 12, 2003	/s/ Raymond A. Cardonne, Jr.
	Raymond A. Cardonne, Jr.
	Chief Financial Officer

EX-32

Exhibit 32

Certification of CEO and CFO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Refac, a Delaware corporation (the “Company”), for the quarterly period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of Robert L. Tuchman, as Chief Executive Officer of the Company, and Raymond A. Cardonne, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) 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 result of operations of the Company.

/s/ Robert L. Tuchman

Robert L. Tuchman

President and Chief Executive Officer

November 12, 2003

/s/ Raymond A. Cardonne

Raymond A. Cardonne

Vice President and
Chief Financial Officer

November 12, 2003

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.