<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
----- -----
Commission file number 1-8681
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RUSS BERRIE AND COMPANY, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1815337
- ---------------------------------- -------------------------------------
(State of or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
111 Bauer Drive, Oakland, New Jersey 07436
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (201) 337-9000
--------------
Securities registered pursuant to Section 12 (b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<S> <C>
Common Stock, $0.10 stated value New York Stock Exchange
</TABLE>
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /
Approximate aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 13, 1996 was $155,704,512.
The number of shares outstanding of each of the Registrant's classes of common
stock, as of March 13, 1996, was as follows:
<TABLE>
<CAPTION>
Class Number of Shares
------------------- ----------------
<S> <C>
Common Stock, $0.10 stated value 21,609,830
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement dated March 15, 1996,
relating to registrant's Annual Meeting of Shareholders to be held on April 24,
1996 (the "1996 Proxy Statement"), are incorporated by reference into Part III
of this report.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Russ Berrie and Company, Inc. was incorporated in New Jersey in 1966. The term
"Company" refers to Russ Berrie and Company, Inc. and its consolidated
subsidiaries, unless the context requires otherwise. Its principal executive
offices are located at 111 Bauer Drive, Oakland, New Jersey 07436, and its
telephone number is (201) 337-9000.
The Company designs, manufactures through third parties and markets to retail
stores throughout the United States and most countries throughout the world, a
wide variety of gift and toy items.
The Company's gift products are designed to appeal to the emotions of consumers
to reflect their feelings of friendship, fun, love and affection. The Company
believes that its present position as one of the leaders in the gift industry
is due primarily to its imaginative product design, broad and effective
marketing of its products, efficient distribution, high product quality and
commitment to customer service.
The Company's toy subsidiaries, Cap Toys, Inc., and OddzOn Products, Inc.,
market toys, novelty candy and sports related products to mass merchandisers,
sporting goods and specialty toy stores. Products of these companies are
marketed primarily through independent representative groups and international
distributors.
Financial information related to business segments and geographic areas are
presented in Note 14 in the Notes to Consolidated Financial Statements.
PRODUCTS
The Company's gift product line of more than 7,000 items (including distinctive
variations on basic product designs) are marketed under the trade name and
trade mark RUSS(R). This extensive line encompasses both seasonal and everyday
products that focus on theme or concept groupings such as Teddy Bears, Baby
Products, Home Decor, Lifestyles and Collectibles. Individual products include
stuffed animals, picture frames, mugs, porcelain gifts, figurines, candles and
kitchen magnets.
The Company's toy line includes a variety of innovative toys, novelty candies,
and sports related products. Cap Toys, Inc's. products include items such as
Stretch Armstrong(R), Vac-Man(R), Bundles of Babies(TM), Pog Maker(TM), and
Shout 'N' Shoot(TM). OddzOn Products, Inc., whose products are marketed
primarily under the brand name Koosh(R), include products such as the Koosh(R)
Ball, Woosh(R), Vortex(R), Koosh(R) Accessories, Koosh(R) Soft Sport(TM) and
Koosh(R) Collectibles (including (C)Disney and Warner Bros.(C) licensed
characters).
The Company's Bright of America, Inc. subsidiary markets gift products directly
to mass merchandisers. In addition, the Company's subsidiary Fluf N' Stuf,
Inc. operates a chain of outlet stores under the name "RUSS" which sell the
Company's products and products of unaffiliated companies.
Most of the Company's gift products have suggested retail prices between $1 and
$30. The Company's toy products generally retail for between $3 and $25.
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During 1995, the Company decided to concentrate its efforts and resources
within the gift business on building the RUSS business. As a result, the
decision was made to sell the Company's Papel/Freelance, Inc. subsidiary, which
also served the gift industry by principally offering a wide variety of ceramic
products. On January 17, 1996, the Company completed the sale of the business
of its subsidiary, Papel/Freelance, Inc. During the years ended December 31,
1995, 1994 and 1993, sales of Papel/Freelance as a percentage of the Company's
total sales represented 8.8%, 11.9% and 13.7%, respectively (See Note 17 of the
notes to Consolidated Financial Statements).
The percentages of dollar sales accounted for by business segments during the
periods indicated are as follows:
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
GIFT 61% 67% 95%
TOYS* 39% 33% 5%
</TABLE>
* Includes Cap Toys, Inc., since its acquisition in October 1993, and OddzOn
Products, Inc., since its acquisition in October 1994.
Product sales within the Company's gift business is highly diverse and as such,
no single gift item represented more than 1% of sales within the gift segment
in 1995. While the Company's toy business is less diverse than that of the
gift segment, no one individual item represented more than 8% of sales within
the toy segment.
DESIGN AND PRODUCTION
The Company's gift business has a continuing program of new product
development. The Company designs most of its own products and then generally
evaluates consumer response through test marketing in selected unaffiliated
retail stores. Items are added to the product line only if they can be
obtained and marketed on a basis that meets the Company's profitability
standards.
The Company believes that the breadth of its gift product line and the
continuous development of new products are key elements to its success and that
it is capable of designing and producing large numbers of new products
annually.
The Company has more than 170 employees responsible for gift product
development and design located in the United States and in the Far East.
Generally, a new design is brought to market in less than nine months after a
decision is made to produce a new product. Sales of the Company's gift
products are, in large part, dependent on the Company's ability to identify and
react quickly to changing consumer preferences and to utilize its sales and
distribution systems to bring new products to market.
The Company engages in market research and test marketing to evaluate consumer
reactions to its gift products. Research into consumer buying trends often
suggests new products. The Company assembles information from retail stores,
the Company's salesforce and the Company's own Product Development department.
The Company continually analyzes its products to determine whether they should
be adapted into new or different products using elements of the initial design
or whether they should be removed from the gift product line.
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<PAGE> 4
The Company's toy subsidiaries develop products in conjunction with independent
toy inventors. The products are evaluated by the Design and Development staff
and undergo a testing process to determine the reaction and acceptability in
the marketplace. Products are then selected based on manufacturing and
marketing profitability criteria and reaction from its major customers.
Many popular toy products result in product line extensions, enabling the
Company to increase its product line and expand on the marketing success of
popular products.
Substantially all of the Company's products are produced by independent
manufacturers, generally in the Far East, under supervision by Company
personnel. During 1995, approximately 95% of the Company's gift products were
produced in the Far East, and 5% in the United States. During 1995,
approximately 76% of the Company's toy products were purchased from sources
outside the United States, primarily in the Far East, and 24% in the United
States. The dollar amount of purchases in the United States predominantly
represent domestically produced raw materials, component parts, packaging,
displays and labor costs associated with items requiring final assembly in the
United States.
The Company utilizes approximately 270 manufacturers in the Far East, primarily
in the People's Republic of China, Taiwan, Korea, and Indonesia. During 1995,
approximately 79% of the Company's dollar volume of purchases was attributable
to manufacturing in the People's Republic of China. Legislation has been
proposed from time to time that would revoke the most-favored nation status
(which is a designation determined annually by the President of the United
States, subject to possible override by Congress) of the People's Republic of
China. Such a revocation would cause import duties to increase or become
applicable to products imported by the Company from the People's Republic of
China.
A significant portion of the Company's staff of approximately 350 employees in
Hong Kong, Taiwan, Korea and Indonesia monitor the production process with
responsibility for the quality, safety and prompt delivery of Company products.
Members of the Company's Far East staff make frequent visits to the
manufacturers for which they are responsible. Many of the Company's
manufacturers are small operations, some selling exclusively to the Company.
The Company believes that there are many alternate manufacturers for the
Company's products and the loss of any one manufacturer will not significantly
affect the operations of the Company. In 1995, the supplier accounting for the
greatest dollar volume of the Company's purchases accounted for approximately
5% of such purchases and the five largest suppliers accounted for approximately
22% in the aggregate.
MARKETING
The Company's gift products are marketed primarily through its own direct
salesforce of more than 450 full-time employees. Products are sold directly to
retail stores in the United States and in certain foreign countries, including
gift stores, pharmacies, card shops, home decor shops, apparel stores, craft
stores, garden stores, book stores, stationery stores, hospitals, college and
airport gift shops, resort and hotel shops, florists, chain stores and military
post exchanges. During 1995, the Company sold gift products to more than
50,000 customers. No single gift customer accounted for more than 1.7% of gift
dollar sales.
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The Company reinforces the marketing efforts of its gift product salesforce
through an active promotional program, including showrooms, participation in
trade shows, trade advertising and a program of seasonal and theme based
catalogs.
The Company believes that effective packaging and merchandising of its gift
products are very important to its marketing success. Many gift products are
shipped in colorful corrugated cartons which can be used as free-standing
displays and can be discarded when all the products have been sold. The
Company also prepares semi-permanent free-standing lucite, metal and wooden
displays, thereby providing an efficient promotional vehicle for selling the
Company's products. The displays are designed to stimulate consumers' impulse
purchase decisions.
The Company believes that customer service is an important component of its
marketing strategy and therefore has established a Customer Service Department
at each distribution facility that responds to customer requests, investigates
and resolves problems and generally assists customers.
The Company's general terms of sale are believed to be competitive in the gift
industry. The Company provides extended payment terms to gift customers on
sales of seasonal merchandise, e.g., Christmas, Halloween, Easter and other
seasons. Within the gift business, the Company has a general policy of not
accepting returns or selling on consignment.
The Company's toy business sells its products primarily through independent
representative groups to mass merchandisers, which represent a significant
portion of its sales. During 1995, approximately 23% of the toy business sales
were sold to its largest customer and 56% to its five largest customers.
The Company supports certain of its toy products through an extensive
advertising campaign. Advertising expense related to the Company's toy
business for the years ended December 31, 1995, 1994 and 1993 was $15,218,000,
$10,650,000 and $1,883,000, respectively. The majority of its advertising
budget is allocated to television advertising.
The Company's toy business generally does not sell its products on consignment
and ordinarily accepts returns only for defective merchandise. In certain
instances, the Company may, in accordance with industry practice, assist
retailers in order to enable them to sell excess inventory by offering
discounts and other concessions.
The Company maintains a direct salesforce and distribution network to serve its
gift customers in Great Britain, Holland, Belgium, Ireland and Canada. The
Company's gift products are sold worldwide, through distributors, where the
Company does not maintain a direct salesforce and distribution network.
Additionally, sales of toy products are sold through distributors in Great
Britain, Canada and many other foreign countries. The Company's foreign sales,
including export sales from the United States, aggregated $78,208,000,
$62,342,000 and $68,295,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
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DISTRIBUTION
The Company has customers located in the United States and throughout the
world. In order to serve them quickly and effectively, the Company maintains
U.S. distribution centers for its gift business in South Brunswick, New Jersey,
Columbus, Ohio, and Petaluma, California which receive products directly from
suppliers (in the case of Columbus, Ohio, receives product from South
Brunswick, New Jersey), and then distribute such products to the Company's
customers. The Company also maintains a facility in the Toronto, Canada area
for its Canadian customers and facilities in Southampton, England to serve its
customers in Europe. The Company generally uses common carriers to distribute
to its customers.
The Company's toy product line is distributed through Cap Toys, Inc., which
maintains an office and warehouse distribution facility in Bedford Heights,
Ohio and through OddzOn Products, Inc., which maintains an office in Campbell,
California and distributes its products from the Company's facility in
Petaluma, California.
SEASONALITY
In addition to its everyday gift products, the Company produces specially
designed products for holiday seasons which include: Christmas, Valentine's
Day, Easter, Halloween, Mother's Day, Thanksgiving, Graduation, Father's Day,
and St. Patrick's Day.
The pattern of the Company's gift sales is influenced by the shipment of
seasonal merchandise. The Company generally ships the majority of gift orders
each year for Christmas in the quarter ended September 30, for Valentine's Day
in the quarter ended December 31 and for Easter in the quarter ended March 31.
During 1995, gift items specially designed for individual seasons accounted for
approximately 42% of the Company's gift sales; no individual season accounted
for more than 15% of the Company's gift sales.
The toy industry is highly seasonal in nature due to the demand for toy
products during the Christmas season. To reduce the impact of this
seasonality, the Company's toy business markets items specially designed for
the summer season. Such items include Shout 'N' Shoot(TM), Vortex(R), Koosh(R)
Paddle Ball, and other sports related products. The Company's toy business
also markets an imaginative line of novelty candy products which are sold
throughout the year.
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The following table sets forth the Company's quarterly sales by business
segment during 1995, 1994 and 1993.
QUARTERLY SALES
(in millions)
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ----------------- ----------------
QUARTER ENDED SALES % SALES % SALES %
- ------------- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
MARCH 31
Gift $ 56.2 $50.9 $96.3
Toys* 23.9 13.3 -
---- ----- -----
Consolidated $ 80.1 23.0 $64.2 23.1 $96.3 34.5
JUNE 30
Gift $ 40.7 $36.1 $49.9
Toys* 33.6 21.4 -
---- ----- -----
Consolidated $ 74.3 21.3 $57.5 20.7 $49.9 17.9
SEPTEMBER 30
Gift $ 67.0 $56.6 $70.7
Toys* 37.0 26.3 -
---- ----- -----
Consolidated $104.0 29.8 $82.9 29.8 $70.7 25.3
DECEMBER 31
Gift $ 50.0 $43.8 $49.5
Toys* 40.1 29.7 12.7
---- ----- -----
Consolidated $ 90.1 25.9 $73.5 26.4 $62.2 22.3
</TABLE>
* Includes Cap Toys, Inc., since its acquisition in October 1993, and OddzOn
Products, Inc., since its acquisition in October 1994.
The Company has historically had higher profit margins in the quarter ended
September 30 as a result of the economies of scale which accompany the higher
sales volume. Net sales of the Company were favorably impacted by the success
of products associated with the Troll product line in the first quarter of
1993.
BACKLOG
It is characteristic of the Company's gift business that orders for seasonal
merchandise are taken in advance of shipment. In the toy industry,
historically, new toy products have been introduced to the trade at the annual
industry trade shows during the quarter ended March 31 and, as such, the order
backlog at the end of any fiscal year may not be a meaningful predictor of
financial results of the succeeding year. The Company's total backlog at
December 31, 1995 and December 31, 1994 was $29,679,000 and $27,146,000,
respectively (excludes Papel/Freelance for 1995 and 1994).
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<PAGE> 8
COMPETITION
The gift and toy industries are highly competitive. The Company believes that
the principal competitive factors in the gift and toy business are marketing
ability, reliable delivery, product design, quality, customer service and
price. The Company's principal gift competitors are Gund, Inc., Midwest
Imports, Department 56, Inc., Boyds Collections LTD. (Inc.) Ganz Bros., Ty,
Inc., Applause, Inc., Enesco and numerous small suppliers. The Company's
principal toy competitors are Lewis Galoob Toys, Inc., Toy Biz Inc., Tyco Toys,
Inc., Mattel, Inc. and Hasbro Inc. Certain of the Company's existing or
potential competitors may have financial resources that are substantially
greater than those of the Company.
COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES
The Company prints notices of claim of copyright on substantially all of its
products and has registered hundreds of its designs with the United States
Copyright Office. The Company has registered, in the United States and certain
foreign countries, the trademark RUSS(R) with a distinctive design, which is
utilized on most of its gift products. The Company believes its copyrights,
trademarks and patents are valid, and has pursued a policy of aggressively
protecting them from infringement. However, it does not consider its business
materially dependent on copyright, trademark or patent protection.
The Company enters into various license agreements relating to trademarks,
copyrights, designs and products which enable the Company to market items
compatible with its product line. The Company has license agreements with the
National Football League, (C)Disney and Warner Bros.(C), among others. The
Company's licenses are generally exclusive for specific products in specified
territories. Royalties are paid on licensed items and, in many cases, advance
royalties and minimum guarantees are required by these license agreements.
The majority of the Company's toy products are developed in conjunction with
independent toy designers. Rights to such products are generally exclusive and
require the payment of a royalty.
EMPLOYEES
As of December 31, 1995, the Company employed approximately 2,000 persons. The
Company considers its employee relations to be good; substantially all of the
Company's employees are not covered by a collective bargaining agreement. The
Company's policy is to require that its management, sales and product
development and design personnel enter into confidentiality agreements and, in
the case of management and sales personnel, non-competition agreements (subject
to certain territorial limitations in the case of salespersons) which restrict
their ability to complete with the Company for a period of six months after
termination of their employment.
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GOVERNMENT REGULATION
Certain of the Company's products are subject to the provisions of, among other
laws, the Federal Hazardous Substances Act and the Federal Consumer Product
Safety Act. Those laws empower the Consumer Product Safety Commission to
protect children from certain hazardous articles by regulating their use or
excluding them from the market and requiring a manufacturer to repurchase
articles which become banned. The Commission's determination is subject to
judicial review. Similar laws exist in some states and cities in the United
States and in certain foreign jurisdictions. The Company maintains a quality
control program in order to comply with applicable laws.
ITEM 2. PROPERTIES
The Company's principal facilities consist of its corporate offices in Oakland,
New Jersey, and distribution centers in South Brunswick, New Jersey; Petaluma,
California; and Reynoldsburg, Ohio. Additionally, office and distribution
facilities are located in Southampton, England and in the Toronto, Canada area.
The Company's toy subsidiary, Cap Toys, Inc., maintains an office and warehouse
distribution facility in Bedford Heights, Ohio and OddzOn Products, Inc.,
maintains an office in Campbell, California and distributes its products from
the Company's Petaluma, California facility. The Company owns the facility
used by Bright of America, Inc. in Summersville, West Virginia, one of its
facilities in Southampton, England and most of the office space it uses in Hong
Kong. The Company leases its other facilities. The facilities of the Company
are maintained in good operating condition, are generally adequate for the
Company's purposes and are generally fully utilized, other than those that were
closed as part of a restructuring of the Company's distribution system.
THE COMPANY'S CURRENT PRINCIPAL FACILITIES ARE AS FOLLOWS:
<TABLE>
<CAPTION>
Lease Expiration
Location - Domestic Sq. Ft. Area (if applicable) (1)
-------------------- ------------ ---------------------
<S> <C> <C>
Petaluma, California (2)(3)(6)...... 234,200 June 30, 2004
Oakland, New Jersey (2)(4).......... 120,000 April 1, 2004
South Brunswick, New Jersey (2)(3).. 513,680 May 31, 1999
Reynoldsburg, Ohio (3).............. 77,600 July 1, 1997
Collegeville, Pennsylvania (5)...... 5,100 December 31, 1998
Summersville, West Virginia (5)(6).. 156,000 Not Applicable-
Owned by Company
Bedford Hts., Ohio (5)(6)........... 120,492 January 31, 2000
Campbell, California (5)............ 8,248 Month to Month
</TABLE>
<TABLE>
<CAPTION>
Lease Expiration
Location - Foreign Sq. Ft. Area (if applicable)(1)
------------------- ------------ ---------------------
<S> <C> <C>
Chandlers Ford, England (5)......... 10,846 December 24, 2014
Southampton, England (6)............ 60,750 March 24, 2003
Southampton, England (6)............ 51,000 Not applicable -
Owned by Company
Rexdale, Ontario, Canada (5)(6)..... 76,290 May 31, 1997
Hong Kong (5)....................... 25,600 Not applicable -
Owned by Company
</TABLE>
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(1) Not including renewal options.
(2) Properties owned directly or indirectly by Russell Berrie or members of
his immediate family. See ITEM 13 - "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS".
(3) Regional distribution center.
(4) Corporate headquarters.
(5) Subsidiary (or division) headquarters.
(6) Subsidiary (or division) distribution center.
The Company's Dayton, New Jersey, Lakeland, Florida and one of its Rexdale,
Ontario, Canada facilities were closed as part of restructuring of the
Company's distribution system. These facilities have been partially subleased
and have remaining lease terms from one to three years. (See Note 7 of the
Notes to Consolidated Financial Statements).
The Company leases an aggregate of approximately 25,764 square feet of showroom
facilities in New York City; Los Angeles and San Francisco, California;
Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; Montreal and Vancouver,
Canada; Brussels, Belgium; and Utrecht, Holland. The remaining lease terms at
these facilities range between one and nine years.
Fluf N' Stuf, Inc. leases retail store space in shopping and outlet malls
located within the United States. The aggregate square footage of these 23
stores is approximately 47,654 square feet. The remaining lease terms,
excluding options to renew, at these facilities range between three and six
years.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is party to various
copyright, patent and trademark infringement, unfair competition, breach of
contract, customs, employment and other legal actions, as plaintiff or
defendant.
The Company believes that the outcome of the proceedings to which it is
currently a party will not have a material adverse effect on its business or
financial condition. (See Note 15 of the Notes to Consolidated Financial
Statements).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information with respect to the executive
officers of the Company. All officers are elected by the Board of Directors
and may be removed with or without cause by the Board.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------- --- ------------------------------
<S> <C> <C>
Russell Berrie ................... 63 Chairman of the Board, Chief Executive Officer and Director
Arnold S. Bloom................ 53 Vice President, Secretary and General Counsel
Paul Cargotch.................... 51 Vice President - Finance and Chief Financial Officer
Ricky Chan........................ 43 Senior Vice President - Product Development
A. Curts Cooke................ 59 President, Chief Operating Officer and Director
Jimmy Hsu......................... 46 Vice Chairman of the Board and Director
Y.B. Lee............................ 50 Vice President - Far East Plush Division
Eric R. Lohwasser........... 40 Vice President - Controller
Guy M. Lombardo.......... 51 Vice President - Management Information Systems
Bernard H. Tenenbaum....... 41 Vice President - Corporate Development and Director
</TABLE>
Russell Berrie, the founder of the Company, has been Chairman of the Board and
Chief Executive Officer of the Company since its incorporation in 1966.
Arnold S. Bloom has been employed by the Company as Vice President, Secretary
and General Counsel for more than the past five years.
Paul Cargotch has been employed by the Company as Vice President - Finance and
Chief Financial Officer for more than the past five years.
Ricky Chan has been employed by the Company as Senior Vice President - Product
Development since July 25, 1995. Prior to that, Mr. Chan was Vice President -
Creative Division since January 1991.
A. Curts Cooke has been employed as President and Chief Operating Officer of
the Company for more than the past five years. Mr. Cooke has served as a
Director of the Company since 1982.
Jimmy Hsu has been employed by the Company as Vice Chairman of the Board since
July 1995. Prior to that, Mr. Hsu's titles were Executive Vice President of
the Company since July 1, 1994 through June 1995, Senior Vice President -
Product Development and Far East Operations from August 1991 through June 1994
and Senior Vice President - Far East Operations from January 1987 through July
1991. Mr. Hsu has served as a Director of the Company since 1988.
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<PAGE> 12
Y.B. Lee has been employed by the Company as Vice President - Far East Plush
Division for more than the past five years.
Eric R. Lohwasser has been employed by the Company as Vice President -
Controller since December 1995. Prior thereto Mr. Lohwasser was Corporate
Controller for more than the past five years.
Guy M. Lombardo has been employed by the Company as Vice President - Management
Information Systems for more than the past five years.
Bernard H. Tenenbaum has been employed by the Company as Vice President -
Corporate Development since January 14, 1993. From September 1988 until
joining the Company as an officer, Mr. Tenenbaum was a founding Director of the
George Rothman Institute of Entrepreneurial Studies, Fairleigh Dickinson
University, and was previously Associate Director of the Snider Entrepreneurial
Center of the Wharton School. Mr. Tenenbaum has served as a Director of the
Company since 1989.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
At December 31, 1995, the Company's Common Stock was held by approximately 700
shareholders of record. The following table sets forth the high and low sale
prices on the New York Stock Exchange Composite Tape for the calendar periods
indicated, as furnished by the New York Stock Exchange:
<TABLE>
<CAPTION>
1995 HIGH LOW
- ---- ---------- ---------
<S> <C> <C>
First Quarter..................... $ 14 5/8 $ 12
Second Quarter.................... 15 12 1/8
Third Quarter..................... 15 7/8 13 1/4
Fourth Quarter.................... 14 1/4 12 1/4
1994
- ----
First Quarter..................... $15 3/8 $ 13 1/8
Second Quarter.................... 15 5/8 12 3/4
Third Quarter..................... 15 1/2 13 5/8
Fourth Quarter.................... 15 13
</TABLE>
The Board of Directors declared its first dividend to holders of the Company's
Common Stock in November, 1986. Since then, a cash dividend has been paid
quarterly. The current quarterly rate is $.15 per share. This rate has been
in effect since February 1993. From February 1992 to February 1993 the
quarterly rate was $.117 per share (restated to reflect the 3-for-2 stock split
effective April 1, 1993). The quarterly rate from December 1990 to February
1992 was $.10 (restated). The Board of Directors will review its dividend
policy from time to time and declaration of dividends will remain within its
discretion.
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ITEM 6. SELECTED FINANCIAL DATA
FOR YEARS ENDED DECEMBER 31,
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net Sales $348,474 $278,105 $279,111 $444,382 $267,859 250,579
Cost of Sales 174,609 143,867 125,923 176,265 109,857 105,443
Income Before
Income Taxes * 25,573 7,024 17,573 92,999 31,746 23,239
Provision for
Income Taxes 9,033 1,697 4,391 32,651 9,704 5,817
Net Income 16,540 5,327 13,182 60,348 22,042 17,422
Net Income Per Share .77 .25 .61 2.70 .98 .77
Dividends Per Share** .60 .60 .60 .47 .40 .70
BALANCE SHEET
Working Capital $158,462 $152,454 $178,001 $206,510 $166,538 $154,841
Property, Plant and
Equipment 24,797 25,298 28,133 29,577 27,035 34,010
Total Assets 265,163 254,826 259,115 298,847 226,319 216,459
Long-Term Debt - - - - 3,000 4,492
Shareholders' Equity 222,996 218,388 224,034 241,259 196,278 188,380
STATISTICAL
Effective Income
Tax Rate 35.3% 24.2% 25.0% 35.1% 30.6% 25.0%
Current Ratio 4.8 5.2 6.1 4.6 7.2 7.6
Return on Average
Shareholders' Equity 7.5% 2.4% 5.7% 27.6% 11.5% 9.3%
Net Profit Margin 4.7% 1.9% 4.7% 13.6% 8.2% 7.0%
Number of Employees 1,961 1,919 2,126 2,608 2,333 2,569
</TABLE>
* Includes a restructuring charge of $5.0 million in 1993.
** Includes a special dividend of $.40 per share in 1990.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1995 AND 1994
For the year ended December 31, 1995 the Company's net sales of $348,474,000
compares to net sales for the year ended December 31, 1994 of $278,105,000.
This represents an increase of 25.3%. Included in the results for the year
ended December 31, 1995 are the net sales of $39,671,000 achieved by OddzOn
Products, Inc., compared to net sales of $8,315,000 included in the year ended
December 31, 1994. The year ended December 31, 1994 includes the results of
OddzOn Products, Inc. since its acquisition in October 1994. Net sales of the
Company's toy business, which includes Cap Toys, Inc. and OddzOn Products,
Inc., was $134,556,000 for the year ended December 31, 1995 compared to
$90,717,000 for the year ended December 31, 1994. Excluding the net sales of
the Company's toy business, consolidated net sales for the year ended December
31, 1995 were $213,918,000 compared to $187,388,000 for the year ended December
31, 1994, an increase of $26,530,000 or 14.2%.
Cost of sales were 50.1% of net sales in 1995 compared to 51.7% of net sales in
1994. This decrease can be attributed to the components of cost of sales that
are fixed costs which were absorbed by the higher sales volume in the year
ended December 31, 1995.
Selling, general and administrative expense was $150,097,000 or 43.1% of net
sales for the year ended December 31, 1995 compared to $129,645,000 or 46.6% of
net sales in 1994, an increase of $20,452,000 or 15.8%. The increase in
selling, general and administrative expense can be primarily attributed to the
increase in selling, general and administrative expense of OddzOn Products,
Inc. (approximately $12,300,000). The year ended December 31, 1994 includes
the results of OddzOn Products, Inc. since its acquisition in October 1994.
Also contributing to the increase in selling, general and administrative
expense is the increase in expenses at Cap Toys, Inc. (approximately
$6,600,000, primarily advertising expense) required to support the higher sales
level.
Investment and other income of $1,805,000 for the year ended December 31, 1995
compares to $2,431,000 in 1994. This decrease can be attributed to decreased
investment income relative to the Company's short term investment portfolio
resulting from lower investment balances and to foreign currency exchange gains
and losses related to intercompany loan transactions.
The provision for income taxes as a percent of income before taxes for the year
ended December 31, 1995 was 35.3% compared to 24.2% in the prior year. This
increase can be attributed to the U.S. Federal tax liability on certain
foreign subsidiary income during the year ended December 31, 1995, which was
not subject to U.S. Federal tax in the prior year.
Net income for the year ended December 31, 1995 of $16,540,000 compares to net
income of $5,327,000 in 1994. This increase in net income can be attributed to
the increase in net sales, partially offset by the increase in selling, general
and administrative expense and the increase in the effective tax rate.
14
<PAGE> 15
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1994 AND 1993
For the year ended December 31, 1994 the Company's net sales of $278,105,000
compares to net sales for the year ended December 31, 1993 of $279,111,000.
Included in the results for the year ended December 31, 1994 are the net sales
of $82,402,000 achieved by Cap Toys, Inc., which was acquired in October 1993,
compared to net sales of Cap Toys, Inc. of $12,653,000 included in the year
ended December 31, 1993. Also included in the results for the year ended
December 31, 1994 are net sales of $8,315,000 of OddzOn Products, Inc. which
was acquired in October 1994. Excluding the net sales of Cap Toys, Inc. and
OddzOn Products, Inc., consolidated net sales for the year ended December 31,
1994 decreased $79,070,000 compared to the year ended December 31, 1993. This
decrease can be attributed to the significant decrease in the sales of Troll
products compared to the prior year. During the year ended December 31, 1994
net sales of Troll products were approximately $7,300,000 compared to
approximately $86,700,000 for the year ended December 31, 1993.
Cost of sales were 51.7% of net sales in 1994 compared to 45.1% of net sales in
1993. This increase can be attributed primarily to the higher gross profit
margins on sales of Troll products which represented a larger portion of net
sales during 1993 and the effects of the reduction of the selling price of
certain of the Company's products in August 1993. Also contributing to the
increase in cost of sales are the lower gross profit margins achieved by Cap
Toys, Inc. compared to certain of the Company's other sales and distribution
channels.
Selling, general and administrative expense was $129,645,000 or 46.6% of net
sales for the year ended December 31, 1994 compared to $133,188,000 or 47.7% of
net sales in 1993, a decrease of $3,543,000 or 2.7%. Excluding the increase in
selling, general and administrative expense of Cap Toys, Inc. (approximately
$20,400,000) and the inclusion of the selling, general and administrative
expense of OddzOn Products, Inc. (approximately $3,100,000), selling, general
and administrative expense decreased $27,043,000. This decrease can be
attributed to a decrease in expenses required to support lower sales levels
(approximately $16,600,000), including a reduction in the number of
salespeople, and cost reductions associated with the restructuring program
implemented during 1993 of closing and consolidating distribution centers and
administrative functions (approximately $7,700,000). Cost reductions related to
this restructuring were partly realized in the year ended December 31, 1993,
resulting in total annualized savings in excess of $10,000,000. Also
contributing to the decrease in selling, general and administrative expense are
lower expenses related to the Company's "Just Say It With A Russ" consumer
advertising program (approximately $2,500,000).
Investment and other income of $2,431,000 for the year ended December 31, 1994
compares to $2,573,000 in 1993.
The provision for income taxes as a percent of income before taxes for the year
ended December 31, 1994 was 24.2% compared to 25.0% in the prior year.
Net income for the year ended December 31, 1994 of $5,327,000 compares to net
income of $13,182,000 in 1993. This decrease in net income can be attributed
to the increase in cost of sales as described above partially offset by the
decrease in selling, general and administrative expense. Included in the
results of operation for the year ended December 31, 1993 is a restructuring
charge of $5,000,000 resulting in an after tax effect on net income of
$3,150,000.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash and cash equivalents and short-term
investments of $36,836,000 compared to $47,961,000 at December 31, 1994.
During the year ended December 31, 1995, the Company generated net cash flows
from operating activities of $8,116,000 resulting from net income of
$16,540,000, depreciation and amortization of $7,208,000 and accounts
receivable reserve provisions of $9,952,000 offset by increases in accounts
receivable of $16,357,000 and inventories of $10,655,000, as a result of the
increase in net sales. Funds of $12,921,000 were used for the payment of
dividends.
On January 17, 1996, the Company sold the assets of its subsidiary
Papel/Freelance, Inc. The sale will result in an increase in cash and cash
equivalents of approximately $19,200,000. In addition, $2,000,000 relating to a
transitional agreement will be recognized, contingent upon satisfaction of the
terms of the agreement.
The Company has available $88,099,000 in bank lines of credit that provide for
direct borrowings and letters of credit used for the purchase of inventory. At
December 31, 1995, letters of credit of $24,983,000 were outstanding. There
were no direct borrowings under the bank lines of credit. Working capital
requirements during 1995, were met entirely through internally generated funds.
The Company remains in a highly liquid position and believes that the resources
available from operations and bank lines of credit are sufficient to meet the
foreseeable requirements of its business.
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Russ Berrie and Company, Inc.:
We have audited the accompanying consolidated balance sheets of Russ Berrie and
Company, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Russ Berrie and
Company, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Parsippany, New Jersey
Coopers & Lybrand L.L.P.
February 2, 1996
17
<PAGE> 18
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Net sales .................................... $ 348,474 $278,105 $279,111
Cost of sales................................. 174,609 143,867 125,923
------- ------- -------
GROSS PROFIT............................... 173,865 134,238 153,188
Selling, general and administrative expense... 150,097 129,645 133,188
Restructuring charge.......................... - - 5,000
Investment and other income - net ............ 1,805 2,431 2,573
------ ------- -------
INCOME BEFORE INCOME TAXES.................... 25,573 7,024 17,573
Provision for income taxes.................... 9,033 1,697 4,391
------ ------- -------
NET INCOME................................. $ 16,540 $ 5,327 $ 13,182
====== ======= =======
NET INCOME PER SHARE.......................... $ .77 $ .25 $ .61
====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
18
<PAGE> 19
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Foreign
Common Paid Retained Currency Treasury
Stock In Capital Earnings Translation Stock
------- ------------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992..... $ 2,348 $31,377 $225,265 $(2,088) $(15,643)
Net income....................... - - 13,182 - -
Share transactions under
stock option plans............. 40 5,463 - - -
Cash dividends ($.60 per share).. - - (12,797) - -
Foreign currency
translation adjustment......... - - - (899) -
Transactions in treasury shares.. - - - - (22,214)
----- ------ ------- ----- --------
BALANCE AT DECEMBER 31, 1993..... 2,388 36,840 225,650 (2,987) (37,857)
Net income....................... - - 5,327 - -
Share transactions under
stock option plans............. 7 1,035 - - -
Cash dividends ($.60 per share).. - - (12,874) - -
Foreign currency
translation adjustment......... - - - 859 -
----- ------ ------- ------- -------
BALANCE AT DECEMBER 31, 1994..... 2,395 37,875 218,103 (2,128) (37,857)
Net Income....................... - - 16,540 - -
Share transactions under
stock option plans............. 6 771 - - -
Cash dividends ($.60 per share).. - - (12,921) - -
Foreign currency
translation adjustment......... - - - 212 -
----- ------ ------- ------ ------
BALANCE AT DECEMBER 31, 1995..... $2,401 $38,646 $221,722 $(1,916) $(37,857)
===== ====== ======= ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
19
<PAGE> 20
CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------- ------ ------
<S> <C> <C>
Current assets
Cash and cash equivalents..................... $ 36,836 $ 42,758
Short-term investments........................ - 5,203
Accounts receivable, trade, less allowances;
$10,330 in 1995 and $5,651 in 1994 ........ 62,675 55,474
Inventories - net............................. 79,090 67,052
Prepaid expenses and other current assets..... 5,253 4,229
Deferred income taxes......................... 16,775 14,176
------- -------
TOTAL CURRENT ASSETS............. 200,629 188,892
Property, plant and equipment - net............. 24,797 25,298
Goodwill and other intangible assets - net...... 34,050 35,913
Other assets.................................... 5,687 4,723
------- -------
TOTAL ASSETS..................... $265,163 $254,826
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Accounts payable............................. $ 7,369 $ 6,972
Accrued expenses............................. 30,044 24,795
Accrued restructuring costs.................. 3,359 4,527
Accrued income taxes......................... 1,395 144
------- -------
TOTAL CURRENT LIABILITIES........ 42,167 36,438
Commitments and contingencies
Shareholders' equity
Common stock: $.10 stated value; authorized
50,000,000 shares; issued 1995, 24,011,198
shares; 1994, 23,953,530 shares............ 2,401 2,395
Additional paid in capital................... 38,646 37,875
Retained earnings............................ 221,722 218,103
Foreign currency translation adjustments..... (1,916) (2,128)
Treasury stock, at cost (2,454,813 shares)... (37,857) (37,857)
------- -------
TOTAL SHAREHOLDERS' EQUITY....... 222,996 218,388
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY............. $265,163 $254,826
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
20
<PAGE> 21
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(Dollars in Thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net income $ 16,540 $ 5,327 $13,182
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation................................ 4,177 4,549 5,172
Amortization of intangible assets........... 3,031 2,436 1,193
Provision for accounts receivable reserves.. 9,952 5,581 2,198
Gains or losses from sale or disposal
of fixed assets........................... 283 (353) (203)
Changes in assets and liabilities net of
effect of acquisitions
Accounts receivable......................... (16,357) (14,156) 34,509
Inventories................................. (10,655) 3,263 17,207
Deferred income taxes....................... (2,599) (2,007) (1,573)
Prepaid expenses and other current assets... (1,020) 942 (912)
Other Assets................................ (965) (3,139) 87
Accounts payable............................ 397 1,737 (1,620)
Accrued expenses............................ 5,249 1,174 (10,495)
Accrued restructuring costs................. (1,168) (1,755) 2,823
Accrued income taxes........................ 1,251 (249) (10,886)
------ ----- ------
Total adjustments....................... ( 8,424) (1,977) 37,500
------ ----- ------
Net cash provided by
operating activities.................. 8,116 3,350 50,682
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of short-term investments................. 5,203 26,218 (979)
Proceeds from sale of fixed assets.............. 605 1,362 1,928
Capital expenditures............................ (4,563) (2,405) (5,190)
Acquisitions.................................... (3,352) (26,272) (24,380)
----- ------ ------
Net cash provided by (used in)
investing activities.................... (2,107) (1,097) (28,621)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt...................... - - (3,000)
Issuance of common stock........................ 777 1,042 5,503
Dividends....................................... (12,921) (12,874) (12,797)
Transactions in treasury shares................. - - (22,214)
------ ------ ------
Net cash (used in) financing
activities............................. (12,144) (11,832) (32,508)
Effect of exchange rate......................... 213 859 (360)
------ ------ ------
Net decrease in cash and
cash equivalents.............................. (5,922) (8,720) (10,807)
Cash and cash equivalents at beginning of year.. 42,758 51,478 62,285
------ ------ ------
Cash and cash equivalents at end of year........ 36,836 $42,758 $51,478
====== ====== ======
CASH PAID DURING THE YEAR FOR:
Interest.................................... $ 294 $ 353 $ 531
Income taxes................................ $10,380 $ 3,953 $16,851
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Russ Berrie and
Company, Inc. and its wholly-owned subsidiaries (collectively, the "Company")
after elimination of intercompany accounts and transactions.
REVENUE RECOGNITION
The Company recognizes revenue from product sales, net of provisions for
allowances, upon shipment to the customer.
ADVERTISING COSTS
Production costs for advertising are charged to operations in the year the
related advertising campaign begins. All other advertising costs are charged
to results of operations during the year in which they are incurred.
Advertising cost for the years ended December 31, 1995, 1994 and 1993 amounted
to $17,291,000, $12,913,000 and $7,414,000, respectively.
CASH EQUIVALENTS
Cash equivalents consist of investments in interest bearing accounts and highly
liquid securities having a maturity of three months or less and approximates
fair value.
SHORT-TERM INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", effective
with the year ended December 31, 1994.
As of December 31, 1994, short-term investments in debt securities have been
categorized as available for sale and as a result are stated at fair value.
INVENTORIES
Inventories, which mainly consist of finished goods, are stated at the lower of
cost (first-in, first-out) or market value.
PROPERTY
Property, plant and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives which range from three
to eighteen years. Leasehold improvements are amortized using the straight-line
method over the term of the respective lease or asset life, whichever is
shorter. Expenditures for maintenance and repairs are charged to operations as
incurred. Gain or loss on retirement or disposal of individual assets is
recorded as income or expense.
22
<PAGE> 23
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, which represents the excess of purchase price of acquired assets over
the fair market value of net assets acquired, is being amortized using the
straight-line method over fifteen years or less. The Company evaluates the
recoverability of goodwill based upon estimated future income of operating
entities. Other intangible assets acquired are being amortized over the period
for which benefit is derived which ranges from three to five years. Accumulated
amortization was $ 8,274,000 and $6,366,000 at December 31, 1995 and 1994,
respectively.
FOREIGN CURRENCY TRANSLATION
Aggregate foreign exchange gains or losses resulting from the translation of
foreign subsidiaries financial statements, which are denominated in the local
currency, are recorded as a separate component of shareholders' equity. Gains
and losses from foreign currency transactions are included in investment and
other income - net (See Note 8).
ACCOUNTING FOR INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares
outstanding during the year. The number of shares used in the computation at
December 31, 1995, 1994 and 1993 were 21,533,402, 21,458,099 and 21,470,672,
respectively.
FOREIGN CURRENCY CONTRACTS
The Company enters into forward exchange contracts and currency options,
principally to hedge the currency risk associated with the purchase of
inventory by its foreign subsidiaries. Gains and losses are reported as a
component of the related transactions. The Company does not speculate in
foreign currencies. At December 31, 1995 and 1994, the aggregate amount of
foreign exchange contracts was $6,500,000 and $1,500,000, respectively.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates that affect
the reported financial position and results of operations.
ACQUISITIONS
In December 1995, the Company completed the acquisition of Ivory Tower
Publishing Company, Inc. The acquisition, accounted for as a purchase, was
funded entirely by the Company's cash. As of December 31, 1995 no goodwill was
recorded as the purchase price was equivalent to the estimated fair value of
the assets acquired and liabilities assumed.
23
<PAGE> 24
In October 1994, the Company completed the acquisition of substantially all of
the assets, including inventory, of OddzOn Products, Inc., a toy company based
in Campbell, California. The acquisition, accounted for as a purchase, was
funded entirely by the Company's cash and $19,344,000 of goodwill was recorded.
Additional payments may be required based upon the attainment of certain future
operating profit levels of OddzOn Products, Inc. During the year ended December
31, 1995, $111,058 was charged to goodwill related to these additional
payments.
In October 1993, the Company acquired substantially all of the assets of Cap
Toys, Inc., a toy company based in Ohio, and $13,606,000 of goodwill was
recorded. Under the purchase agreement, additional payments may be required
based upon the attainment of certain operating profit levels of Cap Toys, Inc.
During the years ended December 31, 1995, and 1994, $1,047,000 and $2,563,000,
respectively, was charged to goodwill related to these additional payments.
NOTE 2 - SHORT-TERM INVESTMENTS
Short-term investments as of December 31, 1994 included tax - exempt municipal
bonds with a cost of $5,268,000 and a fair value of $5,203,000.
NOTE 3 - INVENTORY RESERVES
As of December 31, 1995 and 1994, the Company has recorded a reserve for
certain inventories to reflect the net realizable value of such inventories.
Management believes that such inventories are fairly stated. The reserve
balance as of December 31, 1995 and 1994 was $20,202,000 and $18,157,000,
respectively.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---------- -----------
<S> <C> <C>
Land......................... $ 6,053,000 $ 6,071,000
Buildings.................... 10,616,000 10,607,000
Machinery and equipment...... 21,303,000 21,899,000
Furniture and fixtures....... 6,865,000 6,197,000
Leasehold improvements....... 8,593,000 7,766,000
---------- -----------
53,430,000 52,540,000
Less accumulated depreciation
and amortization........... 28,633,000 27,242,000
---------- -----------
$ 24,797,000 $ 25,298,000
========== ===========
</TABLE>
NOTE 5 - LINES OF CREDIT
Under its existing domestic bank lines of credit, which are renewed annually,
the Company has available $75,000,000 for direct borrowings and letters of
credit at any one time.
The maximum amount available to the Company's foreign operations at December
31, 1995 under local lines of credit is $13,099,000. These lines, which are
guaranteed by the Company, provide for direct borrowings, letters of credit,
and overdraft facilities.
In connection with the purchase of imported merchandise, the Company, at
December 31, 1995, had letters of credit outstanding under all lines of
$24,983,000.
24
<PAGE> 25
NOTE 6 - ACCRUED EXPENSES
Accrued expenses as of December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------ ------
<S> <C> <C>
Accrued sales commissions....... $ 2,453,000 $ 1,625,000
Accrued advertising............. 2,869,000 2,653,000
Accrued payments related to
Cap Toys, Inc. agreement.... 1,047,000 2,349,000
Accrued litigation.............. 6,300,000 6,300,000
Accrued payroll and
incentive compensation...... 5,833,000 2,801,000
Other........................... 11,542,000 9,067,000
---------- ----------
$30,044,000 $24,795,000
========== ==========
</TABLE>
NOTE 7 - RESTRUCTURING CHARGE
A restructuring charge of $5,000,000 was recorded in the year ended December
31, 1993. This charge includes the write-down of certain assets, employee
severance costs and other incremental costs related to the closing, moving and
consolidating of distribution and administrative functions. As of December 31,
1995, the remaining accrual primarily represents future lease obligations,
through 1997, related to previously closed facilities. One such facility is
leased from a partnership in which a director of the Company is a general
partner (See Note 10).
NOTE 8 - INVESTMENT AND OTHER INCOME - NET
The significant components of investment and other income - net for the years
ended December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Investment income.............. $1,896,000 $ 2,214,000 $ 3,033,000
Interest expense............... (235,000) (244,000) (617,000)
Foreign currency transactions.. ( 73,000) 87,000 (583,000)
Other.......................... 217,000 374,000 740,000
--------- -------- ---------
$1,805,000 $ 2,431,000 $ 2,573,000
========= ========= =========
</TABLE>
NOTE 9 - INCOME TAXES
The Company and its domestic subsidiaries file a consolidated Federal income
tax return.
Income before income taxes was:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
---------- -------- ---------
<S> <C> <C> <C>
United States $ 14,176,000 $4,225,000 $ 7,140,000
Foreign 11,397,000 2,799,000 10,433,000
---------- --------- ----------
$ 25,573,000 $7,024,000 $17,573,000
=========== ========= ==========
</TABLE>
25
<PAGE> 26
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
CURRENTLY PAYABLE: 1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Federal................. $ 9,602,000 $ 2,348,000 $ 2,785,000
Foreign................. 1,320,000 544,000 2,653,000
State................... 710,000 812,000 526,000
---------- --------- ---------
11,632,000 3,704,000 5,964,000
DEFERRED:
Federal................. (2,696,000) (3,023,000) (1,572,000)
Foreign................. 97,000 (342,000) (30,000)
State................... - 1,358,000 29,000
---------- --------- ---------
(2,599,000) (2,007,000) (1,573,000)
---------- --------- ---------
$ 9,033,000 $ 1,697,000 $ 4,391,000
========== ========= =========
</TABLE>
A reconciliation of the provision for income taxes with amounts computed at the
statutory Federal rate is shown below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate. $ 8,951,000 $ 2,458,000 $ 6,151,000
State income tax net of Federal
tax benefit...................... 272,000 287,000 342,000
Foreign rate differences........... 49,000 242,000 (1,029,000)
Charitable contributions........... - - (901,000)
Tax advantaged investment income... (173,000) (301,000) (561,000)
Provision for foreign dividends.... - (3,000,000) 1,200,000
Change in enacted rates............ - (52,000) (414,000)
Change in valuation allowance...... 164,000 1,275,000 750,000
Adjustment of estimated liabilities - 707,000 -
Other, net......................... (230,000) 81,000 (1,147,000)
--------- --------- ----------
$ 9,033,000 $ 1,697,000 $ 4,391,000
========= ========= ==========
</TABLE>
As of December 31, 1995, the Company has State tax loss carryforwards of
approximately $1,242,000, tax effected, which expire between 1997 and 2010.
The Company has recorded a valuation allowance of $3,431,000 (primarily
relating to deferred State taxes and State tax loss carryforwards) to reflect
the estimated amount of deferred tax assets which may not be realized.
26
<PAGE> 27
The components of the net deferred tax asset, net of the valuation allowance,
resulting from differences between accounting for financial and tax reporting
purposes were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS: 1995 1994
----------- -----------
<S> <C> <C>
Inventory capitalization................ $ 3,161,000 $ 2,174,000
Reserves not deducted for tax purposes.. 9,023,000 6,533,000
Accrued restructuring costs............. 1,264,000 1,695,000
Litigation.............................. 2,305,000 2,145,000
Charitable contribution carryforward.... - 1,270,000
Other................................... 1,049,000 681,000
---------- ----------
16,802,000 14,498,000
---------- ----------
LIABILITIES:
Depreciation............................ 27,000 259,000
Other................................... - 63,000
---------- ----------
27,000 322,000
---------- ----------
Net deferred tax asset.................. $16,775,000 $14,176,000
========== ==========
</TABLE>
Provisions are made for estimated United States and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance
of foreign subsidiaries' undistributed earnings less those earnings deemed to
be permanently reinvested. The amount of such earnings, permanently
reinvested, was approximately $56,394,000 as of December 31, 1995.
Determination of the net amount of unrecognized deferred tax liability with
respect to these earnings is not practicable.
NOTE 10 - RELATED PARTY TRANSACTIONS
Certain buildings, referred to in Note 11, are leased from Russell Berrie, the
Company's majority shareholder, or entities owned or controlled by him.
Rentals under these leases for the years ended December 31, 1995, 1994 and 1993
were $4,042,000, $4,307,000 and $4,406,000, respectively. The Company is also
a guarantor under two mortgages for property so leased with a principal amount
aggregating approximately $8,281,000 as of December 31, 1995, $2,000,000 of
which is collateralized by assets of the Company.
The Company also leases a facility from a partnership in which a director of
the Company is a general partner. Annual rentals under this lease agreement
for the years ended December 31, 1995, 1994 and 1993 were $996,000. This lease
obligation is included in the estimate for future lease obligations with
respect to the accrued restructuring costs (See Note 7).
NOTE 11 - LEASES
At December 31, 1995, the Company and its subsidiaries are obligated under
operating lease agreements (principally for buildings and other leased
facilities) for remaining lease terms ranging from one to twenty-three years.
Rent expense for the years ended December 31, 1995, 1994 and 1993 amounted to
$8,450,000, $8,264,000 and $8,456,000, respectively.
27
<PAGE> 28
The approximate aggregate minimum future rental payments as of December 31,
1995 under operating leases are as follows:
<TABLE>
<S> <C>
1996............................ $ 8,787,000
1997............................ 7,871,000
1998............................ 6,192,000
1999............................ 4,395,000
2000............................ 2,702,000
Later years..................... 10,283,000
</TABLE>
NOTE 12 - STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
The Company has three stock option plans and an employee stock purchase plan.
As of December 31, 1995, there were 3,269,019 shares of common stock reserved
for issuance under all stock plans. There are outstanding options under prior
plans; however, these plans have been terminated and no additional options can
be granted. The option price for all stock option plans is equal to the
closing price of the Company's common stock as of the date the option is
granted and no options may be exercised within one year from the date of grant.
Options are exercisable at prices ranging from $9.59 to $21.17 per share under
the various plans. The exercise price of options exercised during 1995 ranged
from $10.09 to $14.875. Summarized stock option data follows:
<TABLE>
<CAPTION>
Stock Option Stock Option
And Restricted Plans For Outside
Stock Option Plans Stock Plans* Directors*
-------------------- --------------- ----------------------
<S> <C> <C> <C>
Outstanding as of
December 31, 1992 863,877 107,103 57,000
Granted during the year ... 455,453 30,391 15,000
Exercised during the year.. (285,729) (51,592) -
Cancelled during the year.. (101,481) - -
------- ------ ------
Outstanding as of
December 31, 1993 932,120 85,902 72,000
Granted during the year.... 234,269 37,117 15,000
Exercised during the year.. (73,168) (3,989) (12,000)
Cancelled during the year.. (147,563) (22,262) -
------- ------ ------
Outstanding as of
December 31, 1994... 945,658 96,768 75,000
Granted during the year.... 226,422 35,764 15,000
Exercised during the year.. (22,108) (4,458) (12,000)
Cancelled during the year.. (75,848) (9,015) (21,000)
--------- ------- ------
Outstanding as of
December 31, 1995 1,074,124 119,059 57,000
========= ======= ======
</TABLE>
*These plans allowed for the granting of Stock Appreciation Rights (SARs). The
SARs, which relate to specific options under the plans, permit the participant
to exercise the SAR and be entitled to an amount equal to the excess of the
closing market price of the Company's common stock on the date of exercise over
the exercise price of the related option.
Under the Employee Stock Purchase Plan, the option price is 90% of the closing
market price of the stock on the first business day of the plan year. During
1995, 7,351 shares were issued under this plan. The 1994 Employee Stock
Purchase Plan has 137,668 shares reserved for future issuance.
28
<PAGE> 29
The Company anticipates adopting Statement of Financial Accounting Standards
No. 123, "Accounting for Stock Based Compensation", for disclosure purposes
only and anticipates continuing to account for stock based compensation under
APB Opinion No. 25.
NOTE 13 - RETIREMENT PLAN AND 401(k) PLAN
Effective February 1, 1995, the Company converted its defined contribution
retirement plan to a 401(k) Plan. Employees may, up to certain prescribed
limits, contribute to the 401(k) Plan and a portion of these contributions is
matched by the Company. The provision for contributions charged to operations
for the year ended December 31, 1995 was $574,000.
There was no provision for contributions to the retirement plan charged to
operations for the year ended December 31, 1994. The provision for the
Company's contributions charged to operations for the year ended December 31,
1993 related to the Company's retirement plan was $1,991,000.
NOTE 14 - BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company's operations by business segment and geographic area are presented
below:
FINANCIAL DATA BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
REVENUES: 1995 1994 1993
-------- ------------ ------------
<S> <C> <C>
Gift.................... $ 213,918,000 $187,388,000 $266,458,000
Toys.................... 134,556,000 90,717,000 12,653,000
----------- ----------- -----------
Consolidated............ $ 348,474,000 $278,105,000 $279,111,000
=========== =========== ===========
OPERATING INCOME:
Gift.................... $ 19,775,000 $ 1,401,000 $ 26,739,000
Toys.................... 14,190,000 12,277,000 977,000
Corporate expense net
of investment income... (8,392,000) (6,654,000) (10,143,000)
---------- ----------- -----------
Consolidated............ $ 25,573,000 $ 7,024,000 $ 17,573,000
========== =========== ===========
IDENTIFIABLE ASSETS:
Gift*................... $ 188,331,000 $183,869,000 $232,905,000
Toys.................... 76,832,000 70,957,000 26,210,000
----------- ----------- -----------
Consolidated............ $ 265,163,000 $254,826,000 $259,115,000
=========== =========== ===========
DEPRECIATION AND AMORTIZATION:
Gift.................... $ 4,309,000 $ 5,250,000 $ 6,073,000
Toys.................... 2,899,000 1,735,000 292,000
----------- ----------- -----------
Consolidated............ $ 7,208,000 $ 6,985,000 $ 6,365,000
=========== =========== ===========
CAPITAL EXPENDITURES:
Gift.................... $ 3,829,000 $ 1,870,000 $ 5,109,000
Toys.................... 734,000 535,000 81,000
---------- ----------- -----------
Consolidated............ $ 4,563,000 $ 2,405,000 $ 5,190,000
========== =========== ===========
</TABLE>
* Includes short - term investments
29
<PAGE> 30
FINANCIAL DATA BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
REVENUES: 1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
United States........... $ 279,473,000 $228,833,000 $213,101,000
Europe.................. 29,698,000 23,024,000 33,230,000
Other Foreign........... 39,303,000 26,248,000 32,780,000
----------- ----------- -----------
Consolidated............ $ 348,474,000 $278,105,000 $279,111,000
=========== =========== ===========
NET INCOME:
United States........... $ 9,181,000 $ 2,730,000 $ 5,372,000
Europe.................. 652,000 (719,000) 2,434,000
Other Foreign........... 6,707,000 3,316,000 5,376,000
---------- ---------- ----------
Consolidated............ 16,540,000 $ 5,327,000 $13,182,000
========== ========== ==========
IDENTIFIABLE ASSETS:
United States........... $ 202,310,000 $189,731,000 $189,385,000
Europe.................. 29,153,000 29,119,000 30,877,000
Other Foreign........... 33,700,000 35,976,000 38,853,000
----------- ----------- -----------
Consolidated............ $ 265,163,000 $254,826,000 $259,115,000
=========== =========== ===========
</TABLE>
NOTE 15 - LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
results of operations or the financial position of the Company.
For the year ended December 31, 1992, the Company reserved $6,300,000 relating
to an award by a jury in February 1993 for slander and other pending claims
made by the plaintiff. It is the opinion of the Company that the verdict is not
supported by the evidence and the claims are without merit. The Company will
vigorously defend its position before the trial court and, if necessary, on
appeal.
NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following selected financial data for the eight quarters ended December 31,
1995 are derived from unaudited financial statements and include, in the
opinion of management, all adjustments necessary for fair presentation of the
results for the interim periods presented and are of a normal recurring nature.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR QUARTERS ENDED
<TABLE>
<CAPTION>
1995 MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales............ $ 80,118 $ 74,263 $ 103,987 $ 90,106
Gross profit......... 40,794 35,587 54,537 42,947
Net income........... 4,083 154 9,260 3,043
Net income
per share.......... $ 0.19 $ 0.01 $ 0.43 $ 0.14
1994
Net sales............ $ 64,167 $ 57,546 $ 82,850 $ 73,542
Gross profit......... 32,606 25,313 42,754 33,565
Net income (loss).... 1,022 (3,327) 5,742 1,890
Net income (loss)
per share........... $ 0.05 $ (0.16) $ 0.27 $ 0.09
</TABLE>
30
<PAGE> 31
NOTE 17 - SUBSEQUENT EVENT
On January 17, 1996, the Company completed the sale of its subsidiary
Papel/Freelance, Inc. to Zebra Capital Corporation. The sale resulted in a
pre-tax gain of approximately $6,800,000 of which $4,800,000 will be recognized
in the first quarter of 1996 and $2,000,000 relates to a transitional agreement
and will be recognized, contingent upon satisfaction of the terms of the
agreement.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
Information relating to this item appears under the caption "ELECTION OF
DIRECTORS" on pages 1 through 3 of the 1996 Proxy Statement, which is
incorporated herein by reference and under the caption "EXECUTIVE OFFICERS OF
THE REGISTRANT" on pages 11 and 12 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to this item appears under the caption "THE BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD" on page 3, "DIRECTOR COMPENSATION" on
pages 3 through 5, "EXECUTIVE COMPENSATION" on pages 11 through 13 and
"COMPENSATION COMMITTEE REPORT" on pages 6 and 7 in the 1996 Proxy Statement,
which are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information relating to this item appears under the captions "SECURITY
OWNERSHIP OF MANAGEMENT" on pages 9 and 10 and "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS" on page 10 of the 1996 Proxy Statement, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Information relating to this item appears under the captions "EXECUTIVE
COMPENSATION" on pages 11 through 13, "CERTAIN TRANSACTIONS" on pages 13
through 15 and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" on
page 7 of the 1996 Proxy Statement, which is incorporated herein by reference.
31
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT.
1. FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
Page Number in this
Report
----------------------
<S> <C>
Report of Independent Accountants......................... 17
Consolidated Statement of Income for the
years ended December 31, 1995, 1994 and 1993.............. 18
Consolidated Statement of Changes in
Shareholders' Equity for the years ended
1995, 1994 and 1993....................................... 19
Consolidated Balance Sheet at December 31,
1995 and 1994............................................. 20
Consolidated Statement of Cash Flows for the
years ended December 31, 1995, 1994 and 1993.............. 21
Notes to Consolidated Financial Statements................ 22-31
</TABLE>
2. FINANCIAL STATEMENT SCHEDULE:
<TABLE>
<S> <C>
Schedule VIII - Valuation and qualifying accounts........ S-2
</TABLE>
Other schedules are omitted because they are either not applicable or not
required or the information is presented in the Consolidated Financial
Statements or Notes thereto.
32
<PAGE> 33
3. EXHIBITS:
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
3.1 (a) Restated Certificate of Incorporation of the Registrant and amendment thereto.
(9)
(b) Certificate of Amendment to Restated Certificate of Incorporation of the
Company filed April 30, 1987. (23)
3.2 (a) By-Laws of the Registrant. (9)
(b) Amendment to Revised By-Laws of the Company adopted April 30, 1987.
(23)
(c) Amendment to Revised By-Laws of the Company adopted February 18, 1988. (23)
4.1 Form of Common Stock Certificate. (1)
10.1(a) Russ Berrie and Company, Inc. Stock Option and Restricted Stock Plan. (2)
(b) Amendment to the Russ Berrie and Company, Inc. Stock Option and
Restricted Stock Plan. (11)
10.2(a) Russ Berrie and Company, Inc. Stock Option Plan for Outside Directors. (3)
(b) Amendment to the Russ Berrie and Company, Inc. Stock Option Plan
for Outside Directors. (11)
10.3 Russ Berrie and Company, Inc. Profit Sharing Plan. (3)
10.4 Agreement dated January 26, 1982 between the Registrant and A. Curts Cooke
and amendment thereto dated March 10, 1984. (3)
---------
(1) Incorporated by reference to Amendment No. 2 to Registration Statement No.
2-88797 on Form S-1, as filed on March 29, 1984.
(2) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1984.
(3) Incorporated by reference to Amendment No. 1 to Registration Statement No.
2-8797 on Form S-1, as filed on March 13, 1984.
(9) Incorporated by reference to Amendment No. 1 to Registration Statement No.
33-10077 on Form S-1, as filed on December 16, 1986.
(11) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1987.
(23) Incorporated by reference to Registration No. 33-51823 on Form S-8, as filed
on January 6, 1994.
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.26 Lease Agreement, dated April 1, 1981, between Tri-State Realty and
Investment Company and Russ Berrie and Company, Inc. (4)
10.27 Guaranty, dated March 20, 1981, from Russ Berrie and Company, Inc. and
Russell Berrie to the New Jersey Economic Development Authority and
Midlantic National Bank as Trustee. (4)
10.28 Mortgage, dated April 6, 1981, between Tri-State Realty and Investment
Company and the New Jersey Economic Development Authority. (4)
10.29 Credit and Security Agreement, dated as of March 1, 1981, between the New
Jersey Economic Development Authority and Tri-State Realty and
Investment Company. (4)
10.30 Assignment of Leases, Rents & Profits, dated April 6, 1981, by Tri-State Realty
and Investment Company to the New Jersey Economic Development
Authority. (4)
10.31 Note, dated April 6, 1981, made by Tri-State Realty and Investment Company
to the order of the New Jersey Economic Development Authority in the
principal amount of $2,000,000. (4)
10.32 Specimen of State of New Jersey Economic Development Authority $2,000,000
Economic Development Bond (Tri-State Realty and Investment
Company -- 1980 Project), dated April 6, 1981. (4)
10.33 Lease, dated December 28, 1983, between Russell Berrie and Russ Berrie and
Company, Inc. (4)
10.35 Guarantee dated as of December 1, 1983, from Russ Berrie and Company, Inc.
to the New Jersey Economic Development Authority, Bankers Trust
Company as Trustee and each Holder of a Bond. (4)
10.36 Letter of Credit and Reimbursement Agreement, dated as of December 1,
1983, between Russ Berrie and Company, Inc. and Citibank, N.A. (4)
10.37 Loan Agreement, dated as of December 1, 1983, between the New Jersey
Economic Development Authority and Russell Berrie. (4)
- ---------
(4) Incorporated by reference to Registration Statement No. 2-88797 on Form S-1
as filed on February 2, 1984.
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.38 Mortgage, dated December 28, 1983, between Russell Berrie and Citibank,
N.A. (4)
10.39 Form of New Jersey Economic Development Authority Variable/Fixed Rate
Economic Development Bond (Russell Berrie -- 1983 Project). (4)
10.51 Grant Deed, dated June 28, 1982, from Russ Berrie and Company, Inc. to
Russell Berrie. (1)
10.52 Russ Berrie and Company, Inc. 1989 Employee Stock Purchase Plan. (13)
10.53 (a) Russ Berrie and Company, Inc. Stock Option Plan. (6)
(b) Amendments to the Russ Berrie and Company, Inc. Stock Option Plan. (11)
10.68 (a) Lease Agreement, dated as of May 1, 1977, between Fred T. Reisman and
Associates Limited, Amram's Distributing, LTD, and Alfa Romeo
(Canada) Limited (8)
(b) Lease Agreement, dated April 8, 1986, between Pensionfund Realty Limited
and Amram's Distributing LTD. (9)
10.70 Amendment, dated October 29, 1985 to the restated Russ Berrie and
Company, Inc. Profit Sharing Plan. (8)
- ---------
(1) Incorporated by reference to Amendment No. 2 to Registration Statement
No. 2-88797 on Form S-1, as filed on March 29, 1984.
(4) Incorporated by reference to Registration Statement No. 2-88797 on Form S-1,
as filed on February 2, 1984.
(6) Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement No. 2-96238 on Form S-8, as filed on November 6, 1985.
(8) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1985.
(9) Incorporated by reference to Amendment No. 1 to Registration Statement
No. 33-10077 of Form S-1, as filed on December 16, 1986.
(11) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1987.
(13) Incorporated by reference to Form S-8 Registration Statement No. 33-26161,
as filed on December 16, 1988.
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.73 Russ Berrie and Company, Inc. Deferred Compensation Plan. (9)
10.76 (a) Lease agreement, dated September 17, 1987, between Forsgate Industrial
Complex and Russ Berrie and Company, Inc. (11)
(b) Amendment, dated March 18, 1988, between Forsgate Industrial Complex and
Russ Berrie and Company, Inc. (11)
10.77 Lease agreement, dated July 1, 1987, between Hunter Street, Inc. and Russ
Berrie and Co. (West), Inc. (11)
10.78 Lease agreement, dated October 1, 1987, between David Benjamin and Nicole
Berrie Lakeland Trust and Russ Berrie and Company, Inc. (11)
10.80 Russ Berrie and Company, Inc. 1989 Stock Option Plan. (14)
10.81 Russ Berrie and Company, Inc. 1989 Stock Option Plan for Outside Directors.
(15)
10.82 Russ Berrie and Company, Inc. 1989 Stock Option and Restricted Stock Plan.
(16)
10.83 Lease Agreement dated November 7, 1988 between A. Mantella & Sons
Limited and Amram's Distributing, Ltd. (17)
- -------
(9) Incorporated by reference to Amendment No. 1 to Registration Statement No.
33-10077 of Form S-1, as filed on December 16, 1986.
(11) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1987.
(14) Incorporated by reference to Form S-8 Registration Statement No. 33-27406,
as filed on March 16, 1989.
(15) Incorporated by reference to Form S-8 Registration Statement No. 33-27897,
as filed on April 5, 1989.
(16) Incorporated by reference to Form S-8 Registration Statement No. 33-27898,
as filed on April 5, 1989.
(17) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1988.
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.84 Lease Agreement dated November 7, 1988 between Russell Berrie and Russ
Berrie and Company, Inc. (17)
10.86 Lease Agreement dated June 8, 1989 between Americana Development, Inc.
and Russ Berrie and Company, Inc. (18)
10.87 Lease dated December 25, 1989 between Kestrel Properties, Ltd. and Russ
Berrie (U.K.) Ltd. (18)
10.89 Amendment dated January 9, 1989 to Letter of Credit and Reimbursement
Agreement dated as of December 1, 1983 between Russ Berrie and
Company, Inc. and Citibank, N.A. (18)
10.91 (a) Assignment of Underlease of Unit 10 Nursling Industrial Estate, Marks and
Spencer plc to Russ Berrie (U.K.) Limited. (19)
(b) Underlease of Unit 10 Nursling Estate County of Hants. (19)
10.92 Agreement for sale and purchase of parts or shares of Sea View Estate between
Sino Rank Company Limited and Tri Russ International (Hong Kong)
Limited dated March 10, 1990. (19)
10.95 (a) Asset Purchase Agreement dated September 18, 1990 by and among Bright,
Inc., Bright of America, Inc., Bright Crest, LTD. and William T. Bright.
(19)
(b) Non-Compete Agreement dated September 18, 1990 by and between William
T. Bright and Bright, Inc. (19)
(c) Deed of Trust dated September 18, 1990 by and among Bright, Inc. F.T. Graff
Jr. and Louis S. Southworth, III Trustees, and Bright of America, Inc.
(19)
(d) Guaranty Agreement dated September 18, 1990 executed by Russ Berrie and
Company, Inc. delivered to Bright of America, Inc. and Bright Crest, LTD. (19)
(e) Guaranty Agreement dated September 18, 1990 executed by Russ Berrie and
Company, Inc. delivered to William T. Bright. (19)
10.97 Russ Berrie and Company, Inc. Retirement Plan Amended and Restated
Effective January 1, 1989. (19)
--------
(17) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1988.
(18) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1989.
(19) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1990.
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.101 (a) Sale and Purchase Agreement dated October 16, 1991 by and among Weaver
Corp. and Papel/Freelance, Inc. (20)
(b) Non-competition Agreement made October 16, 1991 by and among Weaver
Corp., an Indiana corporation, Steven Weaver and Papel/Freelance,
Inc. a Pennsylvania corporation. (20)
10.102 Transfer of Freehold land between British Telecommunications plc and BT
Property Limited and Russ Berrie (UK) Ltd. (21)
10.103 Executive Employment Agreement dated December, 1992 between Russ Berrie
and Company, Inc. and Bernard Tenenbaum. (21)
10.104 Russ Berrie and Company, Inc. 1994 Stock Option Plan. (21)
10.105 Russ Berrie and Company, Inc. 1994 Stock Option Plan for Outside Directors.
(21)
10.106 Russ Berrie and Company, Inc. 1994 Stock Option and Restricted Stock Plan. (21)
10.107 Russ Berrie and Company, Inc. 1994 Employee Stock Purchase Plan. (21)
10.108 Asset Purchase Agreement dated October 1, 1993 by and between RBTACQ,
Inc. and Cap Toys, Inc. (22)
10.109 Asset Purchase Agreement I.C. September 30, 1994 by and among RBCACQ,
Inc. and OddzOn Products, Inc., Scott Stillinger and Mark Button. (23)
10.110 Asset Purchase Agreement By and Among PF ACQUISITION CORP.,
ZEBRA CAPITAL CORPORATION, PAPEL/FREELANCE, INC. and
RUSS BERRIE AND COMPANY, INC. dated December 15, 1995. (24)
21.1 List of Subsidiaries
23.1 Report of Independent Accountants
23.2 Consent of Independent Accountants
27.1 Financial Data Schedule
- -------------
(20) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1991.
(21) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1992.
(22) Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
(23) Incorporated by Reference to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
(24) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1995.
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on From 8-K were filed by the Company during the quarter ended
December 31, 1995.
38
<PAGE> 39
Undertaking
In order to comply with amendments to the rules governing the use of Form S-8
under the Securities Act of 1933, as amended, as set forth in Securities Act
Release No. 33-6867, the undersigned Registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into Registrant's
Registration Statements on Forms S-8 (File Nos. 2-96238, 2-96239, 2-96240,
33-10779, 33-27406, 33-27897 and 33-27898):
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Russ Berrie and Company, Inc.
(Registrant)
By /s/Paul Cargotch
------------------------------
Paul Cargotch
Vice President - Finance and
Chief Financial Officer
- ---------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Date
---------- ----
<S> <C>
/s/ Russell Berrie 3/26/96
- -------------------------------------------------------- --------------
Russell Berrie, Chairman of the Board,
Chief Executive Officer, and Director
(Principal Executive Officer)
/s/ A. Curts Cooke 3/25/96
- -------------------------------------------------------- --------------
A. Curts Cooke, President, Chief
Operating Officer and Director
(Principal Operating Officer)
/s/ Paul Cargotch 3/25/96
- -------------------------------------------------------- --------------
Paul Cargotch, Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
SIGNATURES DATE
---------- ----
<S> <C>
/s/ Raphael Benaroya 3/28/96
- -------------------------------------------------- ---------------------
Raphael Benaroya, Director
/s/ Jimmy Hsu 3/28/96
- -------------------------------------------------- ---------------------
Jimmy Hsu, Director
/s/ Ilan Kaufthal 3/25/96
- -------------------------------------------------- ---------------------
Ilan Kaufthal, Director
/s/ Charles Klatskin 3/26/96
- -------------------------------------------------- ---------------------
Charles Klatskin, Director
/s/ Joseph Kling 3/25/96
- -------------------------------------------------- ---------------------
Joseph Kling, Director
- -------------------------------------------------- ---------------------
William A. Landman, Director
/s/ Sidney Slauson 3/25/96
- -------------------------------------------------- ---------------------
Sidney Slauson, Director
/s/ Bernard H. Tenenbaum 3/25/96
- -------------------------------------------------- ---------------------
Bernard H. Tenenbaum, Director
</TABLE>
41
<PAGE> 42
S-2
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IS THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------- -------- -------- -------- -----------
BALANCE AT BALANCE
BEGINNING CHARGED TO AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS* OF PERIOD
----------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Allowance for accounts receivable:
Year ended December 31, 1993 $ 5,229 $ 2,198 $ 3,597 $ 3,830
Year ended December 31, 1994 3,830 5,581 3,760 5,651
year ended December 31, 1995 5,651 9,952 5,273 10,330
Allowance for slow moving
inventory items:
Year ended December 31, 1993 $11,650 $ 7,451 $ 3,323 $15,778
Year ended December 31, 1994 15,778 7,062 4,683 18,157
Year ended December 31, 1995 18,157 5,867 3,822 20,202
</TABLE>
*Principally account write-offs, allowances and disposal of merchandise,
respectively.
42
<PAGE> 43
Exhibit Index
Exhibit Numbers
10.110 Asset Purchase Agreement By and Among PF ACQUISITION CORP., ZEBRA CAPITAL
CORPORATION, PAPEL/FREELANCE, INC. and RUSS BERRIE AND COMPANY, INC.
dated December 15, 1995
21.1 List of Subsidiaries
23.1 Report of Independent Accountants
23.2 Consent of Independent Accountants
27.1 Financial Data Schedule
43
<PAGE> 1
--------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND AMONG
PF ACQUISITION CORP.,
ZEBRA CAPITAL CORPORATION,
PAPEL/FREELANCE, INC.
AND
RUSS BERRIE AND COMPANY, INC.
DATED DECEMBER 15, 1995
------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. TRANSFER OF ASSETS AND LIABILITIES
Section 1.01 Assets to Be Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.02 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1.03 Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.04 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1.05 Deliveries by Seller
and Russ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1.06 Deliveries by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.07 Purchase Price Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.08 Express Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE II. RELATED MATTERS
Section 2.01 Change and Assignment of
Seller's Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.02 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.03 Consulting and Transition Services
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.04 License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.05 Guaranty Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.06 Books and Records of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.07 Confidentiality by Russ and Seller;
Personalized Mug Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.08 Confidentiality by Buyer and Zebra . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE III. REPRESENTATION AND WARRANTIES OF SELLER
Section 3.01 Organization; Authorization and
Valid and Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.02 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.03 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.04 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.05 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.06 Absence of Certain Changes
or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 3.07 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.08 Title to Properties; Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 3.09 Fixed and Other Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 3.10 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 3.11 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
- i -
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 3.12 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 3.13 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 3.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 3.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 3.16 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 3.17 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.18 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 3.19 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 3.20 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 3.21 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 3.22 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 3.23 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 3.24 Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 3.25 Adequacy of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 3.26 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 3.27 Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 3.28 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
AND ZEBRA
Section 4.01 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 4.02 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 4.03 Valid and Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 4.04 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 4.05 H-S-R Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 4.06 WARN Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE V. OTHER OBLIGATIONS OF THE PARTIES
Section 5.01 Conduct of Business Pending
the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 5.02 Other Obligations of Seller Pending
the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
a. Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
b. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
c. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
d. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
e. Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
f. Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
</TABLE>
- ii -
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 5.03 Post-Closing Deliveries by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 5.04 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 5.05 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 5.06 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 5.07 Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 5.08 Obligations of Buyer and Zebra
Pending the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF BUYER
Section 6.01 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 6.02 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 6.03 Officer's Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 6.04 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 6.05 Consulting and Transition Services
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 6.06 Occupancy Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 6.07 License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 6.08 Guaranty Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 6.09 Opinion of Counsel to Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 6.10 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 6.11 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 6.12 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 6.13 No Government Proceeding or
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 6.14 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 6.15 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
ARTICLE VII. CONDITIONS TO OBLIGATIONS OF SELLER
Section 7.01 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 7.02 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 7.03 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 7.04 Assumption Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 7.05 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 7.06 Consulting and Transition Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 7.07 Occupancy Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 7.08 License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 7.09 Opinion of Counsel of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
</TABLE>
- iii -
<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 7.10 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 7.11 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 7.12 Security for Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
ARTICLE VIII. SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION
Section 8.01 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 8.02 Statements as Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 8.03 Agreement of Seller to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 8.04 Agreement of Buyer to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 8.05 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 8.06 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 8.07 Tax Benefits; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
ARTICLE IX. TERMINATION; AMENDMENT AND WAIVER
Section 9.01 Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 9.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 9.03 Amendment, Extension and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
ARTICLE X. MISCELLANEOUS
Section 10.01 No Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 10.02 Expenses; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 10.03 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 10.04 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 10.05 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 10.06 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 10.07 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 10.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 10.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 10.10 Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 10.11 Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
</TABLE>
- iv -
<PAGE> 6
TABLE OF CONTENTS
(continued)
EXHIBIT A - Form of Bill of Sale
EXHIBIT B - Form of Assignment and Assumption
Agreement
EXHIBIT C - [Intentionally Omitted]
EXHIBIT D - Form of Escrow Agreement
EXHIBIT E - Form of Consulting and Transition
Services Agreement
EXHIBIT F - Form of License Agreement
EXHIBIT G - Form of Guaranty Agreement
EXHIBIT H - Form of Opinion of Counsel to Seller
EXHIBIT I - Form of Opinion of Counsel to Buyer
- v -
<PAGE> 7
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated December 15, 1995 (the "Agreement"), by
and among PF ACQUISITION CORP., a New Jersey corporation ("Buyer"), ZEBRA
CAPITAL CORPORATION, a Delaware corporation ("Zebra"), but solely for purposes
of Sections 1.02, 1.07, 2.04 and 2.08, Article IV, Sections 5.08 and 9.02 and
Article X hereof and as guarantor of Buyer's obligation to close and to pay the
Purchase Price (as hereinafter defined) and the other payments required of
Buyer under this Agreement, PAPEL/FREELANCE, INC., a Pennsylvania corporation
("Seller"), and RUSS BERRIE AND COMPANY, INC., a New Jersey corporation and the
sole shareholder of Seller ("Russ"), but solely for purposes of Sections 1.05,
2.02, 2.03, 2.04, 2.05, 2.07 and 5.05 and Article X hereof.
WHEREAS, pursuant to the terms and conditions of this Agreement, Seller
desires to sell to Buyer, and Buyer desires to purchase from Seller,
substantially all of the property and assets, tangible and intangible, owned by
Seller, excluding certain assets more particularly described herein;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and
<PAGE> 8
conditions hereinafter set forth, and intending to be legally bound hereby, the
parties hereto agree as follows:
- 2 -
<PAGE> 9
I. TRANSFER OF ASSETS AND LIABILITIES
1.01 Assets to Be Purchased.
(a) Subject to the terms and conditions of this Agreement, at the
Closing provided for in Section 1.04 hereof (the "Closing"), Seller will sell,
convey, assign, transfer and deliver to Buyer all of Seller's rights, title and
interest in and to all the properties, contracts and other assets (of every
kind, nature, character and description, whether real, personal or mixed,
whether tangible or intangible, whether known or unknown, whether accrued,
contingent or otherwise, wherever situated and whether or not reflected on the
books and records of Seller), goodwill and business as a going concern of
Seller, other than the Excluded Assets (as defined in subsection (c) below)
(the "Assets"). Subject to the provisions of subsection (c) below, the Assets
shall include, without limitation, all of Seller's right, title and interest in
and to the following items, if any: (i) inventories (including operating
supplies, raw materials, work-in-progress, finished goods, samples, consigned
goods, inventories in transit to Seller's facilities or in vendor locations and
other inventories) ("Inventories") and other current assets (other than cash or
cash equivalents), including, without limitation, accounts receivable (other
than intercompany
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accounts); property, plant and equipment, including improvements (other than
(i) leasehold improvements listed on Schedule 1.01(c)(vi) hereto that are
permanent fixtures at any of Seller's facilities, (ii) leasehold improvements
as defined in the master leases covering the real property at which Seller's
offices are located in Cranbury and Dayton, New Jersey, and (iii) all related
construction-in-progress (collectively, "Leasehold Improvements")), machinery,
tools, equipment, furniture and construction in progress relating to such
assets (other than construction in progress relating to Leasehold
Improvements); and motor vehicles (including, without limitation, the motor
vehicles currently used by Harry Drum and Russ Rossi), in all cases whether
situated at Seller's principal office in Cranbury, New Jersey, its
Design/Product Development facility at Dayton, New Jersey, its former
California facility, if any, in Asia or at Bright of America, Inc. (it being
understood that Buyer shall have the right, at its sole expense, at any time
following the Closing, upon reasonable notice, to transfer any of its
Inventories or other current assets located at Bright of America, Inc. to any
other location(s) that Buyer in its sole discretion may determine (and Seller
and Russ shall cooperate fully with Buyer to provide Buyer with access to
Bright of America, Inc. if
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Buyer should exercise such right); provided, however, that if Bright of
America, Inc. and Buyer have not entered into a manufacturing arrangement
within 90 days following the Closing Date, Buyer shall, within a reasonable
time thereafter (not to exceed 60 days), remove all of its equipment and
inventory then located at Bright of America, Inc.); as such Inventories and
other current assets, property, plant and equipment and motor vehicles are
reflected on the books and records of Seller as of the date hereof, together
with any additions and dispositions (as contemplated hereunder) thereto since
such date; (ii) contract rights, including, without limitation, contracts and
agreements with customers, suppliers and employees as well as all other
contracts, licenses, agreements and leases of real and personal property
(including, without limitation, that certain Agreement, dated October 16, 1992,
between Seller and Mr. Stanley Papel); (iii) the names "Papel", "Freelance" and
"Weaver Werks" and any and all trademarks, tradenames, patents, copyrights,
know-how, inventions, processes, formulae, proprietary technical information,
licenses, customer lists, trade secrets and other intellectual and industrial
property rights relating to Seller's business; (iv) rights to refunds,
deposits, prepayments and prepaid expenses (except as specifically provided
herein); (v)
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all records pertaining to customers, suppliers or personnel and all books,
ledgers, files and business records of every kind used in the conduct of
Seller's business, including without limitation, all records of account,
production records, supplier lists and customer lists (but excluding the
records identified in subsection (c) below); (vi) all advertising materials,
advertising and selling records, and all other documents relating thereto owned
by Seller; (vii) to the extent transferable, all governmental and other
licenses, permits, orders, franchises, approvals and certificates; and (viii)
all goodwill as a going concern and all other intangible properties.
(b) Such sale, conveyance, assignment, transfer and delivery will be
effected by delivery by Seller to Buyer of (i) a duly executed bill of sale
(the "Bill of Sale") in the form attached hereto as Exhibit A, (ii) other
appropriate instruments of assignment and assumption (collectively, the
"Instruments of Assignment and Assumption"), and (iii) such other good and
sufficient instruments of conveyance, transfer and assignment as shall be
necessary to convey to Buyer all of Seller's right, title and interest in and
to the Assets (collectively, the "Other Instruments"), free and clear of all
Liens (as defined in Section 3.08 hereof) except Permitted Liens (as defined in
Section 3.08
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hereof) and liabilities and obligations of Seller expressly assumed by Buyer
pursuant to Section 1.03 hereof.
(c) Anything contained in Section 1.01(a) hereof to the contrary
notwithstanding, there are expressly excluded from the Assets to be sold,
conveyed, assigned and transferred to Buyer the following assets (collectively,
the "Excluded Assets"):
(i) The consideration delivered by Buyer to Seller pursuant to this
Agreement;
(ii) All cash and cash equivalents (including bank accounts) as of
the Closing Date;
(iii) Minute books and stock books of Seller and financial, tax and
accounting records relating to periods ending prior to the Closing Date
(other than those records relating to open orders from customers and/or
suppliers), of which records Buyer shall be given copies or, to the extent
such records are incapable of being copied or such copying would be unduly
burdensome for Seller, access thereto on reasonable notice;
(iv) All of the assets of Papel/Freelance (UK) Ltd. and its
associated European operations (including, without limitation,
Papel/Freelance (Benelux) B.V.);
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(v) All of the assets of Amram's Distributing Ltd., d/b/a
Papel/Freelance Canada;
(vi) All Leasehold Improvements (it being understood that Seller's
warehouse racking located in Cranbury, New Jersey is not included as part
of such Leasehold Improvements);
(vii) All accounts receivable listed on Schedule 1.01(c)(vii) hereto
that have been written off by Seller as uncollectible and are not included
in the Unaudited October 31st Balance Sheet (as defined in Section 3.04
hereof) as an asset of Seller (it being understood that Buyer shall act as
collection agent for Seller with respect to such accounts receivable,
shall use reasonable efforts to collect such accounts receivable and shall
promptly remit to Seller any amounts collected with respect to such
accounts receivable).
(viii) All tax credits/refunds of Seller and/or claims therefor which
may be subsequently allowed or paid which relate to periods ending prior
to the Closing Date;
(ix) All of the outstanding capital stock of Enchanto Company and J.
LeShar and Associates;
(x) All racking and conveyor systems located at Seller's former
California facility;
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(xi) All intercompany receivables; and
(xii) All prepaid insurance.
The parties hereby acknowledge and agree that the Assets do not include
any assets owned by Russ or any affiliates of Russ which are separate entities
from Seller notwithstanding any similarity to the name of Seller, i.e.,
Papel/Freelance (UK) Ltd., Papel/Freelance (Benelux) B.V. and Amram's
Distributing, Ltd. d/b/a Papel/Freelance Canada. The foregoing
notwithstanding, upon the liquidation of any of these entities, Buyer shall be
assigned all rights to the name of such liquidated entity (other than any
rights to the name "Amram's Distributing, Ltd.")
1.02 Consideration.
(a) Subject to the terms and conditions of this Agreement, in
reliance on Seller's representations, warranties and agreements contained
herein, and in consideration of the aforesaid sale, conveyance, assignment,
transfer and delivery of the Assets, Buyer will deliver or cause to be
delivered, at the Closing, to Seller by wire transfer of immediately available
funds to such bank account or bank accounts as shall be designated by Seller in
writing prior to the Closing Date an amount in cash equal to $20,000,000 (the
"Purchase Price").
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(b) In consideration of the services to be provided by Russ to Buyer
under the Consulting and Transition Services Agreement (as defined in Section
2.03 hereof), Buyer will deliver or cause to be delivered, at the Closing, an
amount in cash equal to $2,000,000 by wire transfer of immediately available
funds or, at Buyer's option, a $2,000,000 irrevocable letter of credit from a
financial institution and in form reasonably acceptable to Seller to the Escrow
Agent (as defined in Section 2.02 hereof) to be held in escrow in accordance
with the terms of the Escrow Agreement (as defined in Section 2.02 hereof).
(c) Buyer and Seller have agreed upon the allocation of the Purchase
Price among the Assets and such allocation is set forth on Schedule 1.02(b)
hereto. Neither Buyer nor Seller, nor any of their respective affiliates,
shall take any position on any tax return inconsistent with such allocation of
the Purchase Price unless such party is advised by its accountants or tax
advisors in their reasonable opinion that it is required to do so by applicable
law, provided that in such event, such party shall provide written notice to
the other party of such position and advice.
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(d) Zebra hereby guarantees the full and timely performance of all
of Buyer's payment obligations under this Section 1.02 that are to be made on
or prior to the Closing Date.
1.03 Assumption of Liabilities. On the Closing Date, and as additional
consideration for the purchase of the Assets, Buyer shall execute and deliver
to Seller an Assignment and Assumption Agreement in the form attached hereto as
Exhibit B (the "Assumption Agreement"), pursuant to which Buyer shall assume
and agree to pay, perform and discharge when due all the (i) outstanding
accounts payable of Seller that have arisen in the ordinary course of business
and all the employee and payroll-related expenses of Seller with respect to
Transferred Employees (as hereinafter defined) that have accrued or been
incurred by Seller since Seller's last payroll date, except for those accounts
payable and/or employee and payroll-related expenses of Seller that should have
been discharged in the ordinary course of business from the date hereof to the
Closing Date, if any; (ii) those obligations of Seller outstanding as of the
Closing under and with respect to all the leases set forth on Schedule 3.11
hereto and all the contracts, commitments, arrangements and understandings
(including letters of credit, with respect to which Buyer shall assume Seller's
reimbursement obligations and
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secure releases of Seller therefrom or make deposits in appropriate amounts to
fully secure payment thereof) including but not limited to those set forth on
Schedule 3.18 hereto, which Schedule 3.18 shall separately set forth all
letters of credit outstanding as of the date hereof and which Schedules 3.11
and 3.18 shall be updated prior to Closing to reflect any new leases,
contracts, commitments, arrangements or understandings entered into in the
ordinary course of business consistent with past practice from the date hereof
through the Closing Date, (iii) those obligations of Seller under and with
respect to any and all purchase and sale commitments with respect to open
unfilled purchase orders issued to suppliers and open unfilled sales orders
received from customers in existence as of the Closing and (iv) those
obligations of Seller with respect to the 1995 bonus entitlements of the senior
executives listed on Schedule 1.03 hereto (collectively, the "Assumed
Liabilities"). The foregoing notwithstanding, the Assumed Liabilities shall
not include any amounts owed to Aetna Life Insurance Company with respect to
"look-back" medical insurance premiums, any amounts still owed to Weaver Corp.
in connection with that certain Sale and Purchase Agreement, dated October 16,
1991, between Weaver Corp. and Seller or any intercompany indebtedness or
intercompany accounts
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of Seller other than (x) such accounts payable to Bright of America, Inc. and
to Cap Toys, Inc. listed on Schedule 1.03 hereto (it being understood that
Buyer's agreement to assume Seller's accounts payable to Cap Toys, Inc. at
Closing is based upon Buyer's understanding that Cap Toys, Inc. shall for a
minimum period of one year following the Closing Date continue to provide its
product(s) (to the extent such product(s) are available to fill orders) to
Buyer in a manner and on terms and conditions consistent with past practice)
and (y) such other accounts payable to Bright of America, Inc. and Cap Toys,
Inc. incurred by Seller in the ordinary course of business consistent with past
practice from the date hereof through the Closing Date (it being understood
that Schedule 1.03 hereto shall be updated by Seller and delivered to Buyer at
Closing). Except for the Assumed Liabilities, Buyer is not assuming any other
liabilities (known or unknown), employee benefit plans, obligations, contracts
(written or otherwise), debts, expenses or costs of Seller of any kind or
nature whatsoever.
1.04 Closing. The Closing of the transactions contemplated by this
Agreement shall take place as soon as practicable, but not later than January
16, 1996, subject to the satisfaction or waiver of all of the conditions to
Closing set forth in Articles
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VI and VII hereof, at 10:00 a.m., local time, at the offices of Pryor, Cashman,
Sherman & Flynn, 410 Park Avenue, New York, New York 10022, or on such other
earlier date and at such other time or place as the parties may agree. The
date of the Closing is sometimes referred to herein as the "Closing Date".
1.05 Deliveries by Seller and Russ. At the Closing, Seller or Russ, as
the case may be, will deliver or cause to be delivered to Buyer and Escrow
Agent, as appropriate (unless delivered previously), the following:
(a) A duly executed Bill of Sale in the form attached hereto as
Exhibit A;
(b) Instruments of Assignment and Assumption and Other Instruments
in form and substance reasonably satisfactory to Buyer, referred to in Sections
1.01(b)(ii), 1.01(b)(iii) and 2.01 hereof;
(c) The Escrow Agreement referred to in Section 2.02 hereof, duly
executed by Seller and Russ;
(d) The Consulting and Transition Services Agreement referred to in
Section 2.03 hereof, duly executed by Seller and Russ;
(e) The License Agreement referred to in Section 2.04 hereof, duly
executed by Seller and Russ;
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(f) The Guaranty Agreement referred to in Section 2.05 hereof, duly
executed by Russ;
(g) The books and records of Seller as provided in Section 2.06
hereof (which Seller shall deliver or make available, as appropriate, at the
applicable office of Seller);
(h) The officer's certificate referred to in Section 6.03 hereof;
(i) The opinion of counsel to Seller referred to in Section 6.09
hereof;
(j) Copies of all consents referred to in Section 6.11 hereof;
(k) Resolutions of Seller's sole stockholder and Board of Directors,
as certified by Seller's Secretary or Assistant Secretary, and of Russ's Board
of Directors or Executive Committee, as appropriate, as certified by Russ's
Secretary or Assistant Secretary, authorizing this Agreement and the other
agreements, documents and instruments to be executed and delivered by Seller
and/or Russ, as the case may be, pursuant hereto and the transactions
contemplated hereby and thereby; and
(l) The Occupancy Agreement in form of Exhibit A to the Consulting
and Transition Services Agreement, duly executed by Russ.
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1.06 Deliveries by Buyer. At the Closing, Buyer will deliver or cause to
be delivered to Seller, Russ and/or Escrow Agent, as appropriate (unless
previously delivered), the following:
(a) The funds referred to in Sections 1.02(a) and 1.02(b) hereof;
(b) A duly executed Assumption Agreement in the form of Exhibit B
hereto;
(c) The Escrow Agreement referred to in Section 2.02 hereof, duly
executed by Buyer;
(d) The Consulting and Transition Services Agreement referred to in
Section 2.03 hereof, duly executed by Buyer;
(e) The License Agreement referred to in Section 2.04 hereof, duly
executed by Buyer;
(f) The officer's certificate referred to in Section 7.03 hereof;
(g) The opinion of counsel to Buyer referred to in Section 7.09
hereof;
(h) The Occupancy Agreement in the form of Exhibit A to the
Consulting and Transition Services Agreement, duly executed by Buyer;
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(i) Resolutions of Buyer's Board of Directors, as certified by
Buyer's Secretary or Assistant Secretary, authorizing this Agreement and the
other agreements, documents and instruments to be executed and delivered by
Buyer pursuant hereto and the transactions contemplated hereby and thereby; and
(j) A copy of Buyer's Resale Tax Certificate.
(k) A guarantee executed by Zebra or an irrevocable letter of credit
pursuant to Section 1.07(d) hereof, if one or the other is required pursuant to
Section 1.07(d) hereof.
1.07 Purchase Price Adjustments.
(a) (i) No later than five business days prior to the Closing Date,
Seller shall deliver to Buyer and Buyer's Accountants (as defined below) a
balance sheet estimating the Assets and the Assumed Liabilities of Seller which
will be acquired by Buyer at the Closing (the "Estimated Closing Date Balance
Sheet"). The Estimated Closing Date Balance Sheet shall be prepared in
accordance with generally accepted accounting principles from the books and
records of Seller, and fairly present an estimate of the financial position of
the Assets and Assumed Liabilities as of the Closing Date. The Estimated
Closing Date Balance Sheet shall set forth the amount (the "Estimated Net
Assets Purchase Price Adjustment"), if any, by
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which the Net Assets (as defined below) reflected in the Estimated Closing Date
Balance Sheet are less than $14,375,000 (the "Target Net Assets Amount") or
greater than $15,000,000, as the case may be. The term "Net Assets" shall mean
the excess of the Assets of Seller, over the Assumed Liabilities of Seller. The
Estimated Closing Date Balance Sheet and the accompanying reports of Seller
shall be reasonably acceptable to Buyer and Buyer's Accountants (as hereinafter
defined), to arrive at an amount for the Net Assets which takes into account
only the Assets and Assumed Liabilities of Seller. The foregoing
notwithstanding, in the event that the parties in good faith cannot agree upon
the Estimated Net Assets Purchase Price Adjustment, the Net Assets reflected in
the Estimated Closing Date Balance Sheet shall for purposes of this Section
1.07 be deemed to be the greater of the amount that Buyer in good faith
believes is the appropriate amount and $12,375,000, and the Estimated Net
Assets Purchase Price Adjustment shall for purposes of this Section 1.07 be
deemed to be the lesser of the Purchase Price reduction amount that Buyer in
good faith believes is the appropriate amount and a $2,000,000 Purchase Price
reduction. If Buyer disputes the Estimated Net Assets Purchase Price
Adjustment by Seller, Buyer shall provide Seller with a statement, executed
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by an executive officer of Buyer, setting forth the amounts and items disputed
by Buyer and the amount of the adjustment (for each item and in the aggregate)
proposed by Buyer.
(ii) Seller agrees to permit Buyer, Buyer's Accountants, and
their respective representatives, during normal business hours (upon reasonable
notice and without unreasonable disruption), to have reasonable access to, and
to examine and make copies of, all books and records of Seller, including but
not limited to, the books, records, schedules, work papers of Seller, which
access and examination are necessary, in the reasonable opinion of Buyer or
Buyer's Accountants, to review the Estimated Closing Date Balance Sheet.
Buyer's Accountants shall have the opportunity to observe the taking of the
inventory in connection with the preparation of the Estimated Closing Date
Balance Sheet, if one takes place at such time, or any taking of inventory that
may take place at an earlier date.
(iii) On the Closing Date, an amount in cash equal to the
Estimated Net Assets Purchase Price Adjustment, if any, set forth in the report
of Seller pursuant to Section 1.07(a)(i) above shall be withheld from the
Purchase Price (if the Net Assets reflected in the Estimated Closing Date
Balance Sheet are less than the Target Net Assets Amount) or added to the
Purchase
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Price (if such Net Assets are greater than $15,000,000), pending Seller's
delivery of the Final Closing Date Balance Sheet (as defined below) to Buyer.
(b) A balance sheet of the Seller prepared as of the close of
business on the Closing Date (the "Final Closing Date Balance Sheet") and
certified by Coopers & Lybrand L.L.P. ("Seller's Accountants"), shall be
prepared in the following manner:
(i) Within 120 days after the Closing Date, Seller shall
deliver to Buyer the Final Closing Date Balance Sheet, prepared in
accordance with generally accepted accounting principles from the books
and records of Seller, and fairly presenting the financial position of the
Seller as of the Closing Date. The Final Closing Date Balance Sheet shall
be an audited Balance Sheet, which shall be accompanied by a report of
Seller's Accountants stating that (I) the examination of the Final Closing
Date Balance Sheet has been made in accordance with generally accepted
auditing standards and (II) the Final Closing Date Balance Sheet has been
prepared in accordance with generally accepted accounting principles.
Seller shall deliver to Buyer (at the same time as the Final Closing Date
Balance Sheet) a separate
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schedule prepared by Seller setting forth all adjustments required under
this Agreement to arrive at the Purchase Price ("Adjustment Schedule") and
setting forth the amount (the "Final Net Assets Purchase Price
Adjustment"), if any, by which the assets less liabilities reflected in
the Final Closing Date Balance Sheet adjusted by the items reflected on
the Adjustment Schedule are less than the Target Net Assets Amount (in
which case the Purchase Price shall be reduced by the amount of the Final
Net Assets Purchase Price Adjustment, subject to Section 1.07(c) below) or
greater than $15,000,000 (in which case the Purchase Price shall be
increased by the amount of the Final Net Assets Purchase Price Adjustment,
subject to Section 1.07(c) below). The Final Closing Date Balance Sheet
as modified by the Adjustment Schedule and the accompanying reports of
Seller in the form of the Adjustment Schedule shall be prepared in such a
manner as to arrive at an amount for the Net Assets which takes into
account only the Assets and Assumed Liabilities of Seller.
(ii) The Final Closing Date Balance Sheet as modified by the
Adjustment Schedule shall be deemed final and binding on Buyer and Seller
for purposes of the
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adjustment to Purchase Price contemplated by Section 1.07(c) hereof,
unless within 30 days following the delivery of the Final Closing Date
Balance Sheet as modified by the Adjustment Schedule, Buyer or its
independent certified public accountants ("Buyer's Accountants") object to
any of the information contained in the Final Closing Date Balance Sheet
as modified by the Adjustment Schedule which could affect the necessity or
amount of any payment by Seller pursuant to Section 1.07(c) hereof by
delivery of written notice to Seller setting forth such objections.
(iii) The resolution by Buyer and Seller of any dispute
relating to the Final Closing Date Balance Sheet as modified by the
Adjustment Schedule shall be final and binding on Buyer and Seller for
purposes of the adjustment to Purchase Price contemplated by Section
1.07(c) hereof. In the event Buyer and Seller are unable to resolve any
dispute or disagreement relating to the Final Closing Date Balance Sheet
as modified by the Adjustment Schedule, either party, within the 15th and
30th days following Seller's receipt of Buyer's objections, may elect to
have all such disputes or disagreements resolved by Arthur Andersen & Co.,
or such other nationally-recognized independent certified
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public accountants as are designated by Seller's Accountants and Buyer's
Accountants (the "Third Accounting Firm"). Such resolution by the Third
Accounting Firm shall be final and binding on Buyer and Seller for
purposes of the adjustment to Purchase Price contemplated by Section
1.07(c) hereof. The Third Accounting Firm shall be instructed to use every
reasonable effort to perform such services within 45 days of the
submission of the Final Closing Date Balance Sheet as modified by the
Adjustment Schedule, Buyer's written notice of objections to it and
Seller's response thereto and, in any case, as soon as practicable after
such submission. The costs and expenses for the services of Buyer's
Accountants shall be borne by Buyer and the costs and expenses for the
services of Seller's Accountants shall be borne by Seller. The costs and
expenses for the services of the Third Accounting Firm shall be shared
equally by Buyer and Seller.
(iv) Seller agrees to permit Buyer, Buyer's Accountants, and
their respective representatives, during normal business hours (upon
reasonable notice and without unreasonable disruption), to have reasonable
access to, and to examine and make copies of, all books and records of
Seller, and agrees to use reasonable efforts to obtain (i)
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access by Buyer, Buyer's Accountants and their respective representatives
to the books, records, schedules and work papers prepared by Seller's
Accountants, including audit differences noted by Seller's Accountants but
not reflected in the Final Closing Date Balance Sheet as modified by the
Adjustment Schedule, and (ii) access to representatives of Seller's
Accountants, which access and examination are necessary, in the reasonable
opinion of Buyer or Buyer's Accountants, to review the Final Closing Date
Balance Sheet as modified by the Adjustment Schedule. In addition,
Buyer's Accountants shall have the opportunity to observe the taking of
the inventory in connection with the preparation of the Final Closing Date
Balance Sheet, which shall be required to take place on or about the
Closing Date.
(c) On the fifth business day (the "Net Assets Adjustment Date")
following the final determination of the Final Closing Date Balance Sheet as
modified by the Adjustment Schedule pursuant to Section 1.07(b) hereof, as an
adjustment to the Purchase Price, the following payments shall be made:
(i) in the event that the Estimated Net Assets Purchase Price
Adjustment resulted in a Purchase Price reduction:
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(I) if the Final Net Assets Purchase Price Adjustment
results in a Purchase Price reduction and such reduction is in excess
of the reduction that resulted from the Estimated Net Assets Purchase
Price Adjustment, Seller shall pay to Buyer an amount equal to the
amount of such excess, together with interest thereon at the prime
rate as announced by Citibank, N.A. (the "Citibank Prime") on the Net
Assets Adjustment Date; or
(II) if the Final Net Assets Purchase Price Adjustment
results in a Purchase Price reduction, but such reduction is less
than the Purchase Price reduction that resulted from the Estimated
Net Assets Purchase Price Adjustment, Buyer shall pay to Seller an
amount equal to the amount of such difference, together with interest
thereon at the Citibank Prime; or
(III) if the Net Assets reflected in the Final Closing
Date Balance Sheet as modified by the Adjustment Schedule are greater
than the Target Net Assets Amount by an amount equal to or less than
$625,000, Buyer shall pay to Seller an amount equal to the Estimated
Net Asset Purchase Price Adjustment,
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together with interest thereon at the Citibank Prime; or
(IV) if the Net Assets reflected in the Final Closing
Date Balance Sheet as modified by the Adjustment Schedule are greater
than the Target Net Asset Amount by an amount in excess of $625,000,
Buyer shall pay to Seller an amount equal to the sum of (x) the
Estimated Net Asset Purchase Price Adjustment and (y) the amount of
such excess, together with interest on the aggregate amount at the
Citibank Prime;
(ii) in the event that the Estimated Net Assets Purchase Price
Adjustment resulted in a Purchase Price increase:
(I) if the Final Net Assets Purchase Price Adjustment
results in a Purchase Price reduction, Seller shall pay to Buyer an
amount equal to the sum of (x) the Estimated Net Assets Purchase
Price Adjustment and (y) the Final Net Assets Purchase Price
Adjustment, together with interest on the aggregate amount at the
Citibank Prime; or
(II) if the Net Assets reflected in the Final Closing
Date Balance Sheet as modified by the Adjustment Schedule are greater
than the Target Net
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<PAGE> 33
Asset Amount by an amount equal to or less than $625,000, Seller
shall pay to Buyer an amount equal to the Estimated Net Assets
Purchase Price Adjustment, together with interest thereon at the
Citibank Prime; or
(III) if the Final Net Assets Purchase Price Adjustment
results in a Purchase Price increase, but such increase is less than
the increase that resulted from the Estimated Net Assets Purchase
Price Adjustment, Seller shall pay to Buyer an amount equal to the
amount of such difference, together with interest thereon at the
Citibank Prime; or
(IV) if the Final Net Assets Purchase Price Adjustment
results in a Purchase Price increase and such increase is in excess
of the increase that resulted from the Estimated Net Assets Purchase
Price Adjustment, Buyer shall pay to Seller an amount equal to the
amount of such excess, together with interest thereon at the Citibank
Prime;
(iii) in the event that there was no Estimated Net Assets
Purchase Price Adjustment, Buyer or Seller, as the case may be, shall pay to
the other an amount equal to the Final
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<PAGE> 34
Net Assets Purchase Price Adjustment, if any, together with interest thereon at
the Citibank Prime;
(iv) any amounts payable by Buyer or Seller, as the case may
be, pursuant to this Section 1.07(c) shall be made by wire transfer in
immediately available funds to an account or accounts designated by Buyer or
Seller, as the case may be, or by delivery of a certified or bank cashier's
check in immediately available funds.
(d) To secure Buyer's obligations under this Section 1.07, Zebra
hereby agrees, as a condition to Seller's obligations to close hereunder, to,
on the Closing Date, either (i) deliver a guarantee of the full and timely
performance of all of Buyer's payment obligations under this Section 1.07, in
form and substance reasonably satisfactory to Seller, or (ii) provide Seller
with an irrevocable letter of credit (in form and substance reasonably
acceptable to Seller) in an amount equal to the difference, if any, between (x)
the amount that Seller in good faith believes is equal to the Net Assets
reflected in the Estimated Closing Date Balance Sheet (assuming that Buyer in
good faith disputes such amount) and (y) $12,375,000, up to a maximum amount of
$500,000.
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1.08 Express Agreement. Except as and to the extent otherwise expressly
provided in this Agreement, the Assumption Agreement and/or the other
agreements, documents and instruments to be executed and delivered by parties
pursuant hereto (collectively the "Related Documents"), Buyer has not agreed to
pay, will not be required to assume, and will not have any liability or
obligation with respect to, any liability or obligation, direct or indirect,
absolute or contingent, of Seller, any associate or affiliate of Seller (as the
terms "associate" and "affiliate" are defined by the Rules and Regulations
promulgated under the Securities Act of 1933, as amended) or any other person.
Any such liability or obligation shall remain the liability or obligation of
Seller and/or Russ, any associate or affiliate of Seller and/or of such other
person, as the case may be.
II. RELATED MATTERS
2.01 Change and Assignment of Seller's Name. At or prior to the Closing,
Seller will cause an amendment to its Articles of Incorporation (or equivalent
organizational document) to be adopted for filing with the Secretary of State
of the State of Pennsylvania changing its name from "Papel/Freelance, Inc." to
a name which does not resemble "Papel/Freelance, Inc." (which
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<PAGE> 36
amendment shall become effective as of the Closing Date to the extent permitted
under applicable law) and will cause to be filed immediately following the
Closing, with the States of California and New Jersey, such documents necessary
to reflect such change in its corporate name or to terminate its qualification
therein. At the Closing, Seller will deliver to Buyer a duplicate of such
Certificate of Amendment and such documents (to be filed with the State of
Pennsylvania and the States of California and New Jersey, respectively),
together with a complete and correct copy, certified by Seller's Secretary or
Assistant Secretary, of the resolutions of Seller's Board of Directors and sole
stockholder authorizing and approving such change of name (which resolutions
will not have been modified, revoked or rescinded in any respect). Seller will
not thereafter use or permit any of its affiliates to use the name
"Papel/Freelance, Inc." or any variant or derivative thereof except for
Papel/Freelance (UK) Ltd., Papel/Freelance (Benelux) B.V. and Papel/Freelance
Canada as expressly permitted herein or Papel/Freelance, Inc. in connection
with the collection of accounts receivable set forth on Schedule 1.01(c)(vii)
hereto and the litigation matters disclosed on Schedule 3.14 hereto. In
connection with enabling Buyer, at or as soon as practicable after the Closing,
to use the name
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<PAGE> 37
"Papel/Freelance, Inc.", Seller will, at or prior to the Closing, execute and
deliver to Buyer all consents and instruments of assignment related to such use
of such name as may be reasonably requested by Buyer.
2.02 Escrow Agreement. At the Closing, Buyer, Seller, Russ and Chemical
Bank, N.A., as escrow agent (the "Escrow Agent"), shall enter into an Escrow
Agreement (the "Escrow Agreement"), which shall be in the form attached hereto
as Exhibit D, pursuant to which, among other things, Buyer shall deposit with
the Escrow Agent at Closing an amount in cash equal to $2,000,000.
Alternatively, the Buyer may, at its option, substitute such $2,000,000 in cash
with a $2,000,000 irrevocable letter of credit issued by a financial
institution and in form reasonably acceptable to Seller. (Such $2,000,000 in
cash or $2,000,000 irrevocable letter of credit, as the case may be, shall
hereinafter be referred to as, the "Escrow Deposit"), as more fully discussed
in the Escrow Agreement.
2.03 Consulting and Transition Services Agreement. At the Closing,
Buyer, Seller and Russ shall enter into a Consulting and Transition Services
Agreement (the "Consulting and Transition Services Agreement"), which shall be
in the form attached hereto as Exhibit E, pursuant to which, among other
things, Russ shall
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<PAGE> 38
provide consulting services to Buyer in connection with Buyer's completion of
certain transition matters, as more fully discussed in the Consulting and
Transition Services Agreement.
2.04 License Agreement. At the Closing, Russ, Seller and Buyer shall
enter into a License Agreement (the "License Agreement"), which shall be in the
form attached hereto as Exhibit F, pursuant to which, among other things, Russ
shall license to Buyer on a non-exclusive basis its existing software system
(other than Russ's current accounting software system) which has historically
been used by Seller in the operation of its business for an aggregate royalty
of $1 million, payable by Buyer at Closing, as more fully discussed in the
License Agreement. Zebra hereby guarantees the full and timely performance of
all of such $1,000,000 payment obligation of Buyer under this Section 2.04 and
the License Agreement, but such guarantee shall not extend to any other
obligation of Buyer under this Section 2.04 and the License Agreement.
2.05 Guaranty Agreement. At the Closing, Russ shall execute and deliver
a Guaranty Agreement (the "Guaranty Agreement"), which shall be in the form
attached hereto as Exhibit G, pursuant to which, among other things, Russ shall
unconditionally and irrevocably guarantee the full and timely
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<PAGE> 39
payment by Seller of all of its obligations under this Agreement (it being
understood that such payments shall include any damages due from Seller to
Buyer as a result of Seller's failure to perform any of its obligations under
this Agreement), as more fully discussed in the Guaranty Agreement.
2.06 Books and Records of Seller. Seller agrees to deliver or make
available as herein provided to Buyer at or as soon as practicable after the
Closing, as requested by Buyer, all books and records of Seller (including, but
not limited to, correspondence, memoranda, books of account, personnel and
payroll records and the like, but excluding such books and records as are
described in Section 1.01(c) hereof). All books and records of Seller which
are not delivered to Buyer hereunder will be preserved by Seller for a period
of five (5) years following the Closing and made available to Buyer and its
authorized representatives upon reasonable notice during normal business hours
for purposes of review and/or for purposes of making copies or extracts
therefrom if so desired by Buyer. Buyer agrees to make available to Seller and
its authorized representatives during such period as reasonably requested by
Seller the books and records previously delivered by Seller to Buyer for
purposes of review and/or for purposes of making copies or extracts therefrom
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if so desired by Seller at Seller's cost and expense. Seller shall be entitled
to retain copies of any documents or records delivered to Buyer which are
necessary for tax, litigation or other legitimate business purposes. After the
Closing, Buyer shall provide Seller with access during normal business hours to
the Transferred Employees at no cost to Seller in connection with litigation
and such other matters as may be reasonably requested by Seller.
2.07 Confidentiality by Russ and Seller; Personalized Mug Program.
(a) Each of Russ and Seller acknowledges that, after the
consummation of the transactions contemplated by this Agreement, Buyer would be
irreparably damaged if confidential information about Seller's business were
disclosed to or utilized on behalf of any person, firm, corporation or other
business organization which is in competition in any respect with any line or
lines of business of Seller. Each of Russ and Seller covenants and agrees
that, following the Closing, it will not at any time, and will use its best
efforts to cause its employees, agents, affiliates and associates (as the terms
"affiliate" and "associate" are defined by the Rules and Regulations
promulgated under the Securities Act of 1933, as amended) not to at any time,
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<PAGE> 41
without the prior written consent of Buyer, disclose or use any such
confidential information in any way to directly or indirectly promote their
respective businesses, except to employees and authorized representatives of
Buyer. In connection therewith, Seller and Russ acknowledge that they have
used reasonable efforts to deliver all such confidential information about
Seller's business (including without limitation, to the extent applicable, the
Assets) to Buyer, without to their knowledge retaining any copies thereof or
extracts therefrom (other than those necessary for tax, accounting or legal
purposes). The restrictions and obligations of confidentiality hereunder shall
not apply to any confidential information which:
(i) is or shall have become public knowledge through no fault
of the party having the obligation of confidentiality under this Agreement;
(ii) is disclosed without restriction to the other party by a
third party who is in lawful possession thereof and who has the right to make
such disclosure; or
(iii) is required to be disclosed pursuant to court order or
government action.
To the extent that Russ and its affiliates (other than Seller) are in
possession of confidential information concerning their
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<PAGE> 42
lines of business that may overlap in whole or in part, with confidential
information concerning the lines of business of Seller, nothing in this
Agreement shall be construed to restrict Russ and its affiliates (other than
Seller) from continuing to utilize, disclose or otherwise transfer or use such
of their confidential information in their lines of business.
(b) In furtherance of this Section 2.07 and to secure the interests
of Buyer hereunder, Seller and Russ agree that for a period of three (3) years
from the Closing Date, neither they nor any of their respective affiliates will
engage, directly or indirectly, in any activity relating to the design, sale
and/or distribution of personalized mugs or a line of personalized mug
products; nor will they directly or indirectly, enter into a material
contractual relationship with any person, firm, association, partnership,
corporation or other entity with respect to the design, sale and/or
distribution of personalized mugs or a line of personalized mug products;
provided that nothing herein shall prohibit Russ or its affiliates from
manufacturing (but not designing) personalized mugs for sale or distribution by
independent third parties. The parties hereby acknowledge and agree that Russ
and/or its subsidiaries and affiliates has in the past competed, and, except as
set forth in this subsection (b), will
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<PAGE> 43
in the future continue to compete, with the business currently conducted by
Seller and being sold to Buyer pursuant to this Agreement and nothing in this
Agreement, except as set forth in this subsection (b), shall preclude such
competition.
(c) It is agreed and understood by and among the parties to this
Agreement that the restrictive covenants set forth above are each individually
essential elements of this Agreement and that, but for agreement of Seller and
Russ to comply with such covenants, Buyer would not have agreed to enter into
this Agreement. Further, each of Seller and Russ expressly acknowledges that
the restriction contained in subsection (b) of this Section 2.07 is reasonable
and necessary to accomplish the mutual objectives of the parties and to protect
Buyer's legitimate interests in its business and business relationships. Each
of Seller and Russ further acknowledges that enforcement of the restrictions
contained herein will not deprive it, or any of its agents, servants or
employees, or any of them, of the ability to earn reasonable livings and that
any violation of the restrictions contained in this Agreement will cause
irreparable injury to Buyer. Such covenants of Seller and Russ shall be
construed as agreements independent of any other provision of this Agreement
and of each other.
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<PAGE> 44
(d) The parties hereto agree that damages at law, including, but not
limited to, monetary damages, will be an insufficient remedy to Buyer in the
event that the restrictive covenants of subsection (b) of this Section 2.07 are
violated and that, in addition to any remedies or rights that may be available
to Buyer, all of which other remedies or rights shall be deemed to be
cumulative, retained by Buyer and not waived by the enforcement of any remedy
available hereunder, including, but not limited to, the right to sue for
monetary damages, Buyer shall also be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief, including, but not
limited to, a temporary restraining order or temporary, preliminary or
permanent injunction, to enforce the provisions of this Section 2.07 as well as
an equitable accounting of all profits or benefits arising out of any such
violation, all of which shall constitute rights and remedies to which Buyer may
be entitled.
(e) If any court determines that the covenant contained in this
Section 2.07, or any part hereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.
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<PAGE> 45
2.08 Confidentiality by Buyer and Zebra. Buyer and Zebra each
acknowledges that they have been, and will be furnished with or become exposed
to certain confidential information which is considered confidential and
proprietary, regardless of whether such information is marked or otherwise
identified as confidential or proprietary, consisting of confidential
information of Seller including but not limited to customer lists and
relationships, product information, sales data, pricing practices and
procedures, purchasing and supplier information, business plans, projections,
financial information and other confidential and proprietary information
pertaining to Seller's business ("Seller Confidential Information"); and
confidential information of Russ or its affiliates other than Seller including
but not limited to customer lists and relationships, product information, sales
data, pricing practices and procedures, purchasing and supplier information,
business plans, projections, financial information and other confidential and
proprietary information pertaining to the business of Russ or such affiliates
("Russ Confidential Information") (Seller Confidential Information and Russ
Confidential Information collectively referred to herein as "Confidential
Information").
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<PAGE> 46
The parties acknowledge that Confidential Information does not
include information about the expression giftware industry generally which is
publicly available, but rather is intended to cover information that is
specific to the particular business, customer and supplier relationships of
Seller, Russ and/or their respective affiliates, as the case may be, or is
otherwise proprietary to Seller, Russ and/or their respective affiliates.
(a) Each of Buyer and Zebra covenants and agrees to keep the Russ
Confidential Information strictly confidential. Subject to subsection (b)
below, each of Buyer and Zebra covenants and agrees that the Seller
Confidential Information shall be kept confidential and shall not be
distributed, revealed or disclosed to anyone other than Buyer, Zebra, financial
institutions or other entities or individuals with whom Buyer is seeking
financing and a limited number of executive employees and professional advisors
of Buyer and Zebra. Buyer and Zebra shall insure by agreement or otherwise that
any person to whom disclosure of Confidential Information is made shall be
bound by the non-disclosure provisions of this Section and shall use reasonable
care to prevent dissemination of the Confidential Information to any other
persons.
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<PAGE> 47
(b) All obligations of Buyer and Zebra with respect to Seller
Confidential Information shall terminate immediately upon the Closing of the
transactions contemplated by this Agreement. All obligations of Buyer and Zebra
with respect to Russ Confidential Information shall survive the Closing and
shall continue with respect to Russ Confidential Information which becomes
known to Buyer or Zebra, respectively, at any time prior to or after the
Closing.
(c) If the transactions contemplated by this Agreement are not
consummated for any reason, Buyer and Zebra agree that:
(i) all copies of the Confidential Information in any form
whatsoever (including any notes, reports, transmittal letters, or
other writings prepared by or at the direction of Buyer, Zebra or
their representatives), shall be promptly returned to Seller, Russ
and/or their respective affiliates, as applicable, and Buyer and
Zebra shall not retain any such information in any form; and
(ii) Buyer and Zebra shall not, directly or indirectly, disclose
or use any of the Confidential Information for any purpose including,
but not limited
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<PAGE> 48
to, any purpose which is competitive with Seller, Russ and/or their
respective affiliates at any time.
(d) Each of Buyer and Zebra acknowledges that, after the Closing of
the transactions contemplated under this Agreement, Russ would be irreparably
damaged if Russ Confidential Information were disclosed to or utilized on
behalf of any person, firm, corporation or other business organization which is
in competition in any respect with any line or lines of business of Russ.
(e) The restrictions and obligations of confidentiality under this
Section 2.08 shall not apply to any portion of the Confidential Information
which:
(i) is or shall have become public knowledge through no fault
of the party having the obligation of confidentiality under this
Agreement;
(ii) is disclosed without restriction to the other party by a
third party who is in lawful possession thereof and who has the right
to make such disclosure; or
(iii) is required to be disclosed pursuant to court order or
government action.
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III. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
3.01 Organization; Authorization and Valid and Binding Agreement.
(a) Each of Seller and Russ is a corporation duly organized, validly
existing and in good standing under the laws of the State of their respective
jurisdiction and has the requisite corporate power and authority to enter into
this Agreement and the Related Documents (to the extent a party thereto), to
carry out the transactions contemplated hereby and thereby, including, without
limitation, the power and authority to convey the Assets, and to carry on its
respective business as presently conducted, and Seller has the requisite
corporate power and authority to own and lease the Assets and the other assets
and properties which it presently owns or leases.
(b) Seller is duly licensed or qualified to do business as a foreign
corporation, and is in good standing, in each United States jurisdiction
wherein the character of the Assets owned, leased or used by it, or the nature
of its business, makes such licensing or qualification to do business
necessary, except where the failure to be in good standing would not be
expected to have a material adverse effect on the business, assets, condition
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(financial and otherwise), results of operations or prospects of Seller with
respect to the Assets and the Assumed Liabilities, taken as a whole (a
"Material Adverse Effect"). Schedule 3.01(b) hereto contains a complete list
of each U.S. jurisdiction in which Seller is qualified to do business as a
foreign corporation. No other U.S. jurisdiction has claimed, in writing or
otherwise, that Seller is required to qualify or otherwise be authorized as a
foreign corporation therein and, except as set forth on Schedule 3.01(b) hereto
and except for consolidated tax returns of Russ, Seller does not file
franchise, income or other tax returns in any other U.S. jurisdiction based
upon the ownership or use of property therein or the derivation of income
therefrom. Seller does not own or lease real property in any jurisdiction in
the United States other than the jurisdictions set forth on Schedule 3.01(b)
hereto.
(c) The Board of Directors and sole shareholder of Seller and the
Board of Directors or Executive Committee of the Board of Directors, if
appropriate, of Russ have duly authorized the execution and delivery of this
Agreement and the Related Documents (to the extent a party thereto) and the
consummation by Seller and/or Russ, as the case may be, of the transactions
contemplated hereby and thereby. No other corporate or other
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<PAGE> 51
proceedings on the part of Seller and/or Russ are necessary to authorize this
Agreement or the Related Documents (to the extent a party thereto) or the
transactions contemplated hereby or thereby.
(d) This Agreement constitutes, and when executed and delivered each
of the Related Documents will constitute, a valid and binding agreement of
Seller and Russ, to the extent a party thereto, enforceable against Seller and
Russ, to the extent a party thereto, in accordance with its terms except that
(i) such enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to or limiting creditors' rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
3.02 Subsidiaries. For the purposes of this Agreement, the term
"subsidiary" shall mean any corporation, partnership, joint venture or other
entity more than 50% of whose outstanding voting securities or other ownership
interests are directly or indirectly owned by Seller. Except as set forth on
Schedule 3.02 hereto, Seller does not have any subsidiaries. Except as set
forth on
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Schedule 3.02 hereto, Seller does not own, directly or indirectly, any
capital stock of or other equity interest in, any corporation, partnership or
other business organization or entity.
3.03 No Violation. Except as set forth on Schedule 3.03 hereto, neither
the execution and delivery of this Agreement or the Related Documents nor the
consummation by Seller and/or Russ, as the case may be, of the transactions
contemplated hereby or thereby (a) will violate or conflict with any statute,
law, ordinance, rule, regulation, order, judgment or decree affecting Seller or
Russ, or (b) will violate or conflict with or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, or will result in the termination of, or accelerate the performance
required by, or result in the creation of any lien, security interest, charge
or encumbrance upon Seller or Russ or any of the Assets under, any term or
provision of (i) the Articles of Incorporation or By-Laws (or equivalent
organizational documents) of Seller or Russ or (ii) any contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character
to which Seller or Russ is a party or by which Seller or Russ is bound or
affected, or to which Seller or Russ or the Assets are
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<PAGE> 53
subject, or (c) will cause, or give any person grounds to cause (with or
without notice, the passage of time, or both), the maturity of any debt,
liability or obligation of Seller or Russ to be accelerated, or will increase
any such liability or obligation, excluding from the foregoing (other than
clause (b) (i) above) those violations, conflicts, defaults, rights or
terminations which would not, individually or in the aggregate, be expected to
have a Material Adverse Effect. Except as set forth on Schedule 3.03 hereto,
no consent, approval, authorization or action by any federal, state, local,
foreign or other governmental agency, instrumentality, commission, authority,
board or body (collectively, a "Governmental Agency") is required in connection
with the execution and delivery by Seller and/or Russ, as the case may be, of
this Agreement, the Related Documents (to the extent a party thereto) or the
consummation by Seller and/or Russ of the transactions contemplated hereby or
thereby. Seller has heretofore delivered to Buyer true and complete copies of
the Articles of Incorporation and By-laws (or equivalent organizational
documents) of Seller as in effect on the date hereof. The minute books of
Seller have been made available to Buyer for its inspection and they do not
contain any material omissions or
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<PAGE> 54
misstatements. The stock books of Seller have been made available to Buyer for
its inspection and they are true and complete.
3.04 Financial Statements. Seller has previously delivered to Buyer (i)
an audited balance sheet of Seller as at December 31, 1993 (the "Audited 1993
Balance Sheet"), and the related unaudited income statement of Seller for the
twelve-month period then ended (collectively, the "1993 Financial Statements"),
(ii) an audited balance sheet of Seller as at December 31, 1994 (the "1994
Audited Balance Sheet"), and the related audited income statement and audited
statement of cash flow of Seller for the twelve-month period then ended
(collectively, the "1994 Financial Statements") and (iii) an unaudited balance
sheet of Seller as at October 31, 1995 (the "Unaudited October 31st Balance
Sheet"), and the related unaudited income statement of Seller for the ten-month
period ended October 31, 1995 (collectively, the "Unaudited October 31,
1995 Financial Statements"). In addition, by no later than five (5) business
days prior to the Closing Date, Seller shall deliver to Buyer (i) an audited
balance sheet of Seller as at November 30, 1995 (the "Audited November 30th
Balance Sheet"), (ii) an audited income statement of Seller for the
eleven-month period ended November 30, 1995 (the "Audited November 30th Income
Statement") and (iii) an audited statement
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of cash flow for the eleven-month period ended November 30, 1995 (the "Audited
November 30th Cash Flow Statement") (collectively, the "Audited Statements"),
together with bridge schedules reconciling the audited 1994 Financial
Statements with the unaudited 1994 financial statements previously delivered to
Buyer. Except as set forth on Schedule 3.04 hereto, the Audited 1993 Balance
Sheet, the Audited 1994 Balance Sheet and the Unaudited October 31st Balance
Sheet fairly present (and the Audited November 30th Balance Sheet will fairly
present) the financial condition, working capital and assets and liabilities
(whether absolute, accrued, contingent or otherwise) of Seller as at the date
thereof, in accordance with generally accepted accounting principles applied on
a consistent basis in accordance with past practice. Except as set
forth on Schedule 3.04 hereto, the income statements (including the notes
thereto, if any) included in the 1993 Financial Statements, 1994 Financial
Statements and the Unaudited October 31, 1995 Financial Statements fairly
present (and the Audited November 30th Income Statement and Audited November
30th Cash Flow Statement will fairly present) the results of operations of
Seller for the respective periods indicated, in accordance with generally
accepted accounting principles applied on a consistent basis in
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<PAGE> 56
accordance with past practice. Seller has prepared and delivered to
Buyer income statements of Seller for each of the twelve-month periods ended
December 31, 1990, 1991, 1992, 1993 and 1994, and on a projected basis for the
twelve-month period ending December 31, 1995, each on a recast basis so as to
among other things itemize and exclude certain allocations from Russ to Seller
as disclosed therein. Such recast income statements reflect, in the case of
1995, the best estimate of Seller of the results of operations of Seller (after
excluding such allocations from Russ to Seller) for calendar year 1995, and all
of them were prepared in good faith based upon estimates, information and
assumptions which Seller believes were reasonable and fair in light of
conditions which existed when such estimates were made.
3.05 No Undisclosed Liabilities. Seller does not have any liabilities or
obligations of any nature (whether absolute, accrued, contingent or otherwise
and whether due or to become due), except for: (i) liabilities and obligations
of Seller of a type normally disclosed on a balance sheet which are disclosed
on the Unaudited October 31st Balance Sheet, or which will be disclosed on the
Audited November 30th Balance Sheet or the Estimated Closing Date Balance Sheet
or any notes thereto, and shall have been incurred in the ordinary course of
Seller's
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business; (ii) obligations of Seller under and with respect to all the leases
set forth on Schedule 3.11 hereto and all contracts, commitments, arrangements
and understandings (including letters of credit) set forth on Schedule 3.18
hereto; (iii) liabilities and obligations of Seller incurred in the ordinary
course of business consistent with past practice since October 31, 1995; and
(iv) liabilities and obligations disclosed on Schedule 3.05 hereto or otherwise
disclosed in this Agreement or any Exhibit or Schedule attached hereto. Except
as set forth on Schedule 3.05 hereto and those obligations of Seller under and
with respect to all the leases set forth on Schedule 3.11 hereto and all
contracts, commitments, arrangements and understandings (including letters of
credit) set forth on Schedule 3.18 hereto, to the best of Seller's knowledge,
there is no basis for the assertion against Seller of any material liability or
obligation not fully reflected or reserved against in the Unaudited October
31st Balance Sheet, or incurred in the ordinary course of business consistent
with past practice since the date thereof and to be reflected in the Audited
November 30th Balance Sheet or in the Estimated Closing Date Balance Sheet.
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<PAGE> 58
3.06 Absence of Certain Changes or Events.
(a) Except as and to the extent set forth on Schedule 3.06 hereto,
since December 31, 1994 (or such other date as specifically indicated below),
Seller has not:
(i) Declared or paid any dividends or declared or made any
other distributions of any kind to its shareholder or made any direct or
indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock.
(ii) Suffered any material adverse change in its business or
condition (financial or otherwise).
(iii) Experienced any material labor difficulty or suffered any
casualty loss not adequately covered by insurance.
(iv) Made any material change in its business or operations or
in the manner of conducting its business (other than changes in the
ordinary course of business consistent with past practice), including
without limitation, any change relating to the collection of accounts
receivable, including the setting of terms for receivables or credit
dating policies, payment of accounts payable and/or the maintenance of
inventory levels, including the
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<PAGE> 59
purchasing of products, reserving inventory and closing out inventory.
(v) Incurred any obligations or liabilities, including
without limitation, intercompany obligations or liabilities (whether
absolute, accrued, contingent or otherwise and whether due or to become
due), except items incurred in the ordinary course of business consistent
with past practice, or experienced any change in any assumptions
underlying or methods of calculating any bad debt, contingency or other
reserves, including without limitation, inventory write-off reserves.
(vi) Failed to pay, discharge and/or satisfy its debts,
liabilities or obligations on a timely basis as they became due, except
for intercompany liabilities incurred in the ordinary course of business.
(vii) Failed to pay, discharge and/or satisfy when due any
claim, lien, encumbrance or liability (whether absolute, accrued,
contingent or otherwise), except for intercompany liabilities incurred in
the ordinary course of business.
(viii) Permitted or allowed any of the Assets or any of its
other properties or assets (whether personal or
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mixed, tangible or intangible) to be mortgaged, pledged or subjected to
any lien, encumbrance, restriction or charge of any kind except Permitted
Liens (as defined in Section 3.08 hereof).
(ix) Written off or determined to write off as uncollectible
any of its notes or accounts receivable or any portion thereof, except for
write-offs in the ordinary course of business consistent with past
practice and at a rate no greater than during the twelve months ended
December 31, 1994.
(x) Cancelled or released any other debts or claims, or
waived any rights of substantial value, except for routine settlements or
resolutions of customer or supplier accounts in the ordinary course of
business consistent with past practice.
(xi) Sold, transferred or conveyed any of the Assets or any
of its other properties or assets (whether real, personal or mixed,
tangible or intangible), except in the ordinary course of business
consistent with past practice, including specifically any sales or
transfers of any assets to Russ or any of its affiliates.
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(xii) Disposed of or permitted to lapse, or otherwise failed
to preserve, any proprietary rights which were active as of January 1,
1995, disposed of or permitted to lapse any license, permit or other form
of authorization, or disposed of or disclosed to any person, other than
authorized representatives of Buyer, any customer list, trade secret,
formula, process or know-how, except such as are not material to the
business of Seller or otherwise in the ordinary course of business
consistent with past practice.
(xiii) Since January 1, 1995, granted any increase in the
compensation of any officer or employee of Seller (including, without
limitation, any increase pursuant to any bonus, pension, profit sharing or
other plan or commitment) or instituted or adopted any new benefit
programs, plans or other arrangements (including, without limitation,
employment contracts or severance arrangements) for any officer or
employee of Seller, other than in the ordinary course of business, and no
such increases or new programs, plans or arrangements are required by
agreement or understanding.
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(xiv) Made any pension, retirement, profit sharing, bonus or
other employee welfare or benefit payment to any officer or employee of
Seller, except in the ordinary course of business.
(xv) Made any capital expenditures or commitments for
replacements or additions to property, plant, equipment or intangible
capital assets in excess of $50,000 in the aggregate.
(xvi) Made any change in any method of accounting or
accounting practice.
(xvii) Paid, loaned or advanced any amount to or in respect
of, or sold, transferred or leased any Assets or any other properties or
assets (whether real, personal or mixed, tangible or intangible) to, or
entered into any agreement, arrangement or transaction with, any of the
officers or directors of Seller, any affiliate or associate of Seller or
of any of Seller's officers or directors, or any business or entity in
which Seller, any officer or director of Seller, or any affiliate or
associate of any such persons has any direct or indirect interest, except
for (A) directors' fees and compensation to officers and employees of
Seller at rates not exceeding the rates of
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compensation in effect as of January 1, 1995; (B) advances made to
employees of Seller for travel and other business expenses in reasonable
amounts in the ordinary course of business; and (C) transactions otherwise
entered into in the ordinary course of business consistent with past
practice and permitted by clause (xx) below.
(xviii) Entered into any lease of real or personal property.
(xix) Terminated or amended or suffered the termination or
amendment of, or failed to perform in any material respects all of its
obligations, in a manner not consistent with past practice, or suffered or
permitted any material default to exist, under any contract, lease,
agreement or license.
(xx) Entered into any transactions not within the categories
of intercompany transactions with Russ or any other affiliate of Seller
listed on Schedule 3.06 hereto.
(xxi) Entered into any other material transactions or taken
any other actions other than in the ordinary course of business consistent
with past practice.
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(xxii) Agreed, whether in writing or otherwise, to take any
action described in this Section 3.06(a) other than actions expressly
permitted under this Section 3.06(a).
3.07 Certain Tax Matters.
(a) Seller, or Russ on behalf of Seller and as part of a
consolidated return, has duly filed or has duly made application for extensions
of, all federal, state and local Tax Returns (as defined below) required to be
filed by it on or prior to the Closing Date, and all Taxes (as defined below)
of every kind, character or description, shown by such Tax Returns to be due
and payable, have been paid or extensions for payment have been granted.
Seller, or Russ on behalf of Seller, has not received any notice from any
taxing authority for the assessment of any additional Tax liability. Except as
set forth in Schedule 3.07 hereto, there are no pending, or to the best of
Seller's knowledge, threatened audits or other proceedings by and governmental
taxing authority with respect to the payment of Taxes. Seller, or Russ on
behalf of Seller, has duly withheld and, if payable, paid all Taxes which it is
required to withhold from, and pay relating to, compensation paid to its
employees and sales representatives.
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(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, real and personal property, sales,
transfer, license, payroll and franchise taxes, imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof; and
such term shall include any interest, penalties or additions to tax
attributable to such assessments. For purposes of this Agreement, the term
"Tax Return" shall mean any report, return or other information required to be
supplied to any governmental taxing authority in connection with Taxes.
3.08 Title to Properties; Encumbrances. Except as set forth on Schedule
3.08 hereto, Seller has good, valid and marketable title to all of the Assets,
which include, without limitation, all the Assets reflected in the Unaudited
October 31st Balance Sheet (except for Assets disposed of in the ordinary
course of business consistent with past practice since October 31, 1995) and in
the Audited November 30th Balance Sheet, free and clear of all Liens except
Permitted Liens (as those terms are hereinafter defined) and all Assets which
will be reflected on the Estimated and Final Closing Date Balance Sheets. None
of the Assets are subject to any mortgage, pledge, lien, security
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interest, conditional sale agreement, encumbrance, restriction, charge or claim
of any kind (whether absolute, accrued, contingent or otherwise) (collectively
"Liens"), except for (a) Liens set forth on Schedule 3.08 hereto, and (b)
rights of parties pursuant to contracts listed on Schedule 3.18 hereto (such
Liens referred to in clauses (a) and (b) of this sentence are hereinafter
referred to as "Permitted Liens"). The foregoing notwithstanding, Seller
acknowledges that all obligations with respect to Permitted Liens relating to
liabilities which are not Assumed Liabilities shall remain with Seller
following the Closing and shall be satisfied in the ordinary course. For
purposes of this Section 3.08, the term "Assets" shall not include any
proprietary rights other than those U.S. proprietary rights of Seller which are
defined as Active Proprietary Rights in Section 3.13 hereof.
3.09 Fixed and Other Tangible Assets. Schedule 3.09 hereto contains an
accurate description of all fixed and other tangible assets, individually or by
type, category or location, owned, leased, used or occupied by Seller
(collectively, the "Fixed Assets"). Except as set forth on Schedule 3.09
hereto, such Fixed Assets are (i) structurally sound, (ii) in good operating
condition and repair and (iii) not in need of maintenance or repairs, except
for ordinary, routine maintenance and repairs and
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such defects which are not, in the aggregate, expected to have a Material
Adverse Effect. Seller has not received any notification that it is in
violation of any applicable building, zoning, anti-pollution, health or other
law, ordinance or regulation in respect of Seller's Fixed Assets or operations,
which violation remains uncured, and no such violation exists, except for such
violations which would not be expected to have a Material Adverse Effect.
During the past three years, there has not been any significant interruption of
the operations of Seller due to inadequate maintenance of Seller's Fixed
Assets.
3.10 Inventory. All inventory of Seller, whether reflected in the
Unaudited October 31st Balance Sheet, in the Audited November 30th Balance
Sheet or otherwise, consists of a quality usable and salable in the ordinary
course of business (it being understood that based upon market conditions, such
inventory may or may not ultimately be sold). The values at which all
inventories of Seller are carried on the Unaudited October 31st Balance Sheet
and will be carried on Seller's books in the Audited November 30th Balance
Sheet and at the Closing Date reflect the historical inventory valuation policy
of Seller of stating such inventories at the lower of cost or market value
(first in, first out). Except as set forth on Schedule 3.10
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hereto, all of Seller's inventory is held at Seller's facilities. Seller does
not know of any adverse condition presently affecting the supply of materials
available to Seller. The Unaudited October 31st Balance Sheet reflects (and
the Audited November 30th Balance Sheet will reflect) adequate reserves for
inventory write downs on a basis consistent with that of prior years.
3.11 Leases. Schedule 3.11 hereto contains an accurate and complete list
of each lease (the "Leases") pursuant to which Seller leases real or personal
property. True and complete copies of all Leases have been previously
delivered to Buyer, together with all amendments, modifications, supplements or
side letters affecting the obligations of any party thereunder. Seller is not
in default with respect to any of the Leases and all such Leases are, and
notwithstanding any assignment thereof to Buyer will be, valid, binding and
enforceable in accordance with their respective terms and in full force and
effect. All rent and other sums and charges payable by Seller under or in
respect of such leases are current.
3.12 Accounts Receivable. Schedule 3.12 hereto is a schedule of the
accounts receivable of Seller as of October 31, 1995 as reflected in the
Unaudited October 31st Balance Sheet, together with an accurate aging of these
accounts. These
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accounts receivable, and all accounts receivable of Seller created after that
date, arose from valid sales in the ordinary course of business. Except for
certain accounts noted on Schedule 3.12 hereto or otherwise reserved for under
uncollectible accounts as being doubtful, or uncollectible, there are no
accounts which cannot be collected in full which are actually known to Seller
or which Seller should know in the exercise of reasonable diligence. The
Unaudited October 31st Balance Sheet reflects, and the Audited November 30th
Balance Sheet and the Estimated and Final Closing Date Balance Sheets will
reflect, adequate reserves for doubtful accounts and trade discounts.
3.13 Proprietary Rights. Schedule 3.13(a) hereto contains a complete
list of all registered trademarks, trade names, assumed names, service marks,
logos, patents, copyrights and all applications therefor (including trademarks,
patents and copyrights) that are used in or are necessary for the conduct of
Seller's business as currently conducted with respect to the products offered
for sale by Seller (collectively, the "Registered Active Proprietary Rights").
The Registered Active Proprietary Rights, together with all other similar
rights presently owned, held or used by Seller or with respect to which Seller
owns, holds or uses any license or other direct or
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indirect interest that are used in or are necessary for the conduct of Seller's
business, as currently conducted with respect to the products offered for sale
by Seller, are collectively referred to herein as, the "Active Proprietary
Rights". No Active Proprietary Rights or any trade secrets, customer lists,
supplier list or know-how used by Seller, and no services or products sold by
Seller conflict in any material respect with or infringe upon any rights
("Third Party Proprietary Rights") or services or products of any other person
or entity. Except as set forth on Schedule 3.13(a) hereto, within the past
three years, Seller has not received any notices of claims by any person with
respect to the ownership, validity, license or use of the Active Proprietary
Rights or the production, provision or sale of any services or products by
Seller and, to the best of Seller's knowledge, there is no basis for any such
claim (it being understood that, with respect to foreign Governmental Agencies
and other foreign third parties, Seller is only representing and warranting as
to the best recollection of its officers, without due inquiry.) Subject to
rights not granted to Seller or other restrictions contained in the license
agreements referred to on Schedule 3.18 hereto, Seller has the right to use,
and has taken all reasonable measures to maintain and pro-
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tect its right to use, the Active Proprietary Rights as they presently are
being used by Seller. Seller has disclosed, and Buyer hereby acknowledges,
however, that it has not (with certain exceptions) been Seller's usual and
customary practice to register its trademarks and copyrights. Seller has the
right, in all material respects, to produce, provide and sell the services and
products produced, provided and sold by it, and to conduct its business as
heretofore conducted, and the consummation of the transactions contemplated
hereby will not result in the loss, alteration or impairment of any such
rights, except to the extent that Seller is not able to obtain any of the
consents that are referred to on Schedule 3.26 hereto. Schedule 3.13(b) hereto
contains a list of all other registered proprietary rights known to Seller and
not currently used by Seller in which Seller may have an ownership interest
and/or right to use for which no representation of ownership or right to use is
made.
3.14 Litigation. Except as set forth on Schedule 3.14 hereto there are
no claims, actions, suits, proceedings or investigations pending (for which
service of process has been received) or, to the best knowledge of Seller since
January 1, 1993, threatened by or against Seller or the Assets. Except as set
forth on Schedule 3.14 hereto, Seller does not know of any
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valid basis for any other claims, actions, suits, proceedings or investigations.
3.15 Insurance. Schedule 3.15 hereto sets forth a complete and accurate
list of all policies (including their respective expiration dates) of fire,
liability, product liability, business interruption, workmen's compensation,
health, life, title and other forms of insurance presently in effect with
respect to Seller and its business (true copies of which have heretofore been
delivered to Buyer).
3.16 Employee Benefit Plans; ERISA
(a) Schedule 3.16 hereto contains an accurate and complete
description of, and sets forth the annual amount accrued or payable for the
fiscal year ended December 31, 1994 under, each employment, consulting, bonus,
deferred compensation, incentive compensation, severance or termination pay,
disability hospitalization or other medical, dental, vision, life or other
insurance, stock purchase, stock option, stock appreciation, stock award,
pension, profit sharing or retirement plan, agreement or arrangement, and each
other employee benefit plan or arrangement, whether formal or informal, written
or oral, and whether legally binding or not, maintained or contributed to by
Seller covering its employees, former employees, retirees or
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sales personnel (collectively, "Plans"). In addition, Schedule 3.16 hereto
contains an accurate and complete description of any amounts payable, or which
will become payable, under any of Seller's former pension, profit sharing or
retirement plan, agreement or arrangement, to any participant, beneficiary or
any other third party. Seller does not have any formal plan or commitment,
whether legally binding or not, to create any additional plan, agreement or
arrangement or modify or change any existing Plan that would affect any of its
employees, former employees, retirees or sales personnel. Seller has
heretofore delivered to Buyer true and complete copies of the Plans, the trusts
relating thereto and all other relevant documents governing or relating to the
Plans in effect on the date hereof (including without limitation, the latest
annual report filed with respect to each of the Plans, as applicable).
(b) Except as set forth on Schedule 3.16 hereto, Seller does not
maintain, nor has it ever maintained since 1988, any "employee pension benefit
plan", as such term is defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the rules and
regulations promulgated thereunder, covering its employees, former employees or
retirees, including but not limited to, any non-qualified retire-
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ment plan. Seller does not maintain, nor has it ever maintained or contributed
to, a "multiemployer plan", as that term is defined in Section 3(37) of ERISA.
Neither Seller, any of the Plans, any trust created thereunder, nor any trustee
or administrator thereof has engaged in a transaction involving any of the
Plans in connection with which Buyer, Seller or any of the Plans, any such
trust, or any trustee or administrator thereof, or any other party dealing with
the Plans or any such trust, could be subject to either a civil penalty
assessed pursuant to Section 406 of ERISA, or a tax imposed by Section 4975 of
the Code.
(c) Full payment has been made of all amounts which Seller is
required to pay under the terms of the Plans as a contribution to such Plans as
of the last day of the most recent fiscal year of each of the Plans ended prior
to the date of this Agreement.
(d) Each of the Plans is and has been operated and administered in
all material respects in accordance with applicable laws, including but not
limited to ERISA and the Code. Except as set forth on Schedule 3.16 hereto,
each Plan subject to Section 401(a) of the Code has received a favorable
determination from the Internal Revenue Service that the Plan satisfies the
requirements of Section 401(a) of the Code as amended by the Tax
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Reform Act of 1986, for the Plan to be tax qualified, and no facts exist which
could reasonably be expected to adversely affect the tax-qualified status of
any such Plan.
(e) There are no pending, or to Seller's knowledge, threatened or
anticipated claims against or otherwise involving any of the Plans or related
trusts, or any fiduciary thereof, by or on behalf of the Plans by any employee
or beneficiary covered under the Plans, or otherwise involving the Plans (other
than routine claims for benefits). There is no judgment, decree, injunction,
rule or order of any court, governmental body, commission, agency or arbitrator
outstanding against or in favor of any Plan or any fiduciary thereof in that
capacity. The Assets are not, and will not, either as a result of any
circumstances existing prior to the Closing Date or as a result of the
consummation of the transactions contemplated by this Agreement, be subject to
any claims under any Plan maintained by Seller or in which employees, former
employees or retirees of Seller participate.
(f) Seller has not engaged in any transaction, failed to make any
required contribution, committed any act or omission or otherwise incurred any
liability for any excise tax under Sections 4971 through 4980B of the Code,
inclusive.
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3.17 Schedules. Any information clearly disclosed on one Exhibit or
Schedule hereto that relates to the subject of another Exhibit or Schedule
hereto shall be deemed to be included in such other Exhibit or Schedule.
3.18 Contracts and Commitments. Except as set forth on Schedule 3.18
hereto:
(a) Seller is not a party to any contract, commitment, arrangement
or understanding, oral or written, involving payments to or from Seller in the
amount of $10,000 or more (other than purchase orders not in excess of
$50,000);
(b) Subject to obtaining any requisite consents of third parties as
specified on Schedule 3.26 hereto, the enforceability, validity and
effectiveness of the contracts, commitments, arrangements and understandings
listed on Schedule 3.18 hereto after the Closing will not adversely be affected
in any manner by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby;
(c) No purchase commitment of Seller, or by which Seller is bound,
materially deviates from the anticipated or normal, ordinary and usual
requirements of Seller or is for a materially excessive price;
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(d) Seller is not a party to or bound by (i) any outstanding
contracts with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by
Seller on notice of not longer than 60 days and without liability, penalty or
premium or (ii) any agreements that contain any severance or termination pay,
liabilities or obligations;
(e) Seller has not given any power of attorney (whether revocable or
irrevocable) to any person, firm or corporation for any purpose whatsoever,
except for tax, customs and/or foreign trademark registration purposes;
(f) Seller is not in, and is not aware of any valid basis for any
valid claim of, breach or violation of, or default in any material respect
under any of its contracts, commitments, arrangements or understandings and no
event has occurred which constitutes or, with the lapse of time or the giving
of notice, or both, would constitute such a breach, violation or default by
Seller thereunder; and
(g) True and correct copies of all contracts, commitments,
arrangements and understandings set forth on Schedule 3.18 hereto have
heretofore been delivered by Seller to Buyer.
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3.19 Customers and Suppliers. Schedule 3.19 hereto contains an accurate
and complete list of the names and addresses of all of the customers of Seller
since January 1, 1995 and all of the suppliers from whom Seller purchased
supplies, inventory, equipment or services since January 1, 1995. During the
three years immediately preceding the date hereof, Seller has not lost any
customer (or any group of related customers) which accounted for more than 1%
of the aggregate services and products sold by Seller during the past three
fiscal years, nor has Seller lost any supplier which accounted for more than 1%
of the aggregate supplies, inventory, equipment or services purchased by Seller
during the past three fiscal years. Except as set forth in Schedule 3.19
hereto or the letters of credit identified on Schedule 3.18 hereto, Seller is
not required to provide any bonding or other financial security arrangements in
connection with any of the transactions with any of its customers or suppliers
in the ordinary course of Seller's business. Seller has not received any
written communications (direct or indirect) or oral direct communications of
any intention of any customer or supplier identified on Schedule 3.19 hereto
who represents at least 1% of 1994 sales, in the case of customers, or 1% of
1994 purchases, in the case of suppliers to discontinue its relation-
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ship as a customer or supplier of, or materially reduce its purchases from or
supplies to, Seller (or Buyer following the Closing) as a result of the
transactions contemplated hereby or otherwise.
3.20 Personnel. Schedule 3.20 hereto sets forth the names, titles and
annual compensation of all officers, employees and sales representatives of
Seller and the accrued vacation time of each such officer, employee and sales
representatives as of the most recent practicable date. Seller is not in
default in any material respect with respect to any of its obligations to such
officers, employees and sales representatives. Except as set forth herein and
on Schedule 3.20 hereto, Seller has not received any written notice or oral
notice not in the ordinary course of business that any of the officers,
employees or sales representatives listed on Schedule 3.20 hereto intend to
terminate their relationship with Seller, prior to the Closing, or Buyer,
following the Closing, as a result of the transactions contemplated hereby or
otherwise. Seller has disclosed, and Buyer acknowledges, that a significant
number of sales personnel customarily leave employment or are terminated (some
of whom may be replaced) during the months of December, January and February of
each year.
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3.21 Labor Relations. Except as and to the extent not set forth on
Schedule 3.21 hereto: (a) no collective bargaining agreement presently covers
(nor has any, in the three years immediately preceding the date hereof,
covered) any employees or sale representatives of Seller, nor is any currently
being negotiated by Seller and, to the best knowledge of Seller, no attempt to
organize any group or all of the employees or sales representatives of Seller
has been made or proposed; (b) there is no labor strike, dispute, slowdown or
stoppage actually pending or, to the best knowledge of Seller, threatened
against or involving Seller; (c) Seller is in compliance in all material
respects with all federal, state and local laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice; (d) there is no unfair labor
practice complaint against Seller pending or, to the best knowledge of Seller,
threatened before the National Labor Relations Board; (e) no charge or
grievance with respect to or relating to the employees or sales representatives
of Seller is pending before the Equal Employment Opportunity Commission or any
state, local or foreign agency responsible for the prevention of unlawful
practices; (f) Seller has not received any notice of the intent of any federal,
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state, local or foreign agency responsible for the enforcement of labor or
employment laws to conduct an investigation of or relating to Seller with
respect to its employees or sales representatives and, to the best knowledge of
Seller, no such investigation is in progress; (g) no private agreement
restricts Seller from relocating, closing or terminating any of its operations
or facilities; and (h) Seller has not in the past five years experienced any
work stoppage or other labor difficulty or, to the best of its knowledge,
committed any unfair labor practice.
3.22 Environmental Protection.
(a) For purposes of this Section 3.22, the following definitions
shall apply:
(i) "Environmental Laws" shall mean all federal, state, local
and foreign laws relating to pollution or protection of the environment,
including laws applicable to the Assets relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of
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pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
(ii) "Environmental Claim" shall mean any complaint, summons,
citation, notice, directive, order, claim, litigation, investigation, judicial
or administrative proceeding, judgment, letter or other communication from any
governmental agency, department, bureau, office or other authority having
jurisdiction, or any third party, involving violations of Environmental Laws or
Releases of Hazardous Materials, which Environmental Claim reaches or has the
potential of reaching the Assets.
(iii) "Environmental Liabilities" shall mean any monetary
obligations, losses, damages, liabilities (including strict liability),
punitive damages, consequential damages, treble damages, costs and expenses
(including all reasonable out-of-pocket fees, disbursements and expenses of
counsel, out-of-pocket expert and consulting fees and out-of-pocket costs for
environmental site assessments, remedial investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
Environmental Claim filed by any governmental authority or any third party
which relate to any violations of Environmental Laws, or Release or threatened
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Release of Hazardous Materials from or onto (A) any property presently or
formerly owned by Seller or a predecessor in interest, or (B) any facility
which received Hazardous Materials generated by Seller or a predecessor in
interest.
(iv) "Hazardous Materials" shall mean (A) any element,
compound, or chemical that is defined, listed or otherwise classified as a
contaminant, pollutant, toxic pollutant, toxic or hazardous substance,
extremely hazardous substance or chemical, hazardous waste, medical waste,
biohazardous or infectious waste, special waste, or solid waste under
Environmental Laws; (B) petroleum and its refined products; (C) polychlorinated
biphenyls; (D) any substance exhibiting a hazardous waste characteristic (as
defined under Environmental Laws), including but not limited to, corrosivity,
ignitability, toxicity or reactivity as well as any radioactive or explosive
materials; and (E) asbestos-containing materials.
(v) "Release" shall mean any spilling, leaking, pumping,
emitting, emptying, discharging, injecting, escaping, leaching, dumping, or
disposing of Hazardous Materials (including the abandonment or discarding of
barrels, containers or other closed receptacles containing Hazardous Materials)
into the environment.
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(b) Except as set forth on Schedule 3.22 hereto, Seller has obtained
all permits, licenses or authorizations required by Environmental Laws and all
such permits, licenses or authorizations are in full force and effect.
(c) Except as set forth on Schedule 3.22 hereto, the operations of
Seller are in full compliance with all Environmental Laws.
(d) Except as set forth on Schedule 3.22 hereto, there has been no
Release at any of the properties owned or operated by Seller or a predecessor
in interest, at any disposal or treatment facility which received Hazardous
Materials generated by Seller or a predecessor in interest which is reasonably
likely to result in Environmental Liabilities that have a Material Adverse
Effect.
(e) Except as set forth on Schedule 3.22 hereto, during the five
years immediately preceding the date hereof, (said five year period shall be
three years with respect to Seller's former facility in Hollywood, California),
no Environmental Claims have been asserted against Seller or any predecessor in
interest nor does Seller have knowledge or notice of any threatened or pending
Environmental Claims against Seller or any predecessor in interest which is
reasonably likely to
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result in Environmental Liabilities that have a Material Adverse Effect.
3.23 No Breach. Except as set forth on Schedule 3.23 hereto, each
arrangement (whether evidenced by a written document or otherwise and of
whatever type) referred to in this Agreement or in any of the Schedules hereto,
under which Seller has any right, interest or obligation, is, except as
specifically indicated herein or in the Schedules describing such arrangement,
in full force and effect; except as set forth on Schedule 3.23 hereto, there
are no material outstanding disputes thereunder or, to the best knowledge of
Seller, threatened cancellations thereof, and Seller has not breached any
material provision of, nor does there exist any default of, or event (including
the execution and delivery of this Agreement and the Related Documents (to the
extent a party thereto) and the consummation of the transactions contemplated
hereby and thereby) except for obtaining any required consent which with the
giving of notice or the passage of time or both would become a breach or
default of, the terms of any such arrangement and to the best knowledge of
Seller, none of the other parties to such arrangements has breached any of the
material terms or provisions of such arrangements or is in material default
thereunder.
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3.24 Compliance with Applicable Law. Seller has in the past duly
complied, and is presently duly complying, in all material respects, with
respect to its operations, real property, equipment and all other property,
leases, practices and all other aspects of its business, with all applicable
laws (whether statutory or otherwise), rules, regulations, orders, ordinances,
judgments or decrees of all governmental authorities (federal, state, local,
foreign or otherwise) (collectively, "Laws"), including, without limitation,
the Federal Occupational Safety and Health Act, ERISA, the United States
Copyright Act, the Internal Revenue Code of 1986, as amended, the Federal Food,
Drug and Cosmetics Act, as amended, and the applicable regulations and
requirements adopted by the U.S. Food & Drug Administration, all Laws relating
to the safe conduct of business, all franchise and business opportunity Laws
and all Laws relating to environmental protection and conservation. Except as
described on Schedule 3.24 hereto, Seller has not received during the three
years immediately preceding the date hereof any notification of any asserted
present or past failure of Seller to comply with any of such Laws. Seller has
all licenses, franchises, permits and other governmental authorizations
reasonably necessary for all businesses presently carried on by it (including
owning and
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leasing the real and personal property owned and leased by it), except such
licenses, franchises, permits and authorizations, the absence of which would
not be expected to have a Material Adverse Effect on Seller. Seller has filed
in a timely matter all reports, documents and other materials required to be
filed by it with any governmental bureau, agency or instrumentality (and the
information contained in each of such filings is true, correct and complete in
all material respects). Seller has retained all records and documents required
to be retained by it pursuant to any law, ordinance, rule, regulation, order,
policy, guideline or other requirement of any governmental authority.
3.25 Adequacy of Assets. Except as set forth on Schedule 3.25 hereto,
the Assets include all or materially all of the properties and assets, real,
personal and mixed, tangible and intangible, and all leases, contracts and
other agreements (currently owned by Seller or to which Seller is a party)
which are presently used by Seller in the operation of its business. Seller
believes that such Assets (together with the excepted assets set forth on
Schedule 3.25 which Buyer has agreed are not part of this sale) are reasonably
adequate, in all material respects, for the conduct of its business in the
manner and under the circumstances that such business is presently conducted by
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Seller as of the date hereof. However, nothing herein shall constitute a
representation by Seller that such Assets are adequate for the purpose of
conducting business as may be contemplated by Buyer subsequent to Closing.
3.26 Consents. Schedule 3.26 hereto sets forth a list and description of
all consents, approvals, authorizations or orders of any Governmental Agency or
other third party necessary for the authorization, execution and delivery by
Seller of this Agreement and the Related Documents (to the extent a party
thereto) and the consummation of the transactions contemplated hereby and
thereby, including without limitation, the sale, conveyance, assignment,
transfer and delivery of the Assets to Buyer.
3.27 Accounts Payable. Schedule 3.27 hereto sets forth a true and
correct aged list of all accounts payable of Seller as of the end of the month
immediately preceding the date hereof. Prior to Closing, Seller shall provide
Buyer with an updated Schedule 3.27 as at the Closing Date as part of the
Estimated Closing Date Balance Sheet. All accounts payable have arisen in the
ordinary course of business of Seller. Seller has, or is capable of obtaining
through existing borrowing channels, adequate funds to pay all accounts payable
that come due prior to the Closing Date.
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3.28 Disclosure. No representation or warranty to Buyer contained in
this Agreement, and no statement contained in any Schedule hereto or any
certificate, document or instrument delivered or made available to Buyer by
Seller or its representatives pursuant hereto or in connection with Buyer's due
diligence review of Seller (excluding financial projections) contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading.
IV. REPRESENTATIONS AND WARRANTIES OF BUYER AND ZEBRA
Buyer and Zebra hereby represent and warrant (as to themselves only) to
Seller as follows:
4.01 Organization. Each of Buyer and Zebra is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its respective jurisdiction and has the corporate power and authority to enter
into this Agreement and the Related Documents (to the extent a party thereto),
and to carry out the transactions contemplated hereby and thereby.
4.02 Authorization. The Board of Directors and shareholders, if
applicable, of Buyer and Zebra have duly authorized
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the execution and delivery of this Agreement and the Related Documents (to the
extent a party thereto) and the consummation by Buyer and/or Zebra of the
transactions contemplated hereby and thereby. No other corporate or other
proceedings on the part of Buyer or Zebra are necessary to authorize this
Agreement and the Related Documents or the transactions contemplated hereby or
thereby.
4.03 Valid and Binding Agreement. This Agreement constitutes, and when
executed and delivered each of the Related Documents will constitute, a valid
and binding agreement of Buyer and Zebra (to the extent a party thereto)
enforceable against Buyer and Zebra (to the extent a party thereto) in
accordance with its terms, except that (i) such enforcement may be limited by
or subject to any bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to or limiting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
4.04 No Violation. Neither the execution and delivery of this Agreement
or the Related Documents nor the consummation by
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Buyer and/or Zebra of the transactions contemplated hereby or thereby (a) will
violate or conflict with any statute, law, ordinance, rule, regulation, order,
judgment or decree affecting Buyer or Zebra, or (b) will violate or conflict
with or constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, or will result in the termination
of, or accelerate the performance required by, or result in the creation of any
lien, security interest, charge or encumbrance upon Buyer or Zebra or any of
their respective assets under, any term or provision of (i) the Articles of
Incorporation or By-Laws (or equivalent organizational documents) of Buyer or
Zebra or (ii) any contract, commitment, understanding, arrangement, agreement
or restriction of any kind or character to which Buyer or Zebra is a party or
by which Buyer or Zebra may be bound or affected, or to which Buyer or Zebra or
their respective assets are subject, or (c) will cause, or give any person
grounds to cause (with or without notice, the passage of time, or both), the
maturity of any debt, liability or obligation of Buyer or Zebra to be
accelerated, or will increase any such liability or obligation, excluding from
the foregoing (other than clause (b)(i) above) those violations, conflicts,
defaults, rights or terminations which would not, individually or in the
aggregate,
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be expected to have a material adverse effect on the business, assets,
condition (financial or otherwise), results of operations or prospects of Buyer
or Zebra, as the case may be. No consent, approval, authorization or action by
any Governmental Agency is required in connection with the execution and
delivery by Buyer or Zebra of this Agreement and the Related Documents or the
consummation by Buyer and/or Zebra of the transactions contemplated hereby or
thereby. Buyer and Zebra have heretofore delivered to Seller true and complete
copies of their respective Articles of Incorporation and By-laws (or equivalent
organizational documents) as in effect on the date hereof.
4.05 H-S-R Filing. As of the date hereof and as of the Closing Date, the
ownership structure of Buyer, Zebra and their respective affiliates is such
that a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
relating to the transactions contemplated by this Agreement is not necessary or
required. Specifically, Zebra and Buyer each represent that Zebra or Buyer
(and all of their respective controlled entities) do not have total gross
assets or annual net sales of $10,000,000 or more and will not have gross
assets or annual net sales in those amounts at the time of Closing. Buyer and
Zebra shall jointly and severally indemnify and hold harmless and defend
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Seller, Russ or Russell Berrie, individually, against any and all penalties
which may be assessed against Seller, Russ or Russell Berrie, individually as a
result of a breach of this representation. This representation shall survive
Closing.
4.06 WARN Applicability. Buyer does not have any present plans with
respect to Transferred Employees (as defined in Section 5.06(a) hereof) that
would cause WARN (as defined in Section 5.06(b) hereof) to become applicable to
the transactions contemplated by this Agreement including without limitation
any discharge of Transferred Employees. Buyer agrees to promptly notify Seller
and comply, at Buyer's expense, with the requirements of WARN in the event of
any change that would cause WARN to become applicable. Buyer shall indemnify
and hold harmless and defend Seller against any and all penalties which may be
assessed against Seller as a result of the failure to comply with WARN.
V. OTHER OBLIGATIONS OF THE PARTIES
5.01 Conduct of Business Pending the Closing. Seller agrees that, except
as provided on Schedule 5.01 hereto, from the date hereof until the Closing,
unless otherwise consented to by Buyer in writing, Seller will conduct its
business diligently and in the ordinary course and consistent with past
practice. Seller
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will use reasonable efforts to preserve intact its business, operations,
organization, goodwill and work force and maintain its relationships with
customers and suppliers and will conduct its business (taken as a whole) in a
fiscally sound manner consistent with the operation of its business prior to
the date hereof. Seller will continue all practices, policies, procedures and
operations in substantially the same manner as heretofore conducted. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement or with the prior written consent of Buyer, from the
date hereof to the Closing, Seller will not:
(i) Declare or pay any dividends or declare or make any other
distributions of any kind to its shareholder or make any direct or
indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock.
(ii) Make any change in its business or operations or in the manner
of conducting its business (other than changes in the ordinary course of
business consistent with past practice), including without limitation,
conduct relating to the collection of accounts receivable, including the
setting of terms for receivables or credit dating policies, the payment of
accounts payable and the maintenance of inventory
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levels, including the purchasing of products, reserving inventory and
closing out inventory (it being understood that from the date hereof to
the Closing, Seller will not, without the prior written consent of Buyer,
make purchases of inventory not in the ordinary course of business).
(iii) Incur any obligations or liabilities, including without
limitation, intercompany obligations or liabilities (whether absolute,
accrued, contingent or otherwise and whether due or to become due), except
items incurred in the ordinary course of business consistent with past
practice, or permit any change in any assumptions underlying or methods of
calculating any bad debt, contingency or other reserves, including without
limitation, inventory write-off reserves.
(iv) Fail to pay, discharge and/or satisfy its debts, liabilities
or obligations on a timely basis as they become due or consistent with
past practice, including without limitation, intercompany liabilities.
(v) Fail to pay, discharge and/or satisfy any claim, lien,
encumbrance or liability (whether absolute, accrued, contingent or
otherwise), except for intercompany liabil-
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ities incurred in the ordinary course of business consistent with past
practice.
(vi) Permit or allow any of the Assets or any of its other
properties or assets (whether personal or mixed, tangible or intangible)
to be mortgaged, pledged or subjected to any lien, encumbrance,
restriction or charge of any kind except Permitted Liens.
(vii) Write off or determine to write off as uncollectible any of
its notes or accounts receivable or any portion thereof, except for
write-offs in the ordinary course of business consistent with past
practice.
(viii) Cancel or release any other debts or claims, or waive any
rights of substantial value, except for routine settlements or resolutions
of customer or supplier accounts in the ordinary course of business
consistent with past practice, or sell, transfer or convey any of the
Assets or any of its other properties or assets (whether personal or
mixed, tangible or intangible), except in the ordinary course of business
consistent with past practice.
(ix) Dispose of, permit to lapse, or otherwise fail to preserve
any of the Active Proprietary Rights, dispose of or permit to lapse any
license (other than those which lapse
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by passage of time and/or in accordance with their terms), permit or other
form of authorization, or dispose of or disclose to any person, (other
than Russ, Seller's manufacturers, or authorized representatives of Buyer)
any customer list, trade secret, formula, process or know-how.
(x) Except pursuant to arrangements existing as of August 7,
1995, grant any increase in the compensation of any officer or employee of
Seller (including, without limitation, any increase pursuant to any bonus,
pension, profit sharing or other plan or commitment) or institute or adopt
any new Plan (including without limitation, employment contracts or
severance arrangements) for any officer or employee of Seller, or modify,
amend or terminate any existing Plan.
(xi) Make any pension, retirement, profit sharing, bonus,
severance or other employee welfare or benefit payment to any officer or
employee of Seller, except in the ordinary course of business or pursuant
to compensation arrangements existing as of August 7, 1995.
(xii) Make any capital expenditures or commitments for replacements
or additions to property, plant, equipment or intangible capital assets in
excess of $10,000.
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(xiii) Make any change in any method of accounting or accounting
practice.
(xiv) Other than in the ordinary course of business, pay, loan or
advance any amount to or in respect of, or sell, transfer or lease any
Assets or any other properties or assets (whether real, personal or mixed,
tangible or intangible) to, or enter into any agreement, arrangement or
transaction with, any of the officers or directors of Seller, any
affiliate or associate of Seller or of any of Seller's officers or
directors, or any business or entity in which Seller, any officer or
director of Seller, or any affiliate or associate of any such persons, has
any direct or indirect interest, except for (A) directors' fees and
compensation to officers and employees of Seller at rates not exceeding
the rates of compensation in effect as of the date hereof, (B) advances
made to employees of Seller for travel and other business expenses in
reasonable amounts consistent with past practice or (C) payments to or
arrangements made with Bright of America, Inc. (and/or Cap Toys, Inc. for
work performed or to be performed on behalf of Seller in the ordinary
course of business and consistent with past practice.
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(xv) Enter into any lease of real or personal property except for
those transactions contemplated by this Agreement or otherwise in the
ordinary course of business.
(xvi) Terminate or amend or suffer the early termination or
amendment of, or fail to perform all of its obligations or suffered or
permitted any default to exist, under any contract, lease, agreement or
license other than termination by the passage of time and under the terms
of such document.
(xvii) Enter into any transactions not within the categories of
intercompany transactions with Russ or any other affiliate of Seller
listed on Schedule 5.01 hereto.
(xviii) Enter into any other transactions or take any other actions
other than in the ordinary course of business consistent with past
practice.
(xix) Agree, whether in writing or otherwise, to take any action
prohibited in this Section 5.01.
5.02 Other Obligations of Seller Pending the Closing. Seller agrees that
from the date hereof until the Closing, unless otherwise consented to by Buyer
in writing:
(a) Access. Seller will permit Buyer and its representatives
reasonable access throughout the period prior to the
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Closing (upon reasonable notice) to all of Seller's property, books, contracts,
commitments and records and will furnish Buyer and its representatives during
such period with all information concerning Seller's respective businesses and
their respective operations, assets, liabilities and prospects as Buyer or its
representatives may reasonably request. Buyer and its agents and
representatives will also be permitted, subject to Seller's prior written
approval not to be unreasonably withheld, to contact suppliers, customers and
others having business relationships with Seller.
(b) Other Transactions. Unless and until this Agreement is
terminated pursuant to Section 9.01 hereof, Seller will not, and Seller will
cause its directors, officers, employees, agents and affiliates not to,
directly or indirectly, solicit or initiate the submission of proposals or
offers from, or solicit, encourage, entertain or enter into any agreement,
arrangement or understanding with, or engage in any discussions with, or
furnish any information to, any person or entity, other than Buyer or a
representative thereof, with respect to the acquisition of all or any part of
Seller, or its business.
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(c) Insurance. Seller will maintain the insurance coverage
specified in Schedule 3.15 hereto, or policies providing substantially
equivalent coverage, in full force and effect.
(d) Consents. Seller will use reasonable efforts to obtain, prior
to the Closing, all consents, approvals, authorizations and orders necessary
for the consummation of the transactions contemplated hereby as listed on
Schedule 3.26 hereto. All such consents will be in writing and copies thereof
will be delivered to Buyer promptly after Seller's receipt thereof but in no
event later than immediately prior to the Closing.
(e) Motor Vehicles. Seller will take all actions and prepare all
documents necessary to effect the transfer to Buyer of all motor vehicle
licenses and registrations pertaining to automobiles, trucks and other motor
vehicles of whatever kind owned by Seller (including, without limitation, those
motor vehicles currently being used by Harry Drum and Russ Rossi) in compliance
with the motor vehicle registration, licensing and other applicable laws of any
jurisdictions where such motor vehicles are registered or licensed. All such
documents evidencing the transfers of licenses and registrations required
hereby shall be delivered to Buyer at the Closing, or as soon thereafter as is
reasonably practical.
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(f) Supplemental Disclosure. Seller agrees that, with respect to
the representations and warranties made in this Agreement, it shall have the
continuing obligation, between the date hereof and the Closing Date, to
promptly supplement or amend the Schedules to this Agreement with respect to
any matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or described
in the Schedules to this Agreement; provided, however, that for purposes of the
rights and obligations of the parties hereunder, any such supplemental or
amended Schedules, and any matters discovered by Buyer in the course of its due
diligence review (to the extent that they relate to matters or events that
arose prior to the date hereof, should have been included in the original
Schedules to this Agreement and result in a material breach of any
representation or warranty made by Seller in this Agreement), shall not be
deemed to cure any prior breach of any representation or warranty made in this
Agreement or to have been disclosed as of the date of this Agreement. In the
event of any supplemental disclosures by Seller prior to the Closing which
either (i) relate to matters or events that arose on or prior to the date
hereof, should have been included in the original Schedules to this Agreement
and result in a material
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breach of any representation or warranty made by Seller in this Agreement or
(ii) relate to matters or events that arose after the date hereof, could not
have been included in the original Schedules to this Agreement and result in a
material diminution in the value of the Assets being purchased hereunder, Buyer
shall have the right to terminate this Agreement upon written notice served on
Seller within three days from receipt of any such supplemental disclosure;
provided that Buyer's right to terminate under this subsection (f) shall be
limited as follows: (A) In the event of a breach under clause (i) or (ii)
above which is insignificant or immaterial in terms of impact on the Assets or
the business of Seller, Buyer shall have no right to terminate this Agreement
or to recover damages; (B) In the event of a breach under clause (i) above
which is significant or material in its impact on the Assets or the business of
Seller but does not rise to the level of a material diminution in the value of
the Assets or the business of Seller, Buyer shall not have the right to
terminate but shall be entitled to recover damages for such breach; (C) In the
event of a breach which results in a material diminution in the value of the
Assets or constitutes a Material Adverse Effect as defined in Section 3.01(b)
hereof, Buyer will have the right to terminate this Agreement prior to Closing
as
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its sole remedy as hereinafter provided. It is understood that material
diminution in the value of the business of Seller or the Assets is a lesser
standard than Material Adverse Effect. If, upon receipt of any supplemental
disclosure, Buyer fails to terminate this Agreement as herein provided, Buyer
shall thereafter be barred from asserting any claim for damages or breach
against Seller with respect solely to or based solely upon such supplemental
disclosure, except as expressly set forth in subsection (B) above. In
addition, if Buyer obtains actual knowledge that a representation or warranty
of Seller herein is untrue, Buyer will inform Seller of such circumstance, but
failure by Buyer to so inform Seller shall not limit Seller's representations
or warranties or impair the Buyer's right to be indemnified in respect thereof
as set forth in this Agreement except that any damages to be paid by Seller
shall be reduced by the amount that Seller proves could have been mitigated had
the misrepresentation or breach of warranty been disclosed prior to Closing
(Seller shall have the burden of proof with respect to showing that such
mitigation would have been possible and the amount thereof).
5.03 Post-Closing Deliveries by Seller. As soon as practicable after the
Closing Date, but prior to the expiration
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of the periods specified below, Seller shall deliver the following documents to
Buyer:
(a) Within thirty (30) days after the Closing Date, Seller shall
deliver to Buyer the books and records or copies thereof relating to the
contracts, relationships, customer lists, historical shipping records and any
other relevant documents reasonably related to any joint distribution or
similar arrangements between Seller and Tri-Russ Int'l H.K., Ltd. that are
reasonably requested by Buyer.
(b) Seller shall assist Buyer, at Buyer's request, in Buyer's
preparation of a balance sheet, income statement and statement of cash flows as
at and for the twelve-month period ending December 31, 1995. In addition,
Seller shall, at Buyer's request, provide Buyer with all information, to the
extent available, necessary (relating to the period from November 30, 1995 to
the Closing Date) for Buyer, together with Buyer's Accountants, to prepare an
audited income statement and statement of cash flows for a period which
includes the period from November 30, 1995 through the Closing Date.
5.04 Taxes. Seller hereby agrees that it will be responsible for the
payment of all Taxes due or assessed which relate to Seller or the Assets for
all periods or portions there-
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of beginning before and ending on or before the Closing Date. Buyer hereby
agrees that it will be responsible for the payment of all Taxes due or assessed
which relate to the Assets for all periods or portions thereof from and after
the Closing Date.
5.05 Public Announcements. Buyer, on the one hand, and Seller and Russ,
on the other hand, agree that, from the date hereof through the Closing, no
public release or announcement concerning the transactions contemplated hereby
shall be issued by either party without the prior consent of the other party,
except as such release or announcement may be required by law, in which case
the party required to make the release or announcement shall allow the other
party reasonable time to comment on such release or announcement in advance of
such issuance.
5.06 Employee Matters. (a) (i) Except as otherwise provided in this
Section 5.06, Seller shall retain all obligations and liabilities in respect of
each employee or former employee, including any beneficiary or dependent
thereof who is not an employee of Seller, who accepts and commences employment
with Buyer and/or its affiliates following the Closing (a "Transferred
Employee"). Except as otherwise set forth on Schedule 5.06 hereto, on the
Closing Date, Seller shall terminate all employees of Seller and Buyer shall
offer employment on the
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Closing Date to the individuals employed by Seller as of the Closing Date.
Buyer shall provide such employees with notice of the terms of their employment
promptly following the Closing.
(ii) With respect to each Transferred Employee (including any
beneficiary or dependent thereof), Seller shall retain all liabilities and
obligations arising outside the ordinary course of business prior to Closing
and those liabilities and obligations arising in the ordinary course of
business prior to Closing that should have been discharged by Seller including,
without limitation, all liabilities and obligations for all wages, salary,
termination pay, severance pay, sick leave pay, vacation pay, pension plan or
welfare plan benefits and any other benefits to which any Transferred Employee
(including any beneficiary or dependent thereof) is entitled by virtue of: (A)
employment by the Seller; (B) events occurring at or prior to the Closing; or
(C) termination of employment by the Seller at or prior to the Closing Date but
excluding in all events any liability or obligation attributable to action or
inaction by Buyer after the Closing Date. Buyer shall establish a section
401(k) plan (the "Buyer's Plan") having substantive provisions substantially
similar to those of the Russ Section 401(k) Plan (the "Russ Plan") and under
which the Transferred Employees shall
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be credited, for purposes of eligibility and vesting, with all prior service
that was creditable for such purposes under the Russ Plan. On the Closing Date
or as soon as practicable thereafter, Buyer shall furnish Russ with plan and
trust documents applicable to the Buyer's Plan. As soon as practicable
following receipt of such documents, Russ shall instruct the trustee of the
Russ Plan to transfer to the Buyer's Plan all assets of the Russ Plan that at
the date of such transfer are held by the Russ Plan in respect of Transferred
Employees (including, without limitation, vested and non-vested account
balances, all earnings on Transferred Employees account balances through the
date of transfer and all contributions required to be made by the Seller under
the terms of the Russ Plan and applicable law through the Closing ("Transferred
Employees' Account Balances")). Upon completion of such transfer of the
Transferred Employees' Account Balances to the Buyer's Plan, Seller, Russ, the
Russ Plan and trust, trustee and fiduciaries thereunder shall have no further
responsibility, obligation or liability with respect to the Transferred
Employees' Account Balances or benefits in respect thereof and Buyer shall
expressly assume all such responsibility, obligation or liability and shall
indemnify and hold Seller and Russ harmless from any claims pertaining
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thereto. Seller agrees that such transfer shall not be contingent upon the
Buyer's receipt of a letter of determination from the Internal Revenue Service
recognizing the tax-qualified status of Buyer's Plan.
(iii) Buyer agrees to do all things necessary to cause Buyer's Plan
to comply with the requirements for qualification under Section 401(a) of the
Code and for the trust thereunder to be exempt from tax under Section 501(a) of
the Code, to obtain a favorable determination letter from the Internal Revenue
Service with respect to such qualification, and to maintain the continuing
qualification and exemption of the Buyer's Plan and trust thereunder. Buyer
agrees to indemnify Seller, Russ, the Russ Plan, and the trustees of the Russ
Plan (the "Indemnified Parties") and hold them harmless against any claim
asserted against, liability imposed on (including, without limitation, tax
liability), or cost incurred by (including reasonable attorneys' fees), any
Indemnified Party with respect to the Transferred Employees' Account Balances
by reason of any failure of Buyer to fully discharge all of its obligations
under the preceding sentence.
(b) Seller shall be responsible for all obligations and liabilities
under the Workers Adjustment and Retraining
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Notification Act of 1988, as amended, and each similar state law ("WARN"), with
respect to its employees by reason of their severance or other termination of
employment by Seller on or prior to the Closing Date. Buyer agrees that it
will not terminate any Transferred Employees on the Closing Date but shall not
be restricted from doing so after the Closing Date, subject to compliance with
applicable laws, including but not limited to, WARN.
(c) No provision of this Section 5.06 or any other provision of this
Agreement shall create any third party beneficiary rights in any current or
former employee of Seller (including any beneficiary or dependent thereof) in
respect of continued employment or resumed employment, and no provision of this
Section 5.06 or any other provision of this Agreement shall create any rights
in any such persons in respect of any benefits that may be provided, directly
or indirectly, under any employee benefit plan or arrangement.
5.07 Other Action. Each of the parties hereto shall use its best efforts
to cause the fulfillment at the earliest practicable date of all of the
conditions to their respective obligations to consummate the purchase and sale
of the Assets pursuant to this Agreement.
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5.08 Obligations of Buyer and Zebra Pending the Closing.
(a) Buyer and Zebra each agrees that it will not, between the date
hereof and the Closing, either alone or in combination with others, directly or
indirectly, hire, employ, solicit, or offer employment to or attempt to hire,
employ or solicit any employees of Russ, Seller or any of their respective
affiliates, who are or were employed between August 7, 1995 and the Closing
Date. The foregoing restrictions shall not apply to any individual who has not
been employed by Russ, Seller or their respective affiliates for a period of
sixty (60) days subject, however, to any non-compete agreements to which such
individuals otherwise are or may be bound.
(b) If the transactions contemplated by this Agreement are not
consummated for any reason, the foregoing restrictions shall continue for a
period of two years after the termination of this Agreement.
(c) Zebra hereby agrees that, effective as of the Closing Date, it
will not hire or attempt to hire any employee of Russ without Russ' prior
written approval, for a period of two years following the Closing Date.
VI. CONDITIONS TO OBLIGATIONS OF BUYER
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The obligations of Buyer hereunder are subject to the fulfillment, prior
to or at the Closing, of each of the following conditions (any or all of which
may be waived in whole or in part in writing by Buyer):
6.01 Representations and Warranties. The representations and warranties
made by Seller in this Agreement, and the statements of Seller contained in the
Schedules hereto or in any other agreement, instrument or certificate delivered
by Seller or Russ pursuant to this Agreement, shall (subject to Section 5.02(f)
hereof) be true when made and at and as of the Closing Date as though such
representations and warranties were made at and as of such date, except as
otherwise contemplated (or permitted) by this Agreement, the Schedules hereto
or in any other agreement, instrument or certificate delivered by Seller or
Russ pursuant to this Agreement.
6.02 Performance. Seller and Russ shall have performed and complied with
all agreements, covenants, obligations and conditions required by this
Agreement to be so performed or complied with by Seller and/or Russ prior to or
at the Closing.
6.03 Officer's Certificate. Seller and Russ shall have each delivered to
Buyer a certificate, dated the Closing Date and executed by one of Russell
Berrie, A. Curts Cooke, Paul Cargotch,
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Arnold Bloom or Jimmy Hsu, certifying as to the fulfillment of the conditions
set forth in Sections 6.01 and 6.02 hereof.
6.04 Escrow Agreement. Buyer shall have received from each of Seller and
Russ a duly executed counterpart of the Escrow Agreement, dated the Closing
Date, in the form of Exhibit D attached hereto.
6.05 Consulting and Transition Services Agreement. Buyer shall have
received from Russ a duly executed counterpart of the Consulting and Transition
Services Agreement, dated the Closing Date, in the form of Exhibit E attached
hereto.
6.06 Occupancy Agreement. Buyer shall have received from Russ duly
executed counterparts of the Occupancy Agreement, dated as of the Closing Date,
in the form of Exhibit A to the Consulting and Transition Services Agreement.
6.07 License Agreement. Buyer shall have received from each of Seller
and Russ a duly executed counterpart of the License Agreement, dated the
Closing Date, in the form of Exhibit F attached hereto.
6.08 Guaranty Agreement. Buyer shall have received from Russ a duly
executed counterpart of the Guaranty Agreement, dated the Closing Date, in the
form of Exhibit G attached hereto.
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6.09 Opinion of Counsel to Seller. Buyer shall have received an opinion
of Wilentz, Goldman & Spitzer, P.A., counsel to Seller and Russ, dated the
Closing Date, in the form of Exhibit H attached hereto.
6.10 Documents. The Bill of Sale, Instruments of Assignment and
Assumption, Other Instruments and all other documents to be delivered by Seller
and/or Russ to Buyer at the Closing shall be in form and substance reasonably
satisfactory to Buyer.
6.11 Consents. Buyer shall have received copies of all consents,
approvals, authorizations and orders listed on Schedule 6.11 hereto, all of
which shall be in form and substance reasonably satisfactory to Buyer and shall
continue to be in full force and effect.
6.12 No Injunction. There shall not be in effect on the Closing Date any
judgment, order, injunction or decree of any court enjoining consummation of
the transactions contemplated by this Agreement.
6.13 No Government Proceeding or Litigation. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding by or before any governmental or other regulatory or
administrative agency or commission which in the reasonable judgment of Buyer
may have a Material
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<PAGE> 115
Adverse Effect.
6.14 No Material Adverse Change. Seller shall not have suffered any
material adverse change in its business, Assets, condition (financial or
otherwise), results of operations or earnings since September 30, 1995 (it
being understood that seasonal declines in revenues in the ordinary course of
business consistent with Seller's past financial performance shall not
constitute such a material adverse change for purposes of this Section 6.14).
6.15 Financing. Buyer shall have obtained financing in an amount
sufficient to enable Buyer to pay the Purchase Price and consummate the
transactions contemplated by this Agreement; provided, that the financing
condition shall not be available to Buyer if the sole reason debt financing was
not available was because Buyer/Zebra refused to provide the equity financing
or failed to perform any other express condition that is solely within its
control required by the financing commitment accepted by Buyer prior to the
execution of this Agreement.
VII. CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller hereunder are subject to the fulfillment, prior
to or at the Closing, of each of the following
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conditions (any or all of which may be waived in whole or in part in writing by
Seller):
7.01 Representations and Warranties. The representations and warranties
made by Buyer and/or Zebra in this Agreement, and the statements of Buyer
contained in any other agreement, instrument or certificate delivered by Buyer
pursuant to this Agreement, shall be true when made and at and as of the
Closing Date as though such representations and warranties were made at and as
of such date, except as otherwise contemplated (or permitted) by this
Agreement, the Schedules hereto or in any other agreement, instrument or
certificate delivered by Seller pursuant to this Agreement.
7.02 Performance. Buyer shall have performed and complied with all
agreements, covenants, obligations and conditions required by this Agreement to
so be performed or complied with by it prior to or at the Closing.
7.03 Officer's Certificate. Buyer shall have delivered to Seller a
certificate, dated the Closing Date and executed by its President, certifying
as to the fulfillment of the conditions set forth in Sections 7.01 and 7.02
hereof.
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7.04 Assumption Agreement. Seller shall have received from Buyer a duly
executed counterpart of the Assumption Agreement, dated the Closing Date, in
the form of Exhibit B attached hereto.
7.05 Escrow Agreement. Seller and Russ shall have each received from
Buyer a duly executed counterpart of the Escrow Agreement, dated the Closing
Date, in the form of Exhibit D attached hereto.
7.06 Consulting and Transition Services Agreement. Russ shall have
received from Buyer a duly executed counterpart of the Consulting and
Transition Services Agreement, dated the Closing Date, in the form of Exhibit E
attached hereto.
7.07 Occupancy Agreement. Seller shall have received from Buyer duly
executed counterparts of the Occupancy Agreement, dated as of the Closing Date,
in the form of Exhibit A to the Consulting and Transition Services Agreement.
7.08 License Agreement. Seller and Russ shall have each received from
Buyer a duly executed counterpart of the License Agreement, dated the Closing
Date, in the form of Exhibit F attached hereto.
7.09 Opinion of Counsel to Buyer. Seller shall have received an opinion
of Pryor, Cashman, Sherman & Flynn, counsel to
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Buyer, dated the Closing Date, in the form of Exhibit I attached hereto.
7.10 No Injunction. There shall not be in effect on the Closing Date any
judgment, order, injunction or decree of any court enjoining consummation of
the transactions contemplated by this Agreement.
7.11 Documents. All documents to be delivered by Buyer and/or Zebra to
Seller and/or Russ at the Closing shall be in form and substance reasonably
satisfactory to Seller.
7.12 Security for Purchase Price Adjustment. If required by Section
1.07(d) hereof, Seller shall have received either a guaranty executed by Zebra
in accordance with Section 1.07(d) hereof, or an irrevocable letter of credit
in accordance with Section 1.07(d) hereof.
VIII. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
8.01 Survival of Representations. All representations and warranties
made by any party in this Agreement shall survive the Closing and any
investigation at any time made by or on behalf of any party until April 30,
1998, except for (i) the representations and warranties set forth in Sections
3.14 and 3.24 hereof which shall survive for a period of four (4) years
following the
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<PAGE> 119
Closing Date and (ii) the representations and warranties set forth in Sections
3.07, 3.08 (except with respect to those representations and warranties set
forth in Section 3.08 that overlap with matters covered by Section 3.13 hereof,
which shall survive until April 30, 1998), 3.16 and 3.22 hereof which shall
survive for the applicable statute of limitations period.
8.02 Statements as Representations. All statements contained in this
Agreement, the Schedules hereto, or any other agreement, instrument or
certificate delivered pursuant hereto, shall be deemed representations and
warranties for all purposes of this Agreement, including, without limitation,
the references to representations and warranties in Sections 6.01 and 7.01
hereof.
8.03 Agreement of Seller to Indemnify. Seller shall indemnify Buyer and
each of its officers, directors, employees, representatives, agents,
shareholders, partners and affiliates (and their respective officers,
directors, employees, representatives, agents, shareholders, partners and
affiliates) and hold each of them harmless from and against any reasonably
incurred loss, liability, claim, cost, damage or expense (including, but not
limited to, any and all expenses reasonably incurred in investigating,
preparing or defending any litigation or proceeding,
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commenced or threatened, or any claim whatsoever) (collectively, "Losses")
suffered or incurred by any such indemnified party to the extent arising from
(i) any breach of any representation or warranty of Seller contained in this
Agreement or in any Schedule, certificate, instrument or other document
delivered pursuant hereto, (ii) any breach of any covenant or agreement of
Seller or Russ contained in this Agreement, (iii) any liabilities (including
without limitation, liabilities incurred prior to the Closing Date under that
certain License Agreement, dated April 12, 1994, between Seller and National
Football League Properties, Inc.), obligations, contracts (written or
otherwise), debts, expense or costs of Seller of any kind or nature whatsoever
other than the Assumed Liabilities (iv) any federal, state, local, foreign or
other Taxes of Seller or with respect to any of the Assets that are due and
payable either on or before the Closing Date or with respect to any period or
portion thereof ending on or before the Closing Date, (v) any failure by Seller
to comply with applicable bulk transfer laws, including without limitation, the
bulk transfer provisions of the Uniform Commercial Code of the State of New
Jersey, in connection with the transactions contemplated by this Agreement, or
(vi) any of Seller's or Russ's responsibilities, and non-compliance therewith,
with respect to
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applicable United States Customs laws or regulations, including without
limitation, Seller's failure to make required payments of Customs duties on or
prior to the Closing Date, except those incurred in the ordinary course of
business by Seller and which have not yet become due; provided, however, that
the amount for which Seller shall be liable to Buyer pursuant to this Section
8.03 or any other provision of this Agreement or any of the Related Documents
shall not be more than $20,000,000 on a cumulative basis; provided, further,
however, that Seller shall not have any liability under this Section 8.03
unless and until the aggregate of all Losses for which Seller would be liable
exceeds $230,000 on a cumulative basis, and then only to the extent of such
excess.
To the extent that the amount for which Seller shall be liable to Buyer
pursuant to this Section 8.03 relates to consequential damages, such
consequential damages must be reasonable as to amount and reasonably and
causally related to the particular breach. In addition, to the extent that
such consequential damages are comprised of lost profits, such lost profits
shall be calculated based upon a period not exceeding four (4) years; provided
that nothing herein shall preclude Seller from asserting in any particular case
that consequential
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<PAGE> 122
damages have not been proven or have only been proven under the circumstances,
for a period of less than four (4) years. Payments in respect of the
indemnification provided in this Section 8.03 shall be made promptly (and
currently) as Losses shall be incurred. Anything to the contrary contained
herein notwithstanding, the indemnification provided for in this Section 8.03
with respect to the matters referred to in clause (i) above shall survive the
Closing and any investigation at any time made by or on behalf of any party for
the periods set forth in Section 8.01 hereof and the indemnification provided
for in this Section 8.03 with respect to the matters referred to in clauses
(ii) through (v) above shall survive the Closing and any investigation at any
time made by or on behalf of any party for the applicable statute of
limitations period, except as otherwise provided in Section 8.01. Subject to
the remedies set forth in Section 2.07(d) hereof, the indemnification provided
for in this Section 8.03 shall be Buyer's exclusive remedy with respect to
Losses suffered or incurred by Buyer as a result of (i) through (v) above. In
addition, any losses suffered or incurred by Buyer (whether or not as a result
of (i) through (v) above) shall be subject to the $20,000,000 cap on
indemnification set forth above.
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<PAGE> 123
8.04 Agreement of Buyer to Indemnify. Buyer shall indemnify Seller and
each of its officers, directors, employees, representatives, agents,
shareholders, partners and affiliates (and their respective officers,
directors, employees, representatives, agents, shareholders, partners and
affiliates) and hold each of them harmless from and against any Loss suffered
or incurred by any such indemnified party to the extent arising from (i) any
breach of any representation or warranty of Buyer contained in this Agreement
or in any schedule, certificate, instrument or other documents delivered
hereto, (ii) any breach of any covenants or agreement of Buyer contained in
this Agreement or in any schedule, certificate, instrument or other documents
delivered hereto, (iii) any liabilities, obligations, contracts (written or
otherwise), debts, expense or costs of Buyer of any kind or nature whatsoever
under the Assumed Liabilities, (iv) any federal, state, local, foreign or other
Taxes of Buyer or with respect to any of the Assets that are due and payable
following the Closing Date with respect to any period or portion ending
following the Closing Date. Payments in respect of the indemnification
provided in this Section 8.04 shall be made promptly (and currently) as Losses
shall be incurred. Anything to the contrary contained herein notwithstanding,
the indemnification
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<PAGE> 124
provided for in this Section 8.04 with respect to the matters referred to in
clause (i) above shall survive the Closing and any investigation at any time
made by or on behalf of any party for the periods set forth in Section 8.01
hereof and the indemnification provided for in this Section 8.04 with respect
to the matters referred to in clauses (ii), (iii) and (iv) above shall survive
the Closing and any investigation at any time made by or on behalf of any party
for the applicable statute of limitations period. The indemnification provided
in this Section 8.04 shall be Seller's exclusive remedy with respect to Losses
suffered or incurred as a result of (i) through (iv) above.
8.05 Conditions of Indemnification. Each party indemnified pursuant to
Section 8.03 or 8.04 hereof (an "indemnified party") agrees to give prompt
notice to the party required to indemnify such indemnified party (an
"indemnifying party") of the assertion of any claim, or the commencement of any
suit, action or proceeding, whether brought against such indemnified party or
brought by such indemnified party against the indemnifying party (each a
"Claim"), in respect of which indemnity may be sought by such indemnified party
under Section 8.03 or 8.04 hereof or in respect of which such indemnified party
may seek any other remedy against the indemnifying party under this Agreement;
provided, however,
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<PAGE> 125
that the omission so to promptly notify the indemnifying party with respect to
a Claim brought against such indemnified party will not relieve the
indemnifying party from any liability which it may have to such indemnified
party under Section 8.03 or 8.04 hereof unless such failure materially
prejudices the indemnifying party with respect to the defense of such Claim.
If any indemnified party shall seek indemnity under Section 8.03 or 8.04
hereof, the indemnifying party, in the case of a Claim brought against such
indemnified party, shall be entitled to participate therein and, to the extent
that it wishes, to assume and direct the defense and settlement thereof with
counsel reasonably satisfactory to such indemnified party and, in the case of a
Claim brought by such indemnified party against the indemnifying party, the
indemnifying party shall direct the defense and settlement thereof with counsel
satisfactory to the indemnifying party. After notice from the indemnifying
party to an indemnified party of its election to assume and direct the defense
and settlement of a Claim brought against such indemnified party, the
indemnifying party shall not be liable to such indemnified party (or any of its
affiliates) under Section 8.03 or 8.04 hereof for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other
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<PAGE> 126
than reasonable costs of investigation undertaken at the request of the
indemnifying party; except that such indemnified party shall have the right to
employ counsel to represent such party if, in the reasonable judgment of such
party, it is advisable for such party to be represented by separate counsel,
and in that event the fees and expenses of such separate counsel shall be paid
by such indemnified party. Notwithstanding the foregoing provisions of this
Section 8.05, the indemnifying party shall not, without the prior written
consent of an indemnified party (which consent shall not be unreasonably
withheld or delayed), effect any settlement of any pending or threatened
proceeding in respect of which such indemnified party is, or with reasonable
foreseeability, could have been a party and indemnity could have been sought
hereunder by such indemnified party for a Claim brought against such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability arising out of such proceeding
(provided that, whether or not such a release is required to be obtained, the
indemnifying party shall remain liable to such indemnified party in accordance
with Section 8.03 or 8.04 hereof, as applicable, in the event that a Claim is
subsequently brought against such indemnified party).
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<PAGE> 127
8.06 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against the other party hereto.
8.07 Tax Benefits; Insurance. In calculating the amount of any Losses
for which an indemnified party is entitled to indemnification under this
Article VIII, any Tax Benefit (as hereinafter defined) received by such
indemnified party shall be applied against the amount of the Loss to reduce the
amount payable by the indemnifying party. "Tax Benefit" shall mean any tax
savings to the indemnified party (computed at the combined Federal, state and
local tax rate applied to the indemnified party in the immediately preceding
taxable year) resulting from any net increase in deductions, losses or credits
or any net decrease in income, gains or recapture of credits attributable to
inclusion of the claims or related indemnification payment, as the case may be,
in any tax return of the indemnified party plus any interest attributable to
such inclusion. In addition, in calculating the amount of any Losses for which
an indemnified party is entitled to indemnification under this Article VIII,
the amount of any insurance proceeds received by the indemnified party relating
to
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<PAGE> 128
or in connection with such Loss shall reduce the amount of any claim.
IX. TERMINATION; AMENDMENT AND WAIVER
9.01 Termination of Agreement. This Agreement may be terminated at any
time prior to the Closing:
(a) By mutual written agreement of Buyer and Seller; or
(b) By Buyer or Seller if the Closing shall not have occurred on or
before the later of (i) January 16, 1996 and (ii) five (5) business days after
delivery of the Audited Statements by Seller's Accountants to Buyer or Zebra.
9.02 Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void and
there shall be no liability on the part of any party hereto (or any of their
respective officers or directors), except (i) based upon obligations set forth
in Sections 2.08(c), 5.08(b), 10.01 and 10.02 hereof, (ii) to the extent that
failure to satisfy the conditions of Article VI or Article VII, as the case may
be, results from the negligent, intentional or willful breach, violation or
non-compliance by any party hereto of any covenant, agreement, obligation,
representation or warranty
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<PAGE> 129
contained in this Agreement or any other agreement referred to herein and (iii)
to the extent that such termination results from Buyer's failure to satisfy the
financing condition set forth in Section 6.15 hereof or Buyer's failure to
close if legally required hereunder, in which case Buyer and/or Zebra shall be
responsible for one-half of the costs and expenses for the services of Seller's
Accountant (up to a maximum of $85,000) incurred in connection with the
preparation of the audited financial statements to be delivered to Buyer
pursuant to this Agreement. Nothing herein shall preclude Seller and/or Russ
from recovering the full cost of such services and any other damages reasonably
incurred in the event of a breach by Buyer and/or Zebra of their obligations
hereunder. In the event that this Agreement is terminated by Buyer as a result
of Buyer's failure to satisfy the financing condition set forth in Section 6.15
hereof, Buyer shall deliver to Seller and Russ a true and complete copy of the
commitment letter previously received by Buyer from its potential source of
debt financing for the transactions contemplated by this Agreement. Zebra
hereby guarantees the full and timely performance of all of Buyer's payment
obligations under this Section 9.02.
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<PAGE> 130
9.03 Amendment, Extension and Waiver. Buyer and Seller may amend this
Agreement at any time by an instrument in writing signed on behalf of such
parties. Any agreement on the part of a party hereto to any waiver of
compliance with any of the agreements or conditions contained herein shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
X. MISCELLANEOUS
10.01 No Finders. Buyer, Zebra, Seller and Russ each represent and
warrant that there are no claims for brokerage commissions or finder's fees in
connection with the transaction contemplated by this Agreement except for a fee
to Geneva Capital Markets, Inc., which shall be paid by Seller. Buyer and
Zebra, on the one hand, and Seller and Russ, on the other hand, will pay or
discharge, and will indemnify and hold the others harmless from and against any
and all claims or liabilities for brokerage commissions or finder's fees
incurred by reason of a breach of this representation.
10.02 Expenses; Taxes. Buyer and Seller will each pay the fees and
expenses incurred by it in connection with this Agreement; provided, however,
that Buyer (a) shall pay to Seller at Closing an amount equal to one-half (1/2)
of the costs and
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expenses for the services of Seller's Accountants (up to a maximum of $85,000)
incurred in connection with the preparation of the audited financial statements
to be delivered to Buyer pursuant to this Agreement, and (b) shall reimburse
Seller for the reasonable renovation costs incurred by Seller and/or Russ with
respect to the proposed Taiwan office of Buyer, provided that such renovation
costs were approved by Buyer prior to being incurred by Seller and/or Russ, and
for any amounts paid by Seller and/or Russ with respect to such Taiwan office,
provided that such payments were specifically required by the terms of the
lease of such Taiwan office, including but not limited to rental payments and
security deposits. All sales and transfer taxes and fees incurred in
connection with this Agreement and the transactions contemplated hereby shall
be borne equally by Seller and Buyer and Seller shall file all necessary
documentation with respect to such taxes.
10.03 Further Assurances. From time to time, at the request of any party
hereto and without further consideration, the other party or parties will
execute and deliver to such requesting party such documents and take such other
action as such requesting party may reasonably request in order to consummate
more effectively the transactions contemplated hereby, including
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without limitation, vesting in Buyer good, valid and marketable title to the
Assets being transferred hereunder.
10.04 Parties in Interest. This Agreement will be binding upon, inure to
the benefit of, and be enforceable by the respective successors and assigns of
the parties hereto. This Agreement may not be assigned by Buyer, other than to
a subsidiary or corporate affiliate of the Buyer who is a successor to the
business of Buyer or in connection with the sale of all or substantially all of
the stock or operating assets of Buyer (subject to the prior written consent of
Seller and Russ which consent shall not be unreasonably withheld or delayed),
other than to a subsidiary or corporate affiliate of Buyer, or assigned by
Seller, other than to Russ or a corporate affiliate of Russ, without the prior
written consent of the other party, except that no such consent shall be
required for an assignment of Buyer's rights under this Agreement as security
for its acquisition financing. Any assignment by Buyer or Seller of this
Agreement or any of the Related Documents shall not affect any guarantees by
Zebra under this Agreement.
10.05 Entire Agreement. This Agreement and the Schedules and Exhibits
hereto and the other agreements, instruments and writings referred to herein or
delivered pursuant hereto contain
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<PAGE> 133
the entire understanding of the parties with respect to its subject matter.
This Agreement supersedes all prior agreements and understandings, including
without limitation, the Letter of Intent, between the parties with respect to
its subject matter.
10.06 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
10.07 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder will be in writing and will be deemed to have
been duly given if delivered personally or mailed (registered or certified
mail, postage prepaid, return receipt requested) or via facsimile or overnight
courier delivery as follows:
(a) If to Seller or Russ:
Russ Berrie and Company, Inc.
111 Bauer Drive
Oakland, New Jersey 07436
Attention: President
With a copy to:
Russ Berrie and Company, Inc.
111 Bauer Drive
Oakland, New Jersey 07436
Attention: General Counsel
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<PAGE> 134
And a copy to:
Wilentz, Goldman & Spitzer, P.A.
90 Woodbridge Center Drive, Suite 900
Box 10
Woodbridge, New Jersey 07095-0958
Attention: Sidney D. Weiss, Esq.
(b) If to Buyer or Zebra:
PF Acquisition Corp.
c/o Zebra Capital Corporation
730 Fifth Avenue
New York, New York 10019
Attention: Mr. Joel L. Kier
With a copy to:
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attention: Blake Hornick, Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above.
10.08 Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of New Jersey, without
regard to conflicts of law principles thereof.
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<PAGE> 135
10.09 Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
10.10 Bulk Transfer Laws. Based on the right of indemnification set
forth in Section 8.03 hereof, Buyer hereby waives compliance by Seller with any
applicable bulk transfer laws, including without limitation, the bulk transfer
provisions of the Uniform Commercial Code of the State of New Jersey, with
respect to the transactions contemplated hereby.
10.11 Consent to Jurisdiction. Any legal action, suit or proceeding
arising out of or relating to this Agreement or any of the Related Documents or
the consummation of the transactions contemplated hereby or thereby may be
instituted, at the option of the party instituting such suit, in any federal
court of the Southern District of New York or any state court located in New
York County, State of New York, or in any federal or state court located in
Newark, New Jersey, and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of at least one of such courts,
that the action, suit or proceeding if brought in any of such courts, would be
in an inconvenient forum, that the venue of the action, suit or proceeding, if
brought in any of such
- 129 -
<PAGE> 136
courts, is improper or that this Agreement or any of the Related Documents or
the subject matter hereof or thereof may not be enforced in or by at least one
of such courts on jurisdictional grounds.
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<PAGE> 137
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of Buyer, Zebra Seller and Russ as of the date
first above written.
PF ACQUISITION CORP.
By:
-------------------------------
Name:
Title:
ZEBRA CAPITAL CORPORATION,
but solely for purposes of Sections 1.02, 1.07,
2.04 and 2.08, Article IV, Sections 5.08 and 9.02
and Article X hereof and as guarantor of Buyer's
obligation to close under this Agreement
By:
-------------------------------
Name:
Title:
PAPEL/FREELANCE, INC.
By:
-------------------------------
Name:
Title:
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<PAGE> 138
RUSS BERRIE AND COMPANY, INC., but solely for
purposes of Sections 1.05, 2.02, 2.03, 2.04, 2.07,
and 5.05 and Article X hereof
By:
-------------------------------
Name:
Title:
- 132 -
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF RUSS BERRIE AND COMPANY, INC.
<TABLE>
<CAPTION>
Company Name Jurisdiction of
------------ Incorporation
-------------
<S> <C>
Russ Berrie and Company South, Inc. Georgia
Russ Berrie and Company West, Inc. California
Russ Berrie and Company Chicago, Inc. Illinois
Russ Berrie and Company Investments, Inc. New Jersey
Russ Berrie (U.K.) Limited England
Russ Berrie (Benelux) B.V. Holland
Tri Russ International (Hong Kong) Limited Hong Kong
Amram's Distributing, Ltd. Canada
P/F Done, Inc. Pennsylvania
Fluf N' Stuff, Inc. Pennsylvania
Papel/Freelance (U.K.) Ltd. England
Bright of America, Inc. West Virginia
Russ Berrie (Ireland) Limited Ireland
Cap Toys, Inc. Ohio
Papel Freelance (Benelux) B.V. Holland
OddzOn Products, Inc. California
Russ Berrie and Company Properties, Inc. New Jersey
RUSSPLUS, Inc. New Jersey
</TABLE>
44
<PAGE> 1
EXHIBIT 23.1
Report of Independent Accountants
Our report on the consolidated financial statements of Russ Berrie and Company,
Inc. and subsidiaries is included on page 17 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 32 of this Annual
Report on Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
February 2, 1996
Parsippany, New Jersey
45
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements of
Russ Berrie and Company, Inc. on Forms S-8 (File Nos. 2-96238, 2-96239,
2-96240, 33-10779, 33-26161, 33-27406, 33-27897, 33-27898, and 33-51823) of our
reports, dated February 3, 1995, on our audits of the consolidated financial
statements and financial statement schedule of Russ Berrie and Company, Inc.
and subsidiaries as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1994, which reports are included in this
Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
March 29, 1996
Parsippany, New Jersey
46
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
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0
0
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