RUSS BERRIE & CO INC, DEF 14A, 1998-03-23

RUSS BERRIE & CO INC
DEF 14A, 1998-03-23
DOLLS & STUFFED TOYS

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<PAGE> 1

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

RUSS BERRIE AND COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE> 2

RUSS BERRIE AND COMPANY, INC.
111 BAUER DRIVE
OAKLAND, NEW JERSEY 07436

March 13, 1998

Dear Shareholder:

It is my pleasure, on behalf of your Board of Directors, to extend to you a
cordial invitation to attend our Annual Meeting of Shareholders which will be
held this year at The Sheraton Parsippany Hotel (formerly, the Sheraton Tara
Hotel), 199 Smith Road, Parsippany, New Jersey, at 2:00 P.M. on Wednesday, April
22, 1998.

At the meeting, shareholders will be asked to elect 9 directors; to approve
(i) a Stock Option Plan for Outside Directors, (ii) a Stock Option and
Restricted Stock Plan, (iii) a Stock Option Plan, and (iv) an Employee Stock
Purchase Plan; and to transact such other business as may properly come before
the meeting.

I look forward to greeting you at the meeting. Whether or not you expect to
attend, I urge you to sign and return your proxy card immediately.

Sincerely,

/s/ Russell Berrie
RUSSELL BERRIE
Chairman
<PAGE> 3

RUSS BERRIE AND COMPANY, INC.
111 BAUER DRIVE
OAKLAND, NEW JERSEY 07436

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, APRIL 22, 1998

The Annual Meeting of Shareholders of Russ Berrie and Company, Inc. will be
held this year at The Sheraton Parsippany Hotel (formerly, the Sheraton Tara
Hotel), 199 Smith Road, Parsippany, New Jersey on Wednesday, April 22, 1998, at
2:00 P.M., for the following purposes:

1. To elect 9 directors to serve until the next Annual Meeting of
Shareholders and until their successors shall have been elected and qualified;

2. To adopt a new Stock Option Plan for Outside Directors to take effect on
January 1, 1999;

3. To adopt a new Stock Option and Restricted Stock Plan to take effect on
January 1, 1999;

4. To adopt a new Stock Option Plan to take effect on January 1, 1999;

5. To adopt a new Employee Stock Purchase Plan to take effect on January 1,
1999; and

6. To transact such other business as may properly come before the meeting.

Only shareholders of record at the close of business on March 6, 1998 are
entitled to notice of and to vote at such meeting.

BY ORDER OF THE
BOARD OF DIRECTORS,

/s/ Arnold S. Bloom
ARNOLD S. BLOOM
Secretary

Oakland, New Jersey
March 13, 1998

Please complete, date, sign, and promptly return your proxy card in the enclosed
envelope.
<PAGE> 4

RUSS BERRIE AND COMPANY, INC.
111 BAUER DRIVE
OAKLAND, NEW JERSEY 07436

PROXY STATEMENT
DATED MARCH 13, 1998

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Russ Berrie and Company, Inc. (the "Company") of
proxies for use at the Annual Meeting of Shareholders of the Company to be held
on Wednesday, April 22, 1998, at 2:00 P.M., at The Sheraton Parsippany Hotel
(formerly, the Sheraton Tara Hotel), 199 Smith Road, Parsippany, New Jersey, and
at any adjournments thereof.

Shareholders of record at the close of business on March 6, 1998, will be
entitled to one vote for each share they then held on all matters to come before
the meeting. There were outstanding on that date 22,196,863 shares of common
stock of the Company, stated value $.10 per share ("Common Stock"). The Company
has no other class of stock outstanding. The holders of a majority of the shares
of Common Stock entitled to vote at the meeting will constitute a quorum.

An executed proxy may be revoked at any time by written notification to the
Secretary of the Company if such notice is actually received by the Secretary
before such proxy is exercised, or by attending and voting at the meeting in
person. Proxies in the accompanying form which are properly executed by
shareholders, duly returned to the Company and not revoked will be voted in the
manner specified. If no specification is indicated, the proxy will be voted as
indicated below. The cost of solicitation will be borne by the Company.

The Annual Report of the Company for the fiscal year ended December 31,
1997, accompanies this Proxy Statement, but is not part of the proxy soliciting
materials.

This Proxy Statement and the form of proxy will be mailed to shareholders
on or about March 23, 1998.

ELECTION OF DIRECTORS

Nine directors are to be elected to hold office until the next Annual
Meeting of Shareholders and until their respective successors are elected and
qualified. The election of directors requires the affirmative vote of the
holders of a plurality of the shares of Common Stock voting at the meeting. It
is intended that proxies in the accompanying form which do not withhold the
authority to vote for any or all of the nominees will be voted for the election
as directors of the persons named below. Should any nominee become unable or
unwilling to serve as a director, the proxies will be voted in favor of the
remainder of those named and may be voted for substitute nominees who would be
nominated by the Board of Directors in place of those who are not candidates. At
this time, the Board of Directors knows of no reason why any nominee might not
be a candidate at the meeting. The information concerning the nominees has been
furnished by them to the Company.

<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION;
NAME(1) AGE SINCE OTHER DIRECTORSHIPS
------- --- -------- ---------------------
<S> <C> <C> <C>
Raphael Benaroya............ 50 1993 Chairman of the Board, President and Chief Executive
Officer, since 1988, of United Retail Group, Inc., which
operates a chain of retail specialty stores. Mr.
Benaroya is also Managing Director of American Licensing
Group, L.P., which specializes in consumer goods' brand
name licensing.
Angelica Berrie............. 43 1998* Director -- Product Development of the Company since
November 1991.
</TABLE>

1
<PAGE> 5

<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION;
NAME(1) AGE SINCE OTHER DIRECTORSHIPS
------- --- -------- ---------------------
<S> <C> <C> <C>
Russell Berrie.............. 65 1966 Chairman and Chief Executive Officer of the Company
since its incorporation in 1966. Mr. Berrie is the
founder of the Company. Mr. Berrie is also a Director of
United Retail Group, Inc.
A. Curts Cooke.............. 61 1982** Consultant to the Company since February 1998. President
and Chief Operating Officer of the Company from March
1990 through January 1998.
Ilan Kaufthal............... 50 1995 Vice Chairman, since April 1997, of Schroder & Co., Inc.
(formerly known as Schroder, Wertheim & Co., Inc.), an
investment banking firm. Managing Director, from
February 1987 to March 1997, of Schroder & Co., Inc. Mr.
Kaufthal is also a Director of United Retail Group,
Inc., Cambrex Corporation, a company which manufactures
specialty chemicals, and ASI Solutions Incorporated, a
company which provides human resources outsourcing
services.
Charles Klatskin............ 63 1983 Chairman of the Board and President of Charles Klatskin
Company, Inc., a commercial real estate brokerage and
development firm, since its incorporation in 1966.
Joseph Kling................ 68 1988*** President and Chief Executive Officer of Pamsco, Inc., a
consulting company, since April 1991. Mr. Kling is also
a Director of Lancit Media Productions, Ltd., which
produces children's television programming.
William A. Landman.......... 45 1994 Principal and Director of Acquisitions of CMS Companies,
an investment firm, since 1987. Mr. Landman is also a
Director of Comtrex Systems Corp., which manufactu\res
cash registers.
Sidney Slauson.............. 88 1978 Mr. Slauson was General Counsel to the Company from 1966
through 1990. From 1990 until June 30, 1995, Mr. Slauson
was of counsel to Rosner and Feltman, a law firm which
provided legal services to the Company. Mr. Slauson is
currently retired.
</TABLE>

- ---------------

(1) Mr. Paul Cargotch, Executive Vice President and Chief Financial Officer
of the Company, and a Director, has resigned effective April 17, 1998. He
will not stand for re-election to the Board of Directors of the Company.

* Mrs. Angelica Berrie, the wife of Russell Berrie, Chairman and Chief
Executive Officer of the Company, was elected to the Board of Directors on
February 2, 1998.

** For further information regarding Mr. Cooke's employment arrangement with
the Company, see "Employment Agreements and Arrangements".

*** Mr. Kling did not stand for re-election to the Board of Directors of the
Company in April 1995, but was re-elected as a Director in October 1995.

2
<PAGE> 6

THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD

The Board of Directors of the Company held four meetings during 1997. The
Audit Committee of the Board of Directors, which held two meetings during 1997,
consisted of Messrs. Ilan Kaufthal and Charles Klatskin. Effective April 24,
1997, Mr. William A. Landman replaced Mr. Klatskin as a member of the Audit
Committee. The Audit Committee is responsible for ensuring maintenance of an
adequate system of internal financial controls, causing the books of account and
annual financial statements of the Company to be audited by certified public
accountants, discussing with the certified public accountants the results of
their audit, and recommending to the Board of Directors the appointment of
certified public accountants. The Compensation Committee, which held one meeting
during 1997, consists of Messrs. Benaroya, Landman and Slauson. The Compensation
Committee reviews and recommends to the Board of Directors remuneration
arrangements for senior management of the Company and various Company
compensation plans. The report of the Compensation Committee is set forth in
this Proxy Statement. There is no standing nominating committee. All of the
directors attended, in 1997, at least 75% of the aggregate number of meetings of
the Board of Directors and the Audit Committee and Compensation Committee (if
they were members of those Committees) except Mr. Klatskin who attended 50% of
such meetings.

DIRECTOR COMPENSATION

Directors who are full-time employees of the Company receive no additional
compensation for services as a director. Each director who is not an employee of
the Company receives $8,000 per year plus $1,000 for each Board meeting and
$1,000 for each Audit or Compensation Committee meeting attended.* In addition,
until December 31, 1988, the Russ Berrie and Company, Inc. Stock Option Plan for
Outside Directors (the "1984 Directors Plan") provided for the granting of
non-qualified stock options (and was amended to include stock appreciation
rights ("SARs")) to members of the Board of Directors who were not officers or
other employees of the Company and who did not own Common Stock as of the
effective date of the plan. The 1984 Directors Plan terminated on December 31,
1988, although options and SARs previously granted could have been exercised
beyond that date (with no options or SARs exercisable later than January 1,
1998). In 1997, Mr. Klatskin exercised options pursuant to the 1984 Directors
Plan, for 3,000 shares of Common Stock at an exercise price of $14.25 per share.
Commencing January 1, 1989, directors who were not officers or other employees
of the Company became eligible to receive non-qualified stock options and
related SARs, if granted, under the Company's 1989 Stock Option Plan for Outside
Directors (the "1989 Directors Plan"). (See "1989 Director's Plan" below.)
Commencing January 1, 1994, directors who were not officers or other employees
of the Company became eligible to receive non-qualified stock options under the
Company's 1994 Stock Option Plan for Outside Directors (the "1994 Directors
Plan" and, together with the 1989 Directors Plan, "All Directors Plans"). (See
"1994 Directors Plan" below.)

ALL DIRECTORS PLANS

All Directors Plans are currently administered by a committee comprised of
two members of the Board of Directors who are not participants in any of such
plans: Russell Berrie and Paul Cargotch.

Options granted under All Directors Plans vest and become exercisable one
year after the date of grant and remain exercisable for ten years from the date
of grant. Options are transferable to spouses, lineal

- ---------------

* Mr. Cooke, former President and Chief Operating Officer of the Company,
retired on January 31, 1998. See "Employment Agreements and Arrangements". Mr.
Cooke, who has been engaged as a consultant to the Company until January 31,
1999, does not receive compensation (including stock options) for serving as a
Director during the year in which he is engaged as a consultant to the
Company.
3
<PAGE> 7

descendants, certain trusts and charitable organizations; otherwise, such
options are not transferable other than by will or under the laws of descent and
distribution, and are exercisable only by the grantee or a permitted transferee
or by the grantee's or permitted transferee's legal representative(s) after
death or disability. If the grantee ceases to be a member of the Board of
Directors for reasons other than death or disability, non-vested options expire
immediately and vested options are only exercisable for 30 days thereafter, or
the remaining option term, if shorter. In the event of the grantee's death or
disability, non-vested options shall vest and all outstanding options may be
exercised within 12 months after the death or disability or the remaining option
term, if shorter.

Options granted under All Directors Plans are issued on each January 1 at
an exercise price equal to the closing market price of the Common Stock on the
New York Stock Exchange on the first trading day of each such year.

1989 DIRECTORS PLAN

A total of 150,000 shares of Common Stock have been reserved for the grant
of options and related SARs, if any, under the 1989 Directors Plan. Grantees
have been granted options to purchase 3,000 shares of Common Stock in each year
from 1989 through 1993. In 1997, Mr. Klatskin exercised options, pursuant to the
1989 Directors Plan, for 3,000 shares of Common Stock at an exercise price of
$12.67 per share, and Mr. Slauson exercised options, pursuant to the 1989
Directors Plan, for 3,000 shares of Common Stock at an exercise price of $12.67
per share and 3,000 shares of Common Stock at an exercise price of $12.50 per
share.

Until December 31, 1991, the committee administering the 1989 Directors
Plan had the discretion to grant SARs subject to related options, which are
exercisable only to the same extent and subject to the same terms and conditions
as the related options. In general, a grantee who exercises an SAR will be
entitled to securities and/or cash in an amount equal to the excess of the
closing market price of the Common Stock on the New York Stock Exchange on the
date of exercise over the exercise price of the related option, multiplied by
the number of shares as to which the SAR is exercised. Exercise of all or any
part of an SAR will reduce on a share-for-share basis the number of shares
subject to a grantee's related option. Payment due upon exercise of an SAR shall
be made (i) in cash, (ii) in Common Stock, or (iii) partly in cash and partly in
Common Stock, all as determined by the committee in its discretion.

This plan terminated on December 31, 1993, although options and SARs
previously granted may be exercised beyond that date.

1994 DIRECTORS PLAN

A total of 150,000 shares of Common Stock have been reserved for the grant
of options under the 1994 Directors Plan. Grantees have been granted options to
purchase 3,000 shares of Common Stock in each year from 1994 through 1998. In
1997 and 1998, options were granted to all eligible directors at an exercise
price of $18.50 per share and $26.25 per share, respectively.

No options granted under the 1994 Directors Plan were exercised in 1997.

4
<PAGE> 8

EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT

CHIEF EXECUTIVE OFFICER

Mr. Russell Berrie, Chairman and Chief Executive Officer of the Company, is
party to an employment arrangement with the Company that provides for
compensation, in 1997, consisting of a base salary at an annual rate of $425,000
and a bonus equal to 1% of the Company's net income after taxes ("Incentive
Compensation"). Mr. Berrie does not participate in any of the Company's stock
option or restricted stock plans. The bonus arrangement has been in effect since
July 1, 1983, prior to the Company's initial public offering.

The Compensation Committee (the "Committee") and Mr. Berrie discuss his
base compensation annually. For 1998, the Committee and Mr. Berrie concluded
that his base compensation should be increased by 12% to $475,000 plus the
Incentive Compensation.

The Committee has not conducted a study of chief executive officer
compensation at companies comparable to the Company. The Committee believes that
basing a substantial portion of Mr. Berrie's compensation on a fixed percentage
of the Company's net income after taxes provides an appropriate linkage between
his compensation and the Company's performance. The Committee also notes that,
although Mr. Berrie does not participate in any of the Company's stock option or
restricted stock plans, he is the beneficial owner of approximately 50% of the
outstanding Common Stock.

OTHER EXECUTIVE OFFICERS

The Committee determines the compensation of executive officers, other than
the chief executive officer, in consultation with Mr. Berrie. Generally, the
compensation received by these individuals consists of the following principal
components: base salary, cash bonuses, stock options and, for four executive
officers (one of whom left the employ of the Company in April 1997), restricted
stock awards under the Company's 1994 Stock Option and Restricted Stock Plan
(including predecessor plans, the "Stock Option and Restricted Stock Plans").
The Committee, after discussion with Mr. Berrie, has followed a policy of
determining increases in base compensation based principally upon the Company's
and the individual executive officer's performance. In 1997, one executive
officer, Mr. James O'Reardon, who was promoted to Vice President --
Administration in September 1997, received an increase in his base compensation
at the time of his promotion.

The Committee views stock options and restricted stock awards as serving
two functions: compensation to executive officers and providing executive
officers with an equity stake in the Company that aligns their interests with
shareholders. In January 1997, executive officers received grants of stock
options under the Company's 1994 Stock Option and Restricted Stock Plan to
purchase stock having an aggregate fair market value (measured at the date of
grant) ranging from 32% to 40% of base compensation. Three of the executive
officers named in the Summary Compensation Table, and one other executive
officer who left the employ of the Company in April 1997, received restricted
stock awards under the Company's Stock Option and Restricted Stock Plans
relating to shares having a fair market value (measured at the date of grant)
equal to 33.3% of 80% of base compensation. Although the amount of these awards
does not vary on the basis of the recipients' other holdings of the Company's
stock, it may vary on the basis of the Company's performance or other factors
deemed relevant by the Compensation Committee. The ultimate value to the
recipient of such awards depends upon the market price of the Company's Common
Stock.

5
<PAGE> 9

Awards of cash bonuses to executive officers are based upon a bonus pool in
which approximately 70 of the Company's personnel participate and are paid if
the Company exceeds certain operating profit levels from its core domestic
business. Participants are eligible to receive a maximum award ranging from 50%
(in the case of certain executive officers) to 4% of the recipient's base
salary. Participants receive the maximum bonus for which they are eligible if
the amount of the bonus pool is sufficient to pay the maximum bonus to all
participants; otherwise, each participant receives the same percentage of the
bonus pool as such participant would have received had maximum bonuses been
paid. (See also "Summary Compensation Table".)

Additional awards of cash bonuses to executive officers (and certain other
eligible personnel) are also paid if the Company exceeds certain goals of
profitability from its core domestic business. Participants are eligible to
receive an award ranging from 2% to 10% of the recipient's base salary depending
upon the level of operating profit for the relevant period.

Mr. Berrie does not participate in the bonus pool or additional cash bonus
described above.

Russ Berrie and Company, Inc. Compensation Committee
Raphael Benaroya, William A. Landman and Sidney Slauson, 1997 Members

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In 1997, the Compensation Committee consisted of Messrs. Benaroya, Landman
and Slauson.

Russell Berrie, Chairman and Chief Executive Officer of the Company, serves
as a member of the Board of Directors of United Retail Group, Inc. Raphael
Benaroya, the Chairman of the Board, President and Chief Executive Officer of
United Retail Group, Inc., serves on the Compensation Committee of the Board of
Directors of the Company.

6
<PAGE> 10

RUSS BERRIE AND COMPANY, INC.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
RUSS BERRIE AND COMPANY, INC., THE S & P 500 INDEX
AND PEER GROUP COMPANIES

<TABLE>
<CAPTION>
'RUSS
MEASUREMENT PERIOD BERRIE AND S&P 500 PRIOR PEER CURRENT
(FISCAL YEAR COVERED) CO., INC.' INDEX GROUP PEER GROUP
<S> <C> <C> <C> <C>
DEC-92 100.00 100.00 100.00 100.00
DEC-93 87.06 110.08 120.27 121.88
DEC-94 81.87 111.53 96.66 110.83
DEC-95 78.49 153.45 103.64 112.75
DEC-96 115.98 188.68 119.59 106.86
DEC-97 173.87 251.63 149.37 134.68
</TABLE>

Assumes $100 invested December 31, 1992, and reinvestment of all dividends.

Current Peer Group Companies are as follows: American Greetings (Class A),
Cross (A.T.) & Co. (Class A), Department 56 Inc. (Series A), First Years, Inc.,
Gibson Greetings Inc., Ohio Art Co., Stanhome Inc. and Tandycrafts Inc.

Prior Peer Group Companies are as follows: American Greetings (Class A),
Cross (A.T.) & Co. (Class A), Galoob (Lewis) Toys Inc., Gibson Greetings Inc.,
Hasbro Inc., First Years, Inc., Ohio Art Co. and Tandycrafts Inc.

Peer Group Companies were selected on the basis of similarity of their
products or distribution channels to those of the Company.

7
<PAGE> 11

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth, as of March 1, 1998, the shares of Common
Stock beneficially owned by each director of the Company, by certain executive
officers of the Company and by all directors and officers of the Company as a
group.

<TABLE>
<CAPTION>
TOTAL SHARES APPROXIMATE
SHARES OF OF COMMON PERCENTAGE OF
COMMON STOCK OUTSTANDING
NAME OF DIRECTOR, OFFICER STOCK BENEFICIALLY COMMON
OR IDENTITY OF GROUP OWNED(1) OWNED(1)(2) STOCK(1)(2)
------------------------- ---------- ------------ -------------
<S> <C> <C> <C>
Raphael Benaroya.......................................... 720 12,720 *
Angelica Berrie(3)........................................ 201,000 204,918 *
Russell Berrie(4)......................................... 11,126,534 11,130,452 50.2
Paul Cargotch(5).......................................... 3,099 8,723 *
Ricky Chan(5)............................................. 6,013 14,855 *
A. Curts Cooke(5)......................................... 675 675 *
Ilan Kaufthal............................................. -0- 6,000 *
Charles Klatskin.......................................... 3,100 27,100 *
Joseph Kling.............................................. -0- 6,000 *
William A. Landman........................................ 65 9,065 *
Y.B. Lee(5)............................................... 2,552 18,416 *
Sidney Slauson............................................ 10,000 24,000 *
Leslie Berrie, Russell Berrie and Myron Rosner, as
co-trustees under The Leslie Berrie 1993 Trust(6)....... 126,541 126,541 *
All directors and officers as a group (20
persons)(4)(5)(7)....................................... 11,152,908 11,290,092 50.6
</TABLE>

- ---------------
* Less than 1%

(1) Each individual has the sole power to vote and dispose of the shares of
Common Stock, except as provided in notes 3, 4 and 6 below; and, in the case
of restricted shares granted under Russ Berrie and Company, Inc. Stock
Option and Restricted Stock Plans, subject to the provisions of such plans.

(2) Includes the number of shares subject to stock options granted by the
Company which are exercisable within 60 days.

(3) Includes (a) 1,000 shares held by The Angelica 1992 Trust, and (b) 200,000
shares held of record by The Russell Berrie 1995 Annuity Trust, of which
Mrs. Berrie is a co-trustee possessing shared voting power and shared
dispositive power as to the shares held by such trust. Shares deemed to be
beneficially owned also include 3,918 shares subject to stock options.

(4) Includes (a) 941,333 shares held of record by Mr. Russell Berrie, (b)
8,203,542 shares held of record by The Russell Berrie 1991 Trust, of which
Mr. Berrie is the grantor possessing the unrestricted power to revoke the
trust, a co-trustee with Mr. Myron Rosner possessing shared voting power and
shared dispositive power with respect to the shares held by such trust and,
until his death, the sole beneficiary, (c) 653,968 shares held of record by
The Russell Berrie 1996 Annuity Trust, of which Mr. Berrie is the grantor
and a co-trustee with Mr. Rosner possessing shared voting power and shared
dispositive power with respect to the shares held by such trust, (d)
1,000,000 shares held of record by The Russell Berrie 1997 Annuity Trust, of
which Mr. Berrie is the grantor and a co-trustee with Mr. Rosner possessing
shared voting power and shared dispositive power with respect to the shares
held by such trust, and (e) 150 shares held of record by Mr. Berrie as
custodian for one of his daughters. Also includes (a) 1,000 shares held by
The Angelica 1992 Trust for the benefit of Mr. Berrie's spouse, (b) 200,000
shares held of record by The Russell Berrie 1995 Annuity Trust, of which Mr.
Berrie's spouse is a co-trustee possessing shared voting power and shared
dispositive power, and (c) 126,541 shares held of record by The Leslie

8
<PAGE> 12

Berrie 1993 Trust, of which Mr. Berrie is a co-trustee; all of which Mr.
Berrie disclaims beneficial ownership (see "Security Ownership of
Management" table above and footnotes (3) and (6) herein). Does not include
shares of Common Stock held beneficially and of record by The Russell Berrie
Foundation (262,726 shares). Mr. Berrie is a co-trustee of the Foundation.
Shares deemed to be beneficially owned also include 3,918 shares subject to
stock options held by Mr. Berrie's spouse, of which Mr. Berrie disclaims
beneficial ownership.

(5) Includes shares awarded under the Company's Stock Option and Restricted
Stock Plans which are not vested as of March 1, 1998, as follows: 2,479
shares for Mr. Cargotch; 5,336 shares for Mr. Chan; 2,042 shares for Mr.
Lee; and 9,857 shares for all directors and officers as a group.

(6) Leslie Berrie, Russell Berrie and Myron Rosner are co-trustees, each having
the power to vote and dispose of these shares. Messrs. Berrie and Rosner
disclaim beneficial ownership of these shares.

(7) Includes shares held by trusts included in the table.
------------------------------------------------------

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth as of March 1, 1998, with respect to each
person who is known to the Company to be the beneficial owner of more than five
percent of the outstanding shares of Common Stock: (i) the name and address of
such owner, (ii) the number of shares beneficially owned, and (iii) the
percentage of the total number of shares of Common Stock outstanding so owned.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------- ------------------ --------
<S> <C> <C>
Russell Berrie (1).......................................... 11,130,452(2) 50.2
111 Bauer Drive
Oakland, New Jersey 07436
</TABLE>

- ---------------
(1) Includes (a) 941,333 shares held of record by Mr. Russell Berrie, (b)
8,203,542 shares held of record by The Russell Berrie 1991 Trust, of which
Mr. Berrie is the grantor possessing the unrestricted power to revoke the
trust, a co-trustee with Mr. Myron Rosner possessing shared voting power and
shared dispositive power with respect to the shares held by such trust and,
until his death, the sole beneficiary, (c) 653,968 shares held of record by
The Russell Berrie 1996 Annuity Trust, of which Mr. Berrie is the grantor
and a co-trustee with Mr. Rosner possessing shared voting power and shared
dispositive power with respect to the shares held by such trust, (d)
1,000,000 shares held of record by The Russell Berrie 1997 Annuity Trust, of
which Mr. Berrie is the grantor and a co-trustee with Mr. Rosner possessing
shared voting power and shared dispositive power with respect to the shares
held by such trust, and (e) 150 shares held of record by Mr. Berrie as
custodian for one of his daughters. Also includes (a) 1,000 shares held by
The Angelica 1992 Trust for the benefit of Mr. Berrie's spouse, (b) 3,918
shares held by Mr. Berrie's spouse subject to stock options granted by the
Company which are exercisable within 60 days, (c) 200,000 shares held of
record by The Russell Berrie 1995 Annuity Trust, of which Mr. Berrie's
spouse is a co-trustee possessing shared voting power and shared dispositive
power, and (d) 126,541 shares held of record by The Leslie Berrie 1993
Trust, of which Mr. Berrie is a co-trustee; all of which Mr. Berrie
disclaims beneficial ownership (see "Security Ownership of Management" table
above and footnotes (3) and (6) therein). Does not include shares of Common
Stock held beneficially and of record by The Russell Berrie Foundation
(262,726 shares). Mr. Berrie is a co-trustee of the Foundation.

(2) Of Mr. Berrie's 11,130,452 shares, Mr. Myron Rosner, in his capacity as a
trustee, is deemed also to be the beneficial owner of 10,184,051 shares. Mr.
Rosner's trusteeships are as follows: (a) 8,203,542 shares

9
<PAGE> 13

held of record by The Russell Berrie 1991 Trust, of which Mr. Rosner is a
co-trustee with Mr. Berrie possessing shared voting power and shared
dispositive power with respect to the shares held by such trust, subject to
Mr. Berrie's unrestricted power to revoke the trust, (b) 239,356 shares held
of record by The Russell Berrie 1995 Annuity Trust, of which Mr. Rosner is a
co-trustee possessing shared voting power and shared dispositive power with
respect to 200,000 shares held by such trust and of which Mr. Rosner is a
trustee possessing sole voting power and sole dispositive power with respect
to 39,356 shares held by such trust, (c) 653,968 shares held of record by
The Russell Berrie 1996 Annuity Trust, of which Mr. Rosner is a co-trustee
with Mr. Berrie possessing shared voting power and shared dispositive power
with respect to the shares held by such trust, (d) 1,000,000 shares held of
record by The Russell Berrie 1997 Annuity Trust, of which Mr. Rosner is a
co-trustee with Mr. Berrie possessing shared voting power and shared
dispositive power with respect to the shares held by such trust, and (e)
126,541 shares held of record by The Leslie Berrie 1993 Trust, of which Mr.
Rosner is a co-trustee and of which Mr. Rosner disclaims beneficial
ownership. Mr. Rosner also owns (a) 4,837 shares held of record by The Myron
Rosner P.A. Pension Plan, of which Mr. Rosner has sole voting power and sole
dispositive power with respect to the shares, (b) 720 shares held by a Keogh
plan, of which Mr. Rosner has sole voting power and sole dispositive power
with respect to the shares, and (c) 750 shares held by Mr. Rosner as joint
tenant with his spouse, of which Mr. Rosner has shared voting power and
shared dispositive power with respect to the shares. In all capacities, Mr.
Rosner is deemed to be the beneficial owner of 10,229,714 shares
(approximately 46.2 percent of the outstanding Common Stock of the Company).
Mr. Rosner's ownership does not include shares of Common Stock held
beneficially and of record by The Russell Berrie Foundation (262,726
shares). Mr. Rosner is a co-trustee of the Foundation. Mr. Rosner is a
partner at Wilentz, Goldman & Spitzer, P.A., 90 Woodbridge Center Drive,
Woodbridge, New Jersey 07095.

-----------------------------------------------------------

10
<PAGE> 14

EXECUTIVE COMPENSATION

The following table sets forth compensation for the years ended December
31, 1997, 1996 and 1995 paid to or accrued for the benefit of the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company as of December 31, 1997:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
----------------------------- -------------------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
COMPEN- STOCK OPTIONS/ PAYOUTS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARDS($)(2) SARS(SHARES) ($) SATION(3)
- --------------------------- ---- ------ ----- ------- ------------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell Berrie,........... 1997 $425,000 $834,583 $25,893 -0- -0- -0- $259,107
Chairman and Chief 1996 364,000 321,770 25,356 -0- -0- -0- 260,044
Executive Officer 1995 350,000 170,400 25,392 -0- -0- -0- 260,610
A. Curts Cooke,........... 1997 300,006 32,769 10,485 -0- -0- -0- 4,239
President and Chief 1996 300,006 185,773 11,399 $79,992 7,046 -0- 4,500
Operating Officer(4) 1995 292,507 121,458 10,430 77,990 6,807 -0- 4,500
Ricky Chan,............... 1997 235,000 122,019 4,574 62,660 4,064 -0- 54,239
Senior Vice President -- 1996 190,000 117,654 3,754 -0- 5,577 -0- 4,500
Product Development 1995 165,011 49,376 3,701 -0- 2,818 -0- 4,500
Paul Cargotch,............ 1997 215,000 111,635 4,862 57,332 3,718 -0- 4,239
Executive Vice President
and 1996 183,750 118,327 5,344 -0- 5,137 -0- 4,500
Chief Financial
Officer(5) 1995 167,500 69,551 4,876 -0- 4,872 -0- 4,500
Y.B. Lee,................. 1997 177,100 88,550 -0- 47,212 3,063 -0- 88
President -- Far East 1996 146,125 70,000 -0- -0- 4,110 -0- 94
Operations 1995 132,480 52,470 -0- -0- 3,854 -0- 92
</TABLE>

- ---------------

(1) While the aggregate of "Other Annual Compensation" received by the named
executive officers is lower than the lesser of $50,000 or 10 percent of
total annual salary and bonus for each named executive officer, the
perquisites and other personal benefits included within the "Other Annual
Compensation" which individually exceed 25% of the total perquisites and
other personal benefits for each named executive officer include (i) Mr.
Berrie's travel allowance ($20,800) for each of years 1997, 1996 and 1995,
(ii) Mr. Cooke's personal use of a Company car (valued at $2,351 for 1997
and $3,083 for each of years 1996 and 1995), and the premium ($4,319) paid
by the Company for each of years 1997, 1996 and 1995, on Mr. Cooke's behalf
for long-term disability insurance, (iii) Mr. Chan's personal use of a
Company car (valued at $3,083 for 1997 and $2,917 for each of years 1996 and
1995), and (iv) Mr. Cargotch's personal use of a Company car (valued at
$2,917 in each of years 1997 and 1996 and $2,960 for 1995). All salary and
bonus payments are reported for the year in which they are earned.

(2) Value is calculated by multiplying the number of shares awarded by the
closing price of the Common Stock on the New York Stock Exchange on the date
of grant. 18,732 shares of restricted stock were held by the named executive
officers at December 31, 1997, with an aggregate value as of such date of
$491,715 (calculated by multiplying the number of shares held by the closing
price of the Common Stock on the New York Stock Exchange on December 31,
1997, the last day of the Company's last completed fiscal year). At December
31, 1997, the value of Mr. Cooke's holdings was $254,467, Mr. Cargotch's was
$81,349, Mr. Chan's was $88,909 and Mr. Lee's was $66,990. The number of
shares of restricted stock awarded in 1997, 1996 and 1995 to (i) Mr. Cooke
is 0, 5,871 and 5,672, respectively, (ii) Mr. Cargotch is 3,099, 0 and 0,
respectively, (iii) Mr. Chan is 3,387, 0 and 0, respectively, and (iv) Mr.
Lee is 2,552, 0 and 0, respectively. Restricted stock awards vest over five
years at 20 percent per year provided the recipient remains in the employ of
the Company or as otherwise provided under the applicable plan. (For

11
<PAGE> 15

further information regarding Mr. Cooke's restricted stock, see "Employment
Agreements and Arrangements".) Dividends are paid on all outstanding
restricted stock.

(3) For Mr. Berrie, "All Other Compensation" consists of $254,868 paid in 1997,
$255,544 paid in 1996 and $256,110 paid in 1995 for split dollar life
insurance policies on the joint lives of Mr. Berrie and his spouse. The
split dollar life insurance policies have been assigned to the Company to
secure repayment of the premiums. For Mr. Chan, "All Other Compensation"
consists of $50,000 paid in 1997 for the premium on a life insurance policy
for Mr. Chan. See "Employment Agreements and Arrangements". For all named
executive officers, "All Other Compensation" consists of the Company's
contributions under the retirement plan/401(k) Plan during 1995, 1996 and
1997. Does not include investment gains or losses under the retirement
plan/401(k) Plan. (See "401(k) Plan".) Since the Company contributions to
the retirement plan/40l(k) Plan are not fixed, and because it is impossible
to calculate future income, it is not currently possible to calculate an
individual participant's retirement benefits.

(4) Mr. Cooke retired on January 31, 1998. See "Employment Agreements and
Arrangements".

(5) Mr. Cargotch has resigned effective April 17, 1998.

------------------------

401(k) PLAN

In February 1995, the Company amended its existing retirement plan (a
defined contribution plan) to convert such retirement plan to a plan based on
employees' pretax salary deferrals with Company matching contributions pursuant
to Section 401(k) of the Code (the "401(k) Plan"). Participating employees may
elect to contribute from 1% to 15% (but not in excess of the amount permitted by
the Code, i.e., $9,500 in 1997 and $10,000 in 1998) of their compensation, on a
pretax basis, to the 401(k) Plan. Because the 401(k) Plan is a qualified defined
contribution plan, if certain highly compensated employees' contributions exceed
the amount prescribed by the Code, such contributions will be reduced or
limited. In 1997, contributions of certain highly compensated employees were
limited to $8,477. Employees' contributions are invested in one or more of six
funds (as selected by each participating employee). The Company matches a
portion (one-half of the first 6% contributed) of the compensation deferred by
each employee. The Company's matching contribution fully vests after four years
of employment at the rate of 25% per year of employment. Under certain
circumstances, the 401(k) Plan permits participants to make withdrawals or
receive loans from the 401(k) Plan prior to retirement age.

EMPLOYMENT AGREEMENTS AND ARRANGEMENTS

Pursuant to Mr. Berrie's compensation arrangement with the Company, the
Company pays the cost of certain split dollar life insurance policies insuring
the joint lives of Mr. Berrie and his spouse, Mrs. Angelica Berrie, who is a
Director and an employee of the Company. The policies have been assigned to the
Company to secure repayment of the premiums. (See also "Compensation Committee
Report -- Chief Executive Officer", "Summary Compensation Table" and "Certain
Transactions".)

Mr. Cooke had previously announced his intention to retire as President and
Chief Operating Officer of the Company effective June 30, 1997. In June 1997,
the Company and Mr. Cooke agreed to postpone Mr. Cooke's retirement until
January 31, 1998. The Company's agreement with Mr. Cooke was revised to provide,
in relevant part, that Mr. Cooke will (i) be employed by the Company as
President and Chief Operating Officer until January 31, 1998, and, from February
1, 1998 until January 31, 1999, will be engaged as a consultant to the Company,
(ii) receive compensation at a rate of $300,000 per year until January 31, 1999,
(iii) be recommended, until January 31, 1999, by the Company, for election to
the Board of Directors of the Company, (iv) be entitled to consider January 31,
1998 as his normal retirement date under the Stock Option and Restricted Stock
Plans (which effectively allows Mr. Cooke to exercise all of his outstanding
options for up to one year or the stated period of the option (whichever is
shorter)) and have all restrictions on
12
<PAGE> 16

Mr. Cooke's restricted stock lapse on January 31, 1998, and (v) receive
insurance benefits until January 31, 1999. Under the agreement, Mr. Cooke will
not receive compensation (including stock options) as a Director of the Company
during the year in which he is engaged as a consultant to the Company and will
be subject to certain confidentiality and non-competition restrictions.

The Company has an agreement with Ricky Chan, Senior Vice
President -- Product Development of the Company, under which Mr. Chan will
receive the following retirement and life insurance benefits: (i) if Mr. Chan is
employed by the Company and reaches the age of 59, he would receive retirement
compensation in the amount of $2,750,000 payable to Mr. Chan (or his designated
beneficiary) at the rate of $250,000 per year for a period of 11 years, or (ii)
if Mr. Chan dies prior to the age of 59 and is employed by the Company at the
time of such death, the Company would pay, to Mr. Chan's designated beneficiary,
a lump sum death benefit by means of a life insurance arrangement, in the amount
of $1,000,000. The foregoing benefits would be in addition to other benefits to
which Mr. Chan is entitled as an employee of the Company.

1997 OPTION GRANTS

The following table sets forth the options granted to the named officers in
the Summary Compensation Table of the Company during the year ended December 31,
1997.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES ANNUAL RATES OF STOCK
UNDERLYING PERCENT OF TOTAL PRICE APPRECIATION FOR
OPTIONS OPTIONS GRANTED EXERCISE OR 10 YEAR OPTION TERM
GRANTED TO EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME (#)(1) IN FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ---------------- ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Russell Berrie.............. -0- -0- -0- -0- -0- -0-
A. Curts Cooke(2)........... 6,486 2.13 $18.50 1/2/07 $75,461 $191,234
Ricky Chan.................. 4,064 1.33 18.50 1/2/07 47,282 119,824
Paul Cargotch............... 3,718 1.22 18.50 1/2/07 43,257 109,622
Y.B. Lee.................... 3,063 1.01 18.50 1/2/07 35,636 90,310
</TABLE>

- ---------------
(1) All options granted vest and become exercisable one year from the date of
grant. In any 12 month period, an option holder may exercise no more than
the number of options received in the most recent grant plus one-third of
the option holder's remaining exercisable options.

(2) Pursuant to Mr. Cooke's agreement with the Company, all of his options
vested and all restrictions on his restricted stock lapsed on January 31,
1998. See "Employment Agreements and Arrangements".

13
<PAGE> 17

AGGREGATED OPTION/SAR EXERCISES IN 1997 AND
YEAR-END OPTION/SAR VALUES

The following table sets forth option and SAR exercises during 1997 and
year-end option and SAR values for the named officers in the Summary
Compensation Table of the Company based upon the closing price of the Common
Stock of the Company on the New York Stock Exchange on December 31, 1997
($26.25).

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES ACQUIRED VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END($)
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- --------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Russell Berrie............ -0- -0- -0- -0-
A. Curts Cooke............ 15,000 $191,768 10,666/6,486 $134,206/$50,267
Ricky Chan................ 8,985 109,011 4,778/4,064 49,139/ 31,496
Paul Cargotch............. 10,516 104,340 9,878/3,718 119,961/ 28,815
Y.B. Lee.................. 10,994 116,261 12,801/3,063 145,486/ 23,738
</TABLE>

- ---------------
(1) Value is calculated by determining the difference between the price of the
Common Stock underlying the options or SARs on the New York Stock Exchange
at the time of exercise and the exercise or base price of the options or
SARs.

CERTAIN TRANSACTIONS

Several warehouse, office and distribution facilities are leased to the
Company by Russell Berrie, Chairman and Chief Executive Officer of the Company,
or trusts for the benefit of members of his immediate family or by a partnership
in which he and Murray Berrie, his brother, are both general partners. The
Company believes that the terms of those leases are no less favorable to the
Company than could have been obtained from an unaffiliated third party. The
Company is also a guarantor under mortgage loan payments on the facilities in
South Brunswick and Oakland, New Jersey. The aggregate amount outstanding on the
loans as of December 31, 1997, was $8,068,000. The table below lists such
facilities, the current rentals and the lease expiration dates.

<TABLE>
<CAPTION>
ANNUAL LEASE
FACILITY(1) RENTAL(2) EXPIRATION(3)
----------- --------- -------------
<S> <C> <C>
Petaluma, California............................... $ 937,000 June 30, 2004
Oakland, New Jersey................................ 439,285 April 1, 2004
South Brunswick, New Jersey........................ 2,506,598 May 31, 1999
----------
Total.................................... $3,882,883
==========
</TABLE>

- ---------------
(1) The table set forth above does not include a facility located in Lakeland,
Florida, the lease for which expired on February 28, 1998. The Company paid
base rent during 1997 for such facility in the amount of $291,353 and during
the first two months of 1998 in the amount of $24,279 per month. This
facility was sublet during 1997 and during the first two months in 1998 for
rent of $16,426 per month.

(2) Reflects base rental obligations. Does not include payments for real estate
taxes and certain other items applicable to the premises. Base rentals are
subject to periodic increases during the remainder of the term of certain of
the leases.

(3) Not including renewal options, if any.

14
<PAGE> 18

Since January 1, 1997, the highest outstanding balance of a loan previously
made by the Company to Mr. Cooke, former President and Chief Operating Officer
and a Director, which loan has been repaid in full, was $90,435. The proceeds of
such borrowing were used by Mr. Cooke to pay for certain tax obligations
resulting from the lapse of restrictions on shares of Common Stock awarded under
the Company's Stock Option and Restricted Stock Plans. The Company lends to
various officers who receive restricted shares of Common Stock under the Stock
Option and Restricted Stock Plans amounts equal to Federal tax obligations
incurred by such officers resulting from the lapse of restrictions on such
shares. Under this arrangement, the indebtedness from the officer is represented
by an agreement or promissory note providing for loans for a five-year period
bearing interest at the applicable federal rate as determined by the Internal
Revenue Service. The principal amounts of and accrued interest on these loans
are required to be paid upon the earlier of (i) termination of the officer's
employment with the Company, and (ii) his disposition of the shares giving rise
to the indebtedness.

For a description of the employment arrangements between the Company and
each of Messrs. Cooke and Chan, see "Employment Agreements and Arrangements".

Until October 31, 1997, the Company leased a warehouse and office facility
located in Dayton, New Jersey from a partnership in which Charles Klatskin, a
Director of the Company, is a general partner. This facility was closed in July
1989, in connection with a restructuring undertaken by the Company. From July
1991 through December 1995, the Company occupied a portion of office and/or
warehouse space in this building. After January 1996, and in connection with the
sale of the business of the Company's subsidiary, Papel/Freelance, Inc., the
portion of the Dayton, New Jersey property, previously occupied by that
subsidiary (approximately 10% of such property), was sublet. The lease for this
facility expired on October 31, 1997 and the Company has vacated these premises.
The Company believes that the terms of the lease for the facility located in
Dayton, New Jersey were no less favorable to the Company than could have been
obtained from an unaffiliated third party.

The Company had an agreement with Schroder & Co., Inc. (formerly known as
Schroder Wertheim & Co., Incorporated; "Schroder") pursuant to which, among
other things, the Company retained Schroder as its exclusive financial advisor
in connection with the sale of the Company's wholly-owned toy subsidiaries, Cap
Toys, Inc. and OddzOn Products, Inc. (together, the "Toy Companies"). The
agreement provided, in relevant part, that Schroder would be paid a fee, at the
closing of the sale, equal to 1% of the sum of (i) the amount received by the
Company for such sale, (ii) any indebtedness of the Toy Companies to the Company
which is assumed by the purchaser, and (iii) any extraordinary dividends and/or
cash distributions paid by the Toy Companies to the Company which exceed the Toy
Companies' net income after September 26, 1996. On May 2, 1997, the Company sold
the Toy Companies to Hasbro, Inc. (and/or its affiliates) for a purchase price
of $166,650,000 subject to certain adjustments. Schroder received $1,632,261 as
its fee. Ilan Kaufthal, a Director of the Company, is Vice Chairman of Schroder.

The Company paid $293,950 during 1997 to Wilentz, Goldman & Spitzer, P.A.
("Wilentz"), a law firm which provides legal services to the Company. Mr.
Rosner, who is deemed to beneficially own more than five percent of the
Company's Common Stock, is of counsel to Wilentz. See "Security Ownership of
Certain Beneficial Owners", footnote (2).

SECTION 16 COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and

15
<PAGE> 19

Exchange Commission and the New York Stock Exchange. Officers, directors and
greater than ten percent shareholders are required to furnish the Company with
copies of all Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the fiscal year
ended December 31, 1997, all filing requirements applicable to its officers,
directors and greater than ten percent shareholders were complied with on a
timely basis except that (i) Mr. Budd Goldman, former Vice President-Marketing
(who left the employ of the Company in February 1998), failed to file a report
on Form 4 (with respect to two transactions) and filed late a report on Form 5
(satisfying the requirements of both Form 4 and Form 5), and (ii) Mr. Berrie
filed late a report on each of Form 4 and Form 5 (with respect to one
transaction).

APPROVAL OF THE 1999 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS

The Board of Directors of the Company has adopted the Russ Berrie and
Company, Inc. 1999 Stock Option Plan for Outside Directors (the "1999 Directors
Option Plan"), subject to approval by holders of a majority of the shares of
Common Stock voting at the meeting. The 1999 Directors Option Plan is intended
to become effective on January 1, 1999, immediately after the Company's 1994
Directors Plan terminates by its terms on December 31, 1998. Reference is made
to the text of the 1999 Directors Option Plan (attached to this Proxy Statement
as Exhibit A) for more detailed information.

DESCRIPTION OF THE 1999 DIRECTORS OPTION PLAN

The 1999 Directors Option Plan provides for the grant of stock options to
members of the Board of Directors who are not officers or other employees of the
Company. Currently, six persons would be eligible. For a description of Mr.
Cooke's arrangement, see "Employment Agreements and Arrangements". The plan will
be administered by a committee comprised of two Directors or such greater
number, as may be determined by the Board of Directors from time to time, who
are not participants in the plan.

A total of 150,000 shares of Common Stock has been reserved for the grant
of options under the plan. Grantees will be granted options to purchase 3,000
shares of Common Stock on each of January 1, 1999, 2000, 2001, 2002 and 2003 at
an exercise price equal to the closing market price of the Common Stock on the
New York Stock Exchange on the first trading day of each such year.

Options granted under the plan will be subject to an option agreement
between the Company and the grantee, will vest and be exercisable one year after
the date of grant and remain exercisable for ten years from the date of grant.
Options are not transferable other than by will or under the laws of descent and
distribution, provided, however, that each grantee may transfer all or any
portion of his/her options to his/her spouse and/or lineal descendants and/or a
trust for the benefit of the grantee or any of the foregoing and/or any
organization exempt under Section 501(c) of the Code. If the grantee ceases to
be a member of the Board of Directors for reasons other than death or
disability, nonvested options expire immediately and vested options are only
exercisable for 30 days thereafter, or the remaining option term, if shorter. In
the event of the grantee's death or disability, nonvested options shall vest and
all outstanding options may be exercised within 12 months after the death or
disability or the remaining option term, if shorter. Exercise must be
accompanied by payment in cash.

The plan may be amended from time to time by the committee; however, in
general, the following amendments cannot be made without the approval of the
shareholders of the Company: (i) an increase in the aggregate number of shares
subject to the plan, (ii) a reduction in the option exercise price of those
shares, contrary to the provisions of the plan, or (iii) a material modification
of the requirements as to eligibility for

16
<PAGE> 20

participation in the plan. In the event of an increase or decrease in the number
of outstanding shares of Common Stock resulting from certain events, the
committee may adjust the number of shares available for options under the plan,
adjust the exercise price for options granted under the plan or take such other
steps as it deems appropriate. Unless terminated sooner as provided therein, the
1999 Directors Option Plan will terminate on December 31, 2003, although options
previously granted may be exercised beyond that date.

FEDERAL INCOME TAX CONSEQUENCES OF THE 1999 DIRECTORS OPTION PLAN

The following is a summary of current Federal income tax rules relating to
the grant and exercise of stock options under the 1999 Directors Option Plan.

The grant of options under the plan is not taxable to the grantee at the
time of grant. Upon exercise of an option under the plan, the grantee generally
will recognize ordinary income equal to the excess of (a) the fair market value
of the Common Stock purchased, determined on the date of exercise, over (b) the
exercise price. Income required to be recognized in connection with the exercise
of an option will be taxed to the grantee as compensation (ordinary income), and
the Company will be required to withhold tax on the amount of income recognized
by the grantee. The Company will be entitled to an income tax deduction in the
year in which a grantee recognizes income with respect to the exercise of such
stock options in an amount equal to the income recognized by the grantee.

Upon the sale, exchange or other disposition of shares so acquired, the
grantee will have short-term or long-term capital gain or loss equal to the
difference between the amount realized and his or her basis in the shares. A
grantee's basis in the shares generally will be equal to their fair market
value, on the date of exercise. The holding period will begin on the day after
the tax basis of the shares is determined.

Options granted under the plan are intended to be "nonqualified stock
options" under the Code.

Each person eligible to receive options under the 1999 Directors Option
Plan is subject to the provisions of Section 16(b) of the Exchange Act (i.e., a
person who is an officer, director or ten percent shareholder of the Company).
If an option is exercised by such a person under the plan, neither the Company
nor such grantee will incur any tax consequences at the time of exercise unless
the grantee elects under Section 83(b) of the Code to disregard (for tax
purposes) the restrictions imposed by Section 16(b) of the Exchange Act. The
grantee must file such an election with the Internal Revenue Service (the "IRS")
within 30 days after the date of the exercise of the option, in which case, the
grantee will recognize ordinary income immediately (and the Company will be
entitled to a corresponding income tax deduction) as described above. If such an
election is not made, the grantee will recognize ordinary income (and the
Company will be entitled to a corresponding deduction) at the end of the Section
16(b) holding period (generally six months after exercise) in an amount equal to
the amount by which the fair market value of the shares on that date exceeds the
exercise price.

OTHER

Shareholders should recognize that certain Directors will personally
benefit from the adoption of the 1999 Directors Option Plan and the options
granted thereunder and, therefore, such Directors' interests may conflict with
the interest of the shareholders. Nevertheless, the Board of Directors believes
that, in addition to assisting the Company in being able to attract and retain
the services of high quality individuals as Directors, the adoption of such a
plan and the grant of options thereunder would provide an incentive to the
Directors to acquire a proprietary interest in the Company and to associate more
closely, as shareholders, the interest of Director and shareholder.

The Board of Directors recommends a vote FOR approval, and proxies not
marked to the contrary will be so voted.

17
<PAGE> 21

APPROVAL OF THE 1999 STOCK OPTION AND RESTRICTED STOCK PLAN

The Board of Directors of the Company has adopted the Russ Berrie and
Company, Inc. 1999 Stock Option and Restricted Stock Plan (the "1999 Stock
Option and Restricted Stock Plan"), subject to approval by holders of a majority
of the shares of Common Stock voting at the meeting. The 1999 Stock Option and
Restricted Stock Plan is intended to become effective on January 1, 1999,
immediately after the Company's 1994 Stock Option and Restricted Stock Plan
terminates by its terms on December 31, 1998. Reference is made to the text of
the 1999 Stock Option and Restricted Stock Plan (attached to this Proxy
Statement as Exhibit B) for more detailed information.

DESCRIPTION OF 1999 STOCK OPTION AND RESTRICTED STOCK PLAN

The 1999 Stock Option and Restricted Stock Plan provides for the grant of
stock options to officers and other key employees of the Company selected by the
committee designated to administer the plan and who generally have been employed
by the Company for at least 18 months. Currently, 13 persons would be eligible.
The plan also provides for the award of restricted stock to certain officers of
the Company who have been granted options. The committee will be comprised of
two "outside directors" or such greater number, as may be determined by the
Board of Directors from time to time, as defined in Treas. Reg. sec.
1.162-27(e)(3)(i) of the Code, who are not participants in the plan.

A total of 350,000 shares of Common Stock has been reserved for grants of
options and awards of restricted stock under the 1999 Stock Option and
Restricted Stock Plan. Upon expiration of an option or forfeiture of restricted
stock, the remaining shares subject to the option and the forfeited restricted
shares may again be subject to options or awards. The exercise price for options
granted under the plan for any year will be equal to the closing market price of
the Common Stock on the New York Stock Exchange on the first trading day of each
such year. A grantee will be granted options in each plan year to purchase
shares of Common Stock with a fair market value (determined as of the date of
grant) equal to 25% of the employee's annual base salary and prior year's earned
commissions, if any, except that the committee under the 1999 Stock Option and
Restricted Stock Plan may authorize the grant of options to purchase shares of
Common Stock with a fair market value not to exceed 80% of annual base salary
and prior year's earned commissions, if any, for certain officers. Options
granted under the 1999 Stock Option and Restricted Stock Plan will be subject to
an option agreement between the Company and the grantee, will vest and be
exercisable one year after the date of grant and remain exercisable for ten
years from the date of grant. The number of options that may be exercised in any
plan year may not exceed the number of options in the most recent grant plus
one-third of the remaining exercisable options. Exercise must be accompanied by
payment in cash.

Options are not transferable other than by will or under the laws of
descent and distribution, provided, however, that each grantee may transfer all
or any portion of his/her options to his/her spouse and/or lineal descendants
and/or a trust for the benefit of the grantee or any of the foregoing and/or any
organization exempt under Section 501(c) of the Code. All unexpired options may
be exercised within 12 months after a grantee's retirement, death or disability
or the remaining option term, if shorter. If a grantee's employment is
terminated for any other reason, any unexercised options will be canceled
immediately, except that if a grantee's employment is terminated by the Company
for reasons other than cause (as defined in the plan), options may be exercised
(to the extent exercisable on the date of termination) within thirty days after
termination or the remaining option term, if shorter.

The committee under the 1999 Stock Option and Restricted Stock Plan may
award shares of restricted stock to any officer or other key employee who is
also granted an option under the plan; the aggregate fair market value
(determined as of the date of award or grant) of shares awarded as restricted
stock or subject to options granted to any such officer or key employee in one
year may not exceed 80% of that officer's or key

18
<PAGE> 22

employee's annual base salary and prior year's earned commissions, if any, for
that year. A holder of restricted stock has all rights of a shareholder with
respect to such shares, including the right to receive dividends declared
thereon, but such shares are nontransferable and subject to forfeiture until
vested. During each of the five years immediately following the grant, the
restrictions will lapse, and the holder will become vested in 20% of the number
of shares of restricted stock granted, provided that the grantee remains an
employee for such year. Upon an employee's termination of employment (other than
by reason of death, disability or retirement), all nonvested shares are
forfeited. Restrictions on all shares lapse upon death, disability or retirement
at the normal retirement age. The committee has the power to accelerate the
lapse of the restrictions or remove such restrictions.

The 1999 Stock Option and Restricted Stock Plan may be amended at any time
and from time to time by the committee; however, in general, the following
amendments cannot be made without the approval of the shareholders of the
Company: (i) an increase in the aggregate number of shares subject to the plan,
(ii) a reduction in the option exercise price, contrary to the provisions of the
plan, or (iii) a material modification in the requirements as to eligibility for
participation in the plan. In the event of an increase or decrease in the number
of issued shares of Common Stock resulting from certain events, the committee
may adjust the number of shares available for options under the plan, adjust the
exercise price for options granted under the plan or take such other steps as it
deems appropriate. Unless terminated sooner as provided therein, the 1999 Stock
Option and Restricted Stock Plan will terminate on December 31, 2003, although
options previously granted may be exercised and restrictions on stock previously
awarded may extend beyond that date.

FEDERAL INCOME TAX CONSEQUENCES OF THE 1999 STOCK OPTION AND RESTRICTED STOCK
PLAN

The following is a summary of the current Federal income tax rules relating
to the award of restricted stock and the grant and exercise of stock options
under the 1999 Stock Option and Restricted Stock Plan.

The award of restricted stock is not taxable to the recipient at the time
of grant. The recipient will recognize ordinary income when the shares cease to
be subject to restrictions in an amount equal to the value of the stock at that
time less the amount, if any, paid for such shares. Alternatively, the recipient
can elect under Section 83(b) of the Code within 30 days of the time the
restricted stock is considered to be transferred to him to include the fair
market value of the stock less the amount, if any, paid for such shares, in his
income for the year in which he received the stock. If the recipient makes this
election, subsequent changes in the value of the stock will not result in
ordinary income or loss to him. However, if the stock is later forfeited, he
will not be entitled to any deduction with respect to the amount he earlier
included as ordinary income. The Company will be entitled to an income tax
deduction in the year in which the holder recognizes ordinary income with
respect to the restricted stock in an amount equal to the income recognized by
the holder. Any dividends received by the participant prior to the date he
recognizes income as described above are taxable as compensation income when
received.

The Company will be required to withhold tax on the income recognized by
the grantee and will be entitled to an income tax deduction at the same time and
in the same amount the grantee recognizes in income.

19
<PAGE> 23

shares. A grantee's basis in the shares of Common Stock generally will be equal
to their fair market value on the date of exercise.

Options granted under the plan are intended to be "nonqualified stock
options" under the Code.

OTHER

Shareholders should recognize that certain Directors and executive officers
will personally benefit from the adoption of the 1999 Stock Option and
Restricted Stock Plan and the options granted and the restricted stock awarded
thereunder and, therefore, such Directors' and executive officers' interests may
conflict with the interest of the shareholders. Nevertheless, the Board of
Directors believes that, in addition to assisting the Company in being able to
attract and retain the services of high quality individuals as executive
officers and other key employees of the Company, the adoption of such a plan and
the grant of options and the award of restricted stock thereunder would provide
an incentive to such persons to acquire a proprietary interest in the Company
and to associate more closely, as shareholders, the interests of the executive
officers or key employees and the shareholders.

The Board of Directors recommends a vote FOR approval, and proxies not
marked to the contrary will be so voted.

APPROVAL OF THE 1999 STOCK OPTION PLAN

The Board of Directors of the Company has adopted the Russ Berrie and
Company, Inc. 1999 Stock Option Plan (the "1999 Stock Option Plan"), subject to
approval by holders of a majority of the shares of Common Stock voting at the
meeting. The 1999 Stock Option Plan is intended to become effective on January
1, 1999, immediately after the Company's 1994 Stock Option Plan terminates by
its terms on December 31, 1998. Reference is made to the text of the 1999 Stock
Option Plan (attached to this Proxy Statement as Exhibit C) for more detailed
information.

DESCRIPTION OF THE 1999 STOCK OPTION PLAN

The 1999 Stock Option Plan provides for the grant of stock options to
employees who (i) have been employed by the Company for at least 18 months (or
such shorter period as the committee administering the plan may, in its
discretion, authorize), (ii) are not members of the Company's Board of
Directors, and (iii) have annual base salaries plus the immediate prior year's
earned commissions, if any, that equal or exceed the amount to be determined for
such plan year by the Committee (or such other amount as the Board of Directors
may, from time to time, determine). Had the 1999 Stock Option Plan been in
effect in 1998, employees earning $59,280 or more in 1998, and who are otherwise
eligible, would have been entitled to participate in such plan. Approximately
200 persons would currently be eligible, including certain executive officers
who are not also Directors of the Company, based upon the compensation level for
1998 set by the Committee. The Plan will be administered by a committee
comprised of two Directors or such greater number, as may be determined by the
Board of Directors from time to time, who are not participants in the plan.

A total of 2,000,000 shares of Common Stock has been reserved for the grant
of options under the 1999 Stock Option Plan. Upon expiration or cancellation of
an option, the remaining shares subject to the option may again be subject to
options.

Grantees will be granted options in each plan year to purchase shares of
Common Stock with a fair market value (determined as of the date of grant) equal
to 25% of the grantee's annual base salary plus the immediate prior year's
earned commissions, if any. The exercise price for options granted under the
plan for
20
<PAGE> 24

any year will be equal to the closing market price of the Common Stock on the
New York Stock Exchange on the first trading day of each such year. Options
granted under the plan will be subject to an option agreement between the
Company and the grantee, will vest and become exercisable one year after the
date of grant, and remain exercisable for ten years from the date of the grant.
The number of options that may be exercised in any calendar year may not exceed
the number of options in the most recent grant plus one-third of the remaining
exercisable options. Exercise must be accompanied by payment in cash.

Options are not transferable other than by will or under the laws of
descent and distribution, provided, however, that each grantee may transfer all
or any portion of his/her options to his/her spouse and/or lineal descendants
and/or a trust for the benefit of the grantee or any of the foregoing and/or any
organization exempt under Section 501(c) of the Code. All unexpired options may
be exercised within 12 months after a grantee's retirement, death or disability
(or the remaining period of the option if shorter). If a grantee's employment is
terminated for any other reason, any unexercised options will be cancelled
immediately, except that if the employment was terminated by the Company for
other than cause (as defined in the plan), options may be exercised (to the
extent exercisable on the date of termination) for 30 days after termination or
the remaining option term, if shorter.

The 1999 Stock Option Plan may be amended at any time and from time to time
by the committee; however, in general, the following amendments cannot be made
without the approval of the shareholders of the Company: (i) an increase in the
aggregate number of shares subject to the plan, (ii) a reduction in the option
exercise price of those shares, contrary to the provisions of the plan, or (iii)
a material modification in the requirements as to eligibility for participation
in the plan. In the event of an increase or decrease in the number of issued
shares of Common Stock resulting from certain events, the committee may adjust
the number of shares available for options under the plan, adjust the exercise
price for options granted under the plan or take such other steps as it deems
appropriate. Unless terminated sooner as provided therein, the 1999 Stock Option
Plan will terminate on December 31, 2003, although options previously granted
may be exercised beyond that date.

FEDERAL INCOME TAX CONSEQUENCES OF THE 1999 STOCK OPTION PLAN

The following is a summary of current Federal income tax rules relating to
the grant and exercise of the options under the 1999 Stock Option Plan.

Upon the sale, exchange or other disposition of shares so acquired, the
grantee will have short-term or long-term capital gain or loss equal to the
difference between the amount realized and his or her basis in the shares. A
grantee's basis in the shares generally will be equal to their fair market value
on the date of exercise. The holding period will begin on the day after the
basis of the shares is determined.

Options granted under the plan are intended to be "nonqualified stock
options" under the Code.

The Board of Directors recommends a vote FOR approval, and proxies not
marked to the contrary will be so voted.

21
<PAGE> 25

APPROVAL OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN

The Board of Directors of the Company has adopted the Russ Berrie and
Company, Inc. 1999 Employee Stock Purchase Plan (the "1999 Stock Purchase
Plan"), subject to approval by holders of a majority of the shares of Common
Stock voting at the meeting. The 1999 Stock Purchase Plan is intended to become
effective on January 1, 1999, immediately after the Company's 1994 Employee
Stock Purchase Plan terminates by its terms on December 31, 1998. The purpose of
the 1999 Stock Purchase Plan is to provide the Company's employees the
opportunity, through regular payroll savings, to acquire Common Stock at a
discount from market price, and thereby offer employees a share in the growth of
the Company. Reference is made to the text of the 1999 Stock Purchase Plan
(attached to this Proxy Statement as Exhibit D) for more detailed information.

DESCRIPTION OF THE 1999 STOCK PURCHASE PLAN

The 1999 Stock Purchase Plan provides for the grant of stock options to
full-time employees of the Company who have at least 18 consecutive months of
service with the Company and whose annual base salaries plus the immediate prior
year's earned commissions, if any, is less than the amount to be determined for
such Plan Year by the Committee (or such other amount as the Board of Directors
may, from time to time, determine). Had the 1999 Stock Purchase Plan been in
effect in 1998, employees earning less than $59,280 in 1998, and who are
otherwise eligible, would have been entitled to participate in such plan.
Approximately 780 persons would currently be eligible, based upon the
compensation level for 1998 set by the Committee. The plan will be administered
by a committee comprised of two Directors or such greater number, as may be
determined by the Board of Directors from time to time, who are not participants
in the plan. No Director or executive officer will participate in the plan.

A total of 150,000 shares of Common Stock has been reserved for issuance
for grants of options under the plan. As of the first trading day of each plan
year beginning on or after January 1, 1999, each eligible employee will be
granted an option to purchase the number of full shares of Common Stock which
may be purchased with the amount credited to his account as described below. In
each plan year, an eligible employee may elect to participate in the plan by
filing a payroll deduction authorization form for up to 10% (in whole
percentages) of his annual base salary plus commissions, if any. These funds are
held for an employee and are used to exercise his option on the last trading day
of the plan year, or any other day in December which the committee designates,
unless the employee elects not to exercise his option. If an employee elects not
to exercise his option, the total amount credited to his account during that
plan year, with interest, is returned to him, and his option expires. An
employee may withdraw from the plan at any time, at which time payroll
deductions will cease, the total amount credited to his account, with interest,
will be either returned to him and the option granted to him for such year will
terminate, or such amount will be used at the end of the year to purchase the
number of full shares of Common Stock which may be purchased with the amount
credited to his account.

The exercise price of options granted on the first trading day of each year
will be 90% of the closing market price of the Common Stock on the New York
Stock Exchange on that day. Options are not transferable other than by will or
under the laws of descent and distribution. All unexercised options shall expire
upon termination of employment other than by reason of retirement. In the event
of expiration, the total amount credited to the employee's account, with
interest, will be returned to him or to his personal representative.

The 1999 Stock Purchase Plan may be amended at any time and from time to
time by the Board of Directors. In the event of an increase or decrease in the
number of outstanding shares of Common Stock resulting from certain events, the
committee may adjust the number of shares available for options under the plan,
adjust the exercise price for options granted under the plan or take such other
steps as it deems

22
<PAGE> 26

appropriate. Unless terminated sooner as provided therein, the 1999 Stock
Purchase Plan will terminate on December 31, 2003.

FEDERAL INCOME TAX CONSEQUENCES OF THE 1999 STOCK PURCHASE PLAN

The 1999 Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423(b) of the Code.

There are no Federal income tax consequences to an employee upon the grant
or exercise of an option under the plan. If a participating employee disposes of
the shares issued pursuant to the exercise of an option under the plan more than
two years after the date the option was granted and more than one year after
such shares were transferred to him, or if he dies (at any time, regardless of
the holding period), the Federal income tax consequences of a disposition of
those shares will be as follows:

(a) The employee will recognize ordinary income for the taxable year
of the disposition or death, in an amount equal to the amount by which the
option price is exceeded by the lesser of the fair market value of the
share at the time (i) of disposition or death, or (ii) the option was
granted (calculated as if the option were exercised at the time of grant).

(b) If the amount realized (in the case of a disposition other than by
reason of death) exceeds the sum of (i) the price paid for the shares, and
(ii) the amount of ordinary income, if any, included in income upon a
disposition of the shares as described in the preceding subparagraph, such
excess will be taxed at long-term capital gain rates. If the amount
realized is less than the price paid for the shares, the excess of the
price paid over the amount realized will be treated as a long-term capital
loss.

If a participating employee disposes of the shares within two years after
the date the option was granted or within one year after the date the shares
were transferred to him (a "Disqualifying Transfer"), the Federal income tax
consequences of the Disqualifying Transfer will be as follows:

(a) The employee will recognize ordinary income in the taxable year of
the Disqualifying Transfer in an amount equal to the lesser of (i) the
excess of the fair market value of the shares, on the date they were
transferred to him pursuant to the exercise of his option over the price
paid for the shares, or (ii) the gain realized by him on such Disqualifying
Transfer. This ordinary income will also constitute "wages" subject to the
withholding of Federal income tax and the Company will be required to make
whatever arrangements are necessary to insure that the amount of tax
required to be withheld is available for payment. Any further gain or loss
recognized on such a Disqualifying Transfer will be taxed as a short-term
or long-term capital gain, depending on the holding period of the shares.

(b) The Company will be entitled to a Federal income tax deduction
corresponding to the amount of the ordinary income recognized by the
employee by reason of the Disqualifying Transfer.

The Board of Directors recommends a vote FOR approval, and proxies not
marked to the contrary will be so voted.

NEW PLAN BENEFITS

The following table sets forth the amounts to which certain participants in
the 1999 Directors Option Plan, the 1999 Stock Option and Restricted Stock Plan,
the 1999 Stock Option Plan and the 1999 Stock Purchase Plan would have been
entitled if the plans had been in effect for the year ended December 31, 1997.
Dollar values for options set forth in the table are based upon the difference
between the closing price of the

23
<PAGE> 27

Common Stock of the Company on the New York Stock Exchange on the first day of
trading in 1997 (which is the price that would have been used under the Plans)
and the closing price of the Common Stock of the Company on the New York Stock
Exchange as of January 2, 1998. Dollar values for restricted stock awards set
forth in the table are based upon the closing price of the Common Stock on the
New York Stock Exchange on the assumed date of grant.
<TABLE>
<CAPTION>
1999 1999
1999 STOCK OPTION & STOCK OPTION
DIRECTORS OPTION PLAN RESTRICTED STOCK PLAN PLAN
------------------------- ------------------------- ---------------------------
DOLLAR NUMBER OF DOLLAR NUMBER OF DOLLAR NUMBER OF
NAME(2) VALUE UNITS VALUE UNITS(1) VALUE UNITS
------- -------- --------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Russell Berrie....... N/A N/A N/A
Ricky Chan........... N/A $ 94,156 7,451 N/A
Paul Cargotch........ N/A 86,147 6,817 N/A
Y.B. Lee............. N/A 70,950 5,615 N/A
All Executive
Officers as a
Group............... N/A 251,253 26,369 N/A
Non-Executive
Directors........... $139,500 18,000 N/A N/A
Non-Executive
Employees........... N/A N/A $2,093,887 270,179

<CAPTION>
1999
STOCK PURCHASE
PLAN
-------------------------
DOLLAR NUMBER OF
NAME(2) VALUE UNITS
------- -------- ---------
<S> <C> <C> <C>
Russell Berrie....... N/A
Ricky Chan........... N/A
Paul Cargotch........ N/A
Y.B. Lee............. N/A
All Executive
Officers as a
Group............... N/A
Non-Executive
Directors........... N/A
Non-Executive
Employees........... $218,688 22,780
</TABLE>

- ---------------
(1) Includes 1997 grants of restricted stock as follows: 3,387 for Mr. Chan,
3,099 for Mr. Cargotch and 2,552 for Mr. Lee.

(2) The table set forth above does not include Mr. Cooke, former President and
Chief Operating Officer and a Director, who retired on January 31, 1998. Mr.
Cooke is not currently eligible to participate in the new plans. See
"Employment Agreements and Arrangements".

OTHER MATTERS

The Board of Directors knows of no business to be presented at the meeting
other than that set forth in the accompanying Notice of Annual Meeting of
Shareholders. However, if other matters properly come before the meeting, the
holders of the proxies intend to vote the proxies in accordance with their best
judgment on such matters.

Until August 1997, Coopers & Lybrand L.L.P. served as the Company's
independent accountants. The Board of Directors, upon the recommendation of the
Audit Committee, selected Arthur Andersen LLP to be the Company's independent
accountants for the remainder of 1997 and for 1998. It is expected that only
representatives of Arthur Andersen will be present at the meeting to respond to
appropriate questions and, if they so desire, to make a statement.

VOTING PROCEDURES

Election of Directors: Directors are elected by a plurality of the votes
cast at the annual meeting. Only shares that are voted in favor of a particular
nominee will be counted toward such nominee's achievement of a plurality. Shares
present at the meeting that are not voted for a particular nominee or shares
present by proxy where the shareholder properly withheld authority to vote for
such nominee (including broker non-votes) will not be counted toward such
nominee's achievement of a plurality.

Other Matters: The affirmative vote of the holders of a majority of the
shares of Common Stock voting at the meeting (in person or by proxy) is required
for a particular matter to be deemed an act of the shareholders. Shares electing
to abstain are considered present at the meeting for the particular matter, but
since they are not affirmative votes for the matter, abstentions have the same
effect as votes against the matter.

24
<PAGE> 28

In the event of broker non-votes, shares are not considered present at the
meeting for the particular matter as to which the broker withheld authority.
Broker non-votes are not counted in respect of the matter, but have the
practical effect of reducing the number of affirmative votes required to achieve
a majority for such matter by reducing the total number of shares from which the
majority is calculated.

SHAREHOLDER PROPOSALS

In order to be included in the proxy statement and form of proxy relating
to the 1999 Annual Meeting of Shareholders, proposals of shareholders intended
to be presented at such meeting must be received by the Company on or before
November 23, 1998. Any such proposals should be submitted in writing to:
Secretary, Russ Berrie and Company, Inc., 111 Bauer Drive, Oakland, New Jersey
07436.

By Order of the Board of Directors

ARNOLD S. BLOOM
Secretary

Oakland, New Jersey
March 13, 1998

25
<PAGE> 29

EXHIBIT A

RUSS BERRIE AND COMPANY, INC.

1999

STOCK OPTION PLAN FOR OUTSIDE DIRECTORS

EFFECTIVE JANUARY 1, 1999
<PAGE> 30

1. PURPOSE OF PLAN

The purpose of the 1999 Stock Option Plan for Outside Directors (the
"Plan") is to provide to Participants an opportunity, through Option grants, to
acquire Common Stock at a stated price over a period of time, and to thereby
offer Participants a share in the growth of the Company.

2. CERTAIN DEFINITIONS

2.1 "Board" shall mean the Board of Directors of the Company.

2.2 "Committee" shall mean the Committee provided in Section 8 to
administer the Plan.

2.3 "Common Stock" shall mean common stock of the Company, $.10 stated
value per share.

2.4 "Company" shall mean Russ Berrie and Company, Inc., a New Jersey
corporation.

2.5 "Disability" shall mean a physical or mental incapacity of a
Participant which renders him totally and permanently incapable of performing
his duties with the Company, provided that proof of disability under the federal
Social Security Act shall be conclusive evidence of Disability hereunder.
"Disabled" shall mean having a Disability.

2.6 "Option" shall mean a stock option granted under the Plan.

2.7 "Participant" shall mean any member of the Board who is not an officer
or other employee of the Company.

2.8 "Plan Year" shall mean the calendar year.

3. SHARES SUBJECT TO THE PLAN

3.1 There shall be reserved for Options granted under the Plan a maximum
of 150,000 shares of Common Stock (unless changed due to adjustments as provided
in Section 7).

3.2 Shares reserved may be authorized but unissued shares, or treasury
shares.

4. GRANT OF OPTIONS

4.1 Each Participant will be granted an Option to purchase 3,000 shares of
Common Stock on each of January 1st, 1999, 2000, 2001, 2002 and 2003. Each such
grant shall be evidenced by a written option agreement executed and delivered by
and on behalf of the Company and the Participant.

4.2 The Option price per share for each Plan Year will be equal to the
closing market price of the Common Stock on the first trading day of such year
on the New York Stock Exchange or such other national securities exchange as the
Common Stock may be traded.

4.3 A Participant who becomes a member of the Board after the beginning of
a Plan Year shall be granted Options commencing on the next grant date.

5. VESTING AND EXERCISE OF OPTIONS

5.1 Each Option shall vest and be fully exercisable one year after the
date it is granted, and shall continue to be exercisable for a period of 10
years from the date of grant.

5.2 Subject to Section 5.3, if a Participant ceases to serve as a member
of the Board, his nonvested Options shall immediately expire; vested Options
shall be exercisable for 30 days thereafter, or the stated period of the Option,
whichever period is shorter.
A-1
<PAGE> 31

5.3 In the event of a Participant's death or Disability, any nonvested
Options shall vest and all Options shall be exercisable by the Participant or
his legal representative or permitted transferee for a period of 12 months, or
the stated period of the Option, whichever period is shorter.

5.4 Each exercise of an Option shall be evidenced by a notice in writing
to the Company. The purchase price of the shares shall be paid in full in cash
at the time of exercise.

5.5 If the Company is for any reason required to withhold any amount under
the laws and regulations of the United States, any jurisdiction thereof or local
government with respect to the transfer of Common Stock under the Plan, the
Participant or other person receiving such Common Stock shall be required to pay
to the Company the amount of any such taxes which the Company is required to
withhold with respect to such Common Stock.

6. NON-ASSIGNABILITY

No Option shall be assignable or transferable except by will or by the laws
of descent and distribution; provided, however, that each Participant may
transfer all or any portion of his/her Options to his/her spouse and/or lineal
descendants and/or a trust for the benefit of the Participant or any of the
foregoing and/or any organization exempt under Section 501(c) of the Internal
Revenue Code of 1986, as amended (the "Code"). Any Option shall be exercisable
only by the Participant entitled thereto or his/her permitted assignee(s) or
transferee(s).

7. DILUTION AND OTHER ADJUSTMENTS

In the event of any change in the outstanding Common Stock by reason of a
stock dividend or stock split, recapitalization, merger, consolidation, exchange
of shares or other corporate change, the Committee may adjust the aggregate
number of shares of Common Stock which may be issued under the Plan, the Option
price of Options granted under the Plan, and any or all other matters deemed
appropriate by the Committee, including, without limitation, making Options
exercisable solely for the securities or other property received by the
shareholders of the Company by reason of such transactions.

8. ADMINISTRATION OF THE PLAN

8.1 The Plan shall be administered by a Committee comprised of two
directors or such greater number, as may be determined by the Board from time to
time, who are not Participants in the Plan. The Committee shall have the
authority to interpret the Plan and to adopt, amend and rescind rules and
regulations relating to the Plan, and to make all other determinations and take
all other actions necessary or advisable for the implementation and
administration of the Plan.

8.2 Determinations and actions of the Committee on all matters relating to
the Plan shall be in its sole discretion and shall be conclusive. No member of
the Committee shall be liable for any determination made or other action or
omission in good faith relating to the Plan.

A-2
<PAGE> 32

9. AMENDMENT AND TERMINATION OF THE PLAN

9.1 All provisions of the Plan may be modified or amended by the
Committee; provided, however, that, except as provided in Section 7 hereof, no
amendment shall be made without the approval of the shareholders of the Company
which shall:

(a) increase the aggregate number of shares of Common Stock subject to
the Plan,

(b) reduce the Option exercise price of the shares contrary to the
provisions of the Plan as hereinabove set forth, or

9.2 The Board may suspend or terminate the Plan at any time.

10. ADOPTION AND APPROVAL OF THE PLAN

The Plan shall not take effect until approved by the holders of a majority
of the shares of Common Stock voting at the meeting. The Plan was approved by
the Board of Directors on February 2, 1998.

A-3
<PAGE> 33

EXHIBIT B

RUSS BERRIE AND COMPANY, INC.

1999

STOCK OPTION AND RESTRICTED STOCK PLAN

EFFECTIVE JANUARY 1, 1999
<PAGE> 34

1. PURPOSE OF PLAN

The purpose of the 1999 Stock Option and Restricted Stock Plan (the "Plan")
is to aid the Company in attracting and retaining key employees and in
motivating such employees to exert their best efforts on behalf of the Company.
In addition, the Company expects that the Plan will further strengthen the
identity of interest of key employees with the shareholders generally.

2. CERTAIN DEFINITIONS

2.1 "Board" shall mean the Board of Directors of the Company.

2.2 "Committee" shall mean the Committee provided by Section 8 to
administer the Plan.

2.3 "Common Stock" shall mean common stock of the Company, $.10 stated
value per share.

2.4 "Company" shall mean Russ Berrie and Company, Inc., a New Jersey
corporation.

2.5 "Compensation" shall mean, for any Plan Year, a Participant's basic
earnings and prior year's earned commissions, exclusive of overtime, bonuses and
any other special pay.

2.6 "Date of Grant" shall mean the date on which any Option or Restricted
Stock is granted or awarded hereunder.

2.7 "Disability" shall mean a physical or mental incapacity of a
Participant which renders him totally and permanently incapable of performing
his duties with a Participating Company, provided that proof of disability under
the federal Social Security Act shall be conclusive evidence of Disability
hereunder. "Disabled" shall mean having a Disability.

2.8 "Option" shall mean a stock option granted under Section 5 of the
Plan.

2.9 "Participant" shall mean certain officers and other key employees of a
Participating Company as provided in Section 4 of the Plan.

2.10 "Participating Company" shall mean the Company and any subsidiary of
the Company which the Committee, in its discretion, authorizes to participate in
the Plan.

2.11 "Plan Year" shall mean the calendar year.

2.12 "Restricted Stock" shall mean Common Stock awarded subject to the
restrictions under Section 6 of the Plan.

3. COMMON STOCK RESERVED FOR THE PLAN

The aggregate total number of shares of Common Stock that may be subject to
Options and Restricted Stock awards under the Plan is 350,000. Such shares may
consist, in whole or in part, of authorized but unissued, or treasury shares. If
any shares that have been subject to Options or subject to Restricted Stock
awards under the Plan cease to be subject to Options or are forfeited to the
Company, as the case may be, they may again be made subject to grant or award
under the Plan.

4. PARTICIPATION

Certain officers and other key employees of the Participating Companies who
have been designated by the Committee and who have been employed by a
Participating Company for at least 18 months at the beginning of the Plan Year
shall participate in the Plan. The Committee may authorize the participation of
officers and other key employees who have less than 18 months of employment on
the Date of Grant.

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<PAGE> 35

5. TERMS AND CONDITIONS OF STOCK OPTIONS

5.1 Exercise Price. The per share exercise price of any Option granted
hereunder shall be equal to the closing market price of the Common Stock on the
first trading day of such year on the New York Stock Exchange or such other
national securities exchange as the Common Stock may be traded.

5.2 Date of Grant. The Date of Grant of any Option hereunder shall be,
for each Plan Year, the first trading day of such Plan Year as described in
Section 5.1. The Committee shall promptly notify the Participant of the grant of
an Option and a written option agreement shall promptly be executed and
delivered by and on behalf of the Company and the Participant, provided that
such grant of an Option shall expire if a written option agreement is not signed
by said Participant and returned to the Company within 30 days from the date
forwarded to the Participant.

5.3 Number of Shares. The number of shares contained in each Option shall
have an aggregate fair market value equal to 25% of the Participant's
Compensation (rounded to the lowest whole share) on the Date of Grant, except
that the Committee may authorize Options for up to 80% of Compensation for
certain Participants.

5.4 Option Term. Subject to Section 5.5, each Option shall vest and be
fully exercisable one year after the Date of Grant and shall continue to be
exercisable for a period of 10 years from the Date of Grant.

5.5 Exercise of Options. An Option shall be exercised by giving written
notice of exercise to the Company which shall specify the number of shares to be
purchased and which shall be accompanied by payment in full, in cash, of the
purchase price. The Committee may, in its sole discretion, limit the number of
Options that may be exercised on any particular date, and the number of Options
that may be exercised by any Participant in any Plan Year shall be limited to
the number of Options in the most recent grant to him plus one-third of his
remaining Options which are exercisable.

5.6 Non-Assignability of Options. No Option shall be assignable or
transferable except by will or by the laws of descent and distribution provided,
however, that each Participant may transfer all or any portion of his/her
Options to his/her spouse and/or lineal descendants and/or a trust for the
benefit of the Participant or any of the foregoing and/or any organization
exempt under Section 501(c) of the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to Section 5.9, any Option shall be exercisable only by
the Participant entitled thereto or his permitted assignee or transferee.

5.7 Exercise Upon Retirement. If a Participant retires after reaching his
normal retirement date (as set forth on the date of his retirement under the
Russ Berrie and Company, Inc. Retirement Plan), whether or not exercisable on
the date he retires, his outstanding Options may be exercised for up to one year
after his retirement or the stated period of the Option, whichever period is
shorter.

5.8 Termination by Disability. If a Participant becomes Disabled, his
outstanding Options, whether or not exercisable on the date he became Disabled,
may be exercised by the Participant or his legal representative or permitted
transferee for up to one year from his date of Disability, or the stated period
of the Option, whichever period is shorter.

5.9 Death of Participant. In the event of the death of a Participant
while he is employed by a Participating Company, or within the one-year period
provided in Section 5.7, his outstanding Options, whether or not exercisable on
the date his employment is terminated, may be exercised by his estate or his
legatee or legatees or permitted transferee(s) for up to one year after his
death or the stated period of the Option, whichever period is shorter.

5.10 Other Termination. If a Participant's employment terminates for any
reason other than death, Disability or retirement, his outstanding Options will
be cancelled as of his date of termination; provided,
B-2
<PAGE> 36

however, that if a Participant's employment is terminated by a Participating
Company for reasons other than Cause, his outstanding Options, to the extent
exercisable on his date of termination, may be exercised within 30 days after
such termination, or the stated period of the Option, whichever period is
shorter. For purposes of the preceding sentence, a Participant's employment
shall be considered to be terminated for Cause if his employment is terminated
as a result of (a) the Participant's willful or grossly negligent failure to
perform his employment duties, (b) serious misconduct, including, but not
limited to, any unauthorized disclosure, or (c) any other conduct intended to,
or which the Company determines is reasonably likely to, adversely affect the
interests of any Participating Company, including, but not limited to,
commission of, or indictment or conviction for, any criminal act.

5.11 Option Agreements. Each option agreement (and amendments thereof)
shall contain such terms and provisions, consistent with requirements of the
Plan, as the Committee, in its discretion, shall determine. Option agreements
need not be identical.

5.12 Withholding Taxes. If a Participating Company is for any reason
required to withhold any amount under the laws and regulations of the United
States, any jurisdiction thereof or local government with respect to the
transfer of Common Stock upon exercise of an Option granted hereunder, the
Participant or other person receiving such Common Stock shall be required to pay
such Participating Company the amount of any such taxes which such Participating
Company is required to withhold with respect to such Common Stock.

6. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS

6.1 Award. The Committee, in its discretion, may award shares of
Restricted Stock to any Participant who is also granted an Option under the
Plan; provided, that the aggregate fair market value (determined as of the Date
of Grant) of Restricted Stock awarded or subject to Options granted to any
Participant in one Plan Year may not exceed 80% of that Participant s
Compensation for that year. Upon the award of Restricted Stock, a written award
agreement shall promptly be executed and delivered by and on behalf of the
Company and the Participant.

6.2 Restrictions On Awarded Stock. None of the Restricted Stock awarded
hereunder may be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of during the period in which the restrictions on such
Restricted Stock are in effect (the "Restricted Period").

6.3 Forfeiture. All of the Restricted Stock awarded hereunder shall be
forfeited and all rights of a Participant to such forfeited Restricted Stock
shall terminate without payment of consideration by the Company if the
Participant does not remain in the continuous employment of the Company for the
number of years specified in Section 6.6 (except for authorized leaves of
absence), except in the case of death, Disability or retirement as provided in
Section 6.7 hereof.

6.4 Withholding Taxes. If the Company is for any reason required to
withhold any amount under the laws and regulations of the United States, any
jurisdiction thereof or local government with respect to the transfer of
Restricted Stock hereunder, the Participant or other person receiving such
Restricted Stock shall be required to pay to the Company the amount of any such
taxes which the Company is required to withhold with respect to such Restricted
Stock.

6.5 Rights as a Shareholder. Upon the award of Restricted Stock, the
Participant shall have, subject to the restrictions set forth in this Section 6,
all of the rights of a shareholder with respect to such Restricted Stock,
including the right to receive all dividends paid thereon.

6.6 Restriction Period/Continuous Employment Period. The Restricted Stock
awarded hereunder shall vest ratably for five years (20% per year) from the Date
of Grant, and upon vesting, shall not be subject
B-3
<PAGE> 37

to any further restrictions hereunder. Except as provided in Section 6.7, any
nonvested Restricted Stock shall be immediately forfeited upon a Participant's
termination of employment.

6.7 Lapse of Restrictions on Death, Disability or Retirement. In the
event that the employment of a Participant is terminated prior to the lapse of
all or part of the restrictions on his Restricted Stock, and such termination is
by reason of his death, Disability or retirement after reaching his normal
retirement date (as set forth at the time of his retirement under the Russ
Berrie and Company, Inc. Retirement Plan), all Restrictions on the Participant's
Restricted Stock shall lapse on the date of Participant's death, Disability or
retirement.

6.8 Lapse at Discretion of the Committee. The Committee may at any time,
in its sole discretion, accelerate the time at which any or all restrictions
will lapse or remove any or all of such restrictions.

6.9 Restricted Stock Award Agreements. Each award agreement (and
amendments thereof) shall contain terms and provisions that are consistent with
requirements of the Plan and need not be identical.

7. DILUTION AND OTHER ADJUSTMENTS

In the event of any change in the outstanding Common Stock by reason of a
stock dividend or stock split, recapitalization, merger, consolidation, exchange
of shares or other corporate change, the Committee may adjust the aggregate
number of shares of Common Stock available for Options and Restricted Stock
awards under the Plan, the Option price of Options granted under the Plan, and
any or all other matters deemed appropriate by the Committee, including, without
limitation, making Options exercisable solely for the securities or other
property received by the shareholders of the Company by reason of such
transactions.

8. ADMINISTRATION OF THE PLAN

8.1 The Plan shall be administered by a Committee comprised of two
"outside directors" of the Company or such greater number, as may be determined
by the Board from time to time, as defined in Treas. Reg. sec. 1.162-27(e)(3)(i)
of the Code, who are not Participants. The Committee shall have the authority to
interpret the Plan and to adopt, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan.

9. AMENDMENT AND TERMINATION OF THE PLAN

9.1 All provisions of the Plan may, at any time, or from time to time, be
modified or amended by the Committee; provided, however, that, except as
provided in Section 7 hereof, no amendment shall be made without the approval of
the shareholders of the Company which shall:

(a) increase the aggregate number of shares of Common Stock shares
subject to the Plan,

(b) reduce the Option exercise price of the shares, contrary to the
provisions of the Plan as hereinabove set forth, or

B-4
<PAGE> 38

9.2 No Options or Restricted Stock awards shall be granted pursuant to the
Plan after the fifth Plan Year, but Options previously granted and restrictions
on Restricted Stock awards previously granted may extend beyond that date.

9.3 The Board may suspend or terminate the Plan at any time.

10. ADOPTION AND APPROVAL OF THE PLAN

The Plan shall not take effect until approved by the holders of a majority
of the shares of Common Stock voting at the meeting. The Plan was adopted by the
Board of Directors on February 2, 1998.

B-5
<PAGE> 39

EXHIBIT C

RUSS BERRIE AND COMPANY, INC.

1999

STOCK OPTION PLAN

EFFECTIVE JANUARY 1, 1999
<PAGE> 40

1. PURPOSE OF PLAN

The purpose of the 1999 Stock Option Plan (the "Plan") is to aid the
Company in attracting and retaining key employees and in motivating such
employees to exert their best efforts on behalf of the Company. In addition, the
Company expects that the Plan will further strengthen the identity of interest
of key employees with the shareholders generally.

2. CERTAIN DEFINITIONS

2.1 "Board" shall mean the Board of Directors of the Company.

2.2 "Committee" shall mean the Committee provided by Section 7 to
administer the Plan.

2.3 "Common Stock" shall mean the common stock of the Company, $.10 stated
value per share.

2.4 "Company" shall mean Russ Berrie and Company, Inc., a New Jersey
corporation.

2.5 "Compensation" shall mean, for any Plan Year, a Participant's basic
earnings and prior year's earned commissions, exclusive of overtime, bonuses and
any other special pay.

2.6 "Date of Grant" shall mean the date on which any Option is granted
hereunder.

2.8 "Option" shall mean a stock option granted under the Plan.

2.9 "Participant" shall mean certain officers or other key employees of a
Participating Company as defined in Section 4.

2.10 "Participating Company" shall mean the Company and any subsidiary of
the Company which the Committee, in its discretion, authorizes to participate in
the Plan.

2.11 "Plan Year" shall mean the calendar year.

3. COMMON STOCK RESERVED FOR THE PLAN

The aggregate total number of shares of Common Stock that may be subject to
Options under the Plan is 2,000,000. Such shares may consist, in whole or in
part, of authorized but unissued, or treasury shares. If any shares of Common
Stock that have been subject to Options under the Plan cease to be subject to an
Option, they may again be made subject to grant under the Plan.

4. PARTICIPATION

For each Plan Year, Options shall be granted pursuant to Section 5 to
employees of any Participating Company (a) who have been employed by a
Participating Company for at least 18 months as of the beginning of such Plan
Year, (b) who are not members of the Board, and (c) whose Compensation for such
Plan Year is expected to equal or exceed the amount to be determined for such
Plan Year by the Compensation Committee of the Board (or such other amount as
the Board may, from time to time, determine). The Committee may authorize the
participation of employees who have less than 18 months of employment as of the
beginning of a Plan Year.

C-1
<PAGE> 41

5. TERMS AND CONDITIONS OF STOCK OPTIONS

5.1 Exercise Price. The per share exercise price of an Option granted
hereunder shall be equal to the closing market price of the Common Stock on the
first trading day of such Plan Year on the New York Stock Exchange or such other
national securities exchange as the Common Stock may be traded.

5.2 Date of Grant. The Date of Grant of any Option hereunder shall be,
for each Plan Year, the first trading day of such Plan Year as described in
Section 5.1. The Committee shall promptly notify the Participant of the grant of
an Option and a written option agreement shall promptly be executed and
delivered by and on behalf of the Company and the Participant, provided that
such grant of an option shall expire if a written option agreement is not signed
by said Participant and returned to the Company within 30 days from the date
forwarded to the Participant.

5.3 Number of Shares. The number of shares contained in each Option shall
have an aggregate fair market value equal to 25% of the Participant's
Compensation on the Date of Grant (rounded to the lowest whole share).

5.5 Exercise of Options. An Option shall be exercised by giving written
notice of exercise to the Company which notice shall specify the number of
shares to be purchased and be accompanied by payment in full, in cash, of the
purchase price. The Committee may, in its sole discretion, limit the number of
shares that may be purchased pursuant to the exercise of an Option on any
particular date, and the number of shares that may be purchased pursuant to the
exercise of an Option in any Plan Year shall be limited to the number of shares
in the most recent grant to the Participant plus one-third of his remaining
Options which are exercisable.

5.6 Non-Assignability of Options. No Option shall be assignable or
transferable except by will or by the laws of descent and distribution;
provided, however, that each Participant may transfer all or any portion of
his/her Options to his/her spouse and/or lineal descendants and/or a trust for
the benefit of the Participant or any of the foregoing and/or any organization
exempt under Section 501(c) of the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to Section 5.9, any Option shall be exercisable only by
the Participant entitled thereto or a permitted assignee or transferee.

5.7 Exercise Upon Retirement. If a Participant retires after reaching his
normal retirement date (as set forth on the date of his retirement under the
Russ Berrie and Company, Inc. Retirement Plan), whether or not exercisable on
the date of his retirement, his outstanding Options may be exercised for up to
one year after his retirement or the stated period of the Option, whichever
period is shorter.

5.9 Death of Participant. In the event of the death of a Participant
while he is employed by a Participating Company, or within the one-year period
provided in Section 5.7, his outstanding Options, whether or not exercisable on
the date such employment was terminated, may be exercised by his estate or his
legatee or legatees or permitted transferee(s) for up to one year after his
death or the stated period of the Option, whichever period is shorter.

5.10 Other Termination. If a Participant's employment terminates for any
reason other than death, Disability or retirement, his outstanding Options will
be cancelled as of the date of termination; provided,
C-2
<PAGE> 42

however, that if a Participant's employment is terminated by a Participating
Company for reasons other than Cause, his outstanding Options, to the extent
exercisable on the date of termination, may be exercised within 30 days after
such termination or the stated period of the Option, whichever period is
shorter. For purposes of the preceding sentence, a Participant's employment
shall be considered to be terminated for Cause if his employment is terminated
as a result of (a) the Participant's willful or grossly negligent failure to
perform his employment duties, (b) serious misconduct, including, but not
limited to, any unauthorized disclosure, or (c) any other conduct intended to,
or which the Company determines is reasonably likely to, adversely affect the
interests of any Participating Company, including, but not limited to,
commission of, or indictment or conviction for, any criminal act.

5.11 Option Agreements. Each option agreement (and amendments thereof)
shall contain such terms and provisions, consistent with the requirements of the
Plan, as the Committee, in its discretion, shall determine. Option agreements
need not be identical.

5.12 Withholding Taxes. If a Participating Company is for any reason
required to withhold any amount under the laws and regulations of the United
States, any jurisdiction thereof or local government with respect to the
transfer of Common Stock upon exercise of an Option granted under the Plan, the
Participant or other person receiving such Common Stock shall be required to pay
such Participating Company the amount of any such taxes which such Participating
Company is required to withhold with respect to such Common Stock.

6. DILUTION AND OTHER ADJUSTMENTS

In the event of any change in the outstanding Common Stock by reason of a
stock dividend or stock split, recapitalization, merger, consolidation, exchange
of shares or other corporate change, the Committee may adjust the aggregate
number of shares of Common Stock available for Options under the Plan, the
Option price of Options granted under the Plan, and any or all other matters
deemed appropriate by the Committee, including, without limitation, making
Options exercisable solely for the securities or other property received by the
shareholders of the Company by reason of such transactions.

7. ADMINISTRATION OF THE PLAN

7.1 The Plan shall be administered by a Committee comprised of two
directors or such greater number, as may be determined by the Board from time to
time, who are not Participants. The Committee shall have the authority to
interpret the Plan and to adopt, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan.

7.2 Determinations and actions of the Committee on all matters relating to
the Plan shall be in its sole discretion and shall be conclusive. No member of
the Committee shall be liable for any determination made or other action or
omission in good faith relating to the Plan.

8. AMENDMENT AND TERMINATION OF THE PLAN

8.1 All provisions of the Plan may at any time or from time to time be
modified or amended by the Committee; provided, however, except as provided in
Section 6 hereof, no amendment shall be made without the approval of the
shareholders of the Company which shall:

(a) increase the aggregate number of shares of Common Stock subject to
the Plan,

(b) reduce the Option exercise price of the shares contrary to the
provisions of the Plan as hereinabove set forth, or
C-3
<PAGE> 43

8.2 No Options shall be granted pursuant to the Plan after the fifth Plan
Year, but Options previously granted may extend beyond that date.

8.3 The Board may suspend or terminate the Plan at any time.

9. ADOPTION AND APPROVAL OF THE PLAN

The Plan shall not take effect until approved by the holders of a majority
of the shares of Common Stock voting at the meeting. The Plan was adopted by the
Board of Directors on February 2, 1998.

C-4
<PAGE> 44

EXHIBIT D

RUSS BERRIE AND COMPANY, INC.

1999

EMPLOYEE STOCK PURCHASE PLAN

EFFECTIVE JANUARY 1, 1999
<PAGE> 45

1. PURPOSE OF PLAN

The purpose of the 1999 Employee Stock Purchase Plan (the "Plan") is to
provide to Participants an opportunity, through regular payroll savings, to
acquire Common Stock at a discount from market price, and to thereby offer
Participants a share in the growth of the Company. The Plan is intended to meet
the requirements of an "employee stock purchase plan" within the meaning of
Section 423 of the Internal Revenue Code of 1986, as it may be amended from time
to time (the "Code").

2. CERTAIN DEFINITIONS

2.1 "Account" shall mean the account or accounts created under Section
4.1, to which shall be credited all amounts deducted from the Participants'
Compensation pursuant to a payroll deduction authorization and any interest
credited thereon.

2.2 "Board" shall mean the Board of Directors of the Company.

2.3 "Committee" shall mean the Committee provided by Section 11 to
administer the Plan.

2.4 "Company" shall mean Russ Berrie and Company, Inc., a New Jersey
corporation.

2.5 "Compensation" shall mean, for any Plan Year, a Participant's basic
earnings and prior year's earned commissions, exclusive of overtime, bonuses and
any other special pay.

2.6 "Disability" shall mean a physical or mental incapacity of a
Participant which renders him totally and permanently incapable of performing
his duties with a Participating Company, provided that proof of disability under
the federal Social Security Act shall be conclusive evidence of Disability
hereunder. "Disabled" shall mean having a Disability.

2.7 "Eligible Employee" shall mean, for any Plan Year, any full-time
employee of a Participating Company who has been employed by a Participating
Company for at least 18 consecutive months and whose Compensation for such Plan
Year is expected to be less than the amount to be determined for such Plan Year
by the Compensation Committee of the Board (or such other amount as the Board
may, from time to time, determine). Notwithstanding the foregoing, the term
"Eligible Employee" shall not include any employee:

(a) who, immediately after an option is granted, owns (within the
meaning of Section 424(d) of the Code) Common Stock possessing five percent
or more of the total combined voting power or value of all classes of
Common Stock of the Company or of any subsidiary of the Company,

(b) if his customary employment is 20 hours or less a week, or

2.8 "Option" shall mean the option granted to a Participant pursuant to
Section 5.

2.9 "Option Price" shall mean, for each Plan Year, 90% of the closing
market price of the Common Stock on the first trading day of such Plan Year on
the New York Stock Exchange or such other national securities exchange as the
Common Stock may be traded.

2.10 "Participant" shall mean any Eligible Employee who has become a
Participant in the Plan as provided by Section 3 and whose participation has not
been terminated as provided by Section 7 or Section 8.

2.11 "Participating Company" shall mean the Company and any subsidiary of
the Company which the Committee, in its discretion, authorizes to participate in
the Plan.

2.12 "Plan Year" shall mean the calendar year.

D-1
<PAGE> 46

3. PARTICIPATION IN THE PLAN

For each Plan Year, an Eligible Employee shall become a Participant as of
the first day of such Plan Year by filing a payroll deduction authorization for
such Plan Year not later than the date set by the Committee.

4. PAYROLL DEDUCTIONS

4.1 There will be deducted on each pay date from the Compensation paid to
a Participant during each Plan Year such whole percentage of his Compensation
(up to but not more than 10%) designated by the Participant on a payroll
deduction authorization form. All amounts so deducted shall be placed in an
Account in the Participant's name and shall be held as provided under the Plan.

4.2 A Participant may elect once during a Plan Year, by filing the
appropriate form provided for such purpose, to reduce (but not raise) to a whole
percentage of his Compensation his payroll deduction for the remainder of the
Plan Year.

4.3 A Participant may elect once during a Plan Year, by filing the
appropriate form provided for such purpose, to discontinue any payroll deduction
for the remainder of the Plan Year. Unless the Participant elects a withdrawal
pursuant to Section 6.1, the amount credited on his behalf to the Account will
remain therein and be subject to Section 5.2 and all other provisions of the
Plan.

4.4 A Participant who was also a Participant during the preceding Plan
Year, and whose Option for that year was exercised, may elect, by filing the
appropriate form provided for such purpose, not to have any residual funds
insufficient for the purchase of a full share of Common Stock returned to him
and to have such residual funds credited on his behalf to the Account for the
current Plan Year.

5. GRANT OF OPTION AND PURCHASE OF STOCK

5.1 An Option will be granted to each Participant as of the first trading
day of each Plan Year to purchase from the Company the number of full shares of
Common Stock that may be purchased at the Option Price with the aggregate amount
that will be credited to him in the Account, with interest during that Plan
Year.

5.2 The Option of each Participant will be deemed to be fully and
automatically exercised by him on the last trading day of such Plan Year, or
such other day during the month of December of such year as the Committee may
designate, upon notification to the Company that the Participant elects to
exercise his Option, and so notifies the Committee by filing the appropriate
form provided for that purpose not later than the date set by the Committee. If
the Participant does not elect to exercise his Option, the total amount credited
to him in the Account, with interest, will be returned to him.

5.3 No Participant shall have a right to purchase Common Stock under the
Plan which has an aggregate fair market value in excess of $25,000 in any Plan
Year.

6. WITHDRAWALS

At any time during the Plan Year, a Participant may terminate his
participation in the Plan by filing the appropriate form provided for that
purpose. In such event:

(a) there will be no further payroll deductions from his Compensation,

(b) there will be promptly returned to him, with interest, the total
amount credited to him in the Account, and

7. RETIREMENT

The rights of a Participant under the Plan whose employment is terminated
by reason of his reaching his normal retirement date (as set forth on the date
of his retirement under the Russ Berrie and Company, Inc. Retirement Plan) shall
not be affected by reason of such retirement, except that there will be no
payroll deductions pursuant to the Plan after such retirement.

8. OTHER TERMINATION OF EMPLOYMENT, DEATH AND DISABILITY

The Option of a Participant whose employment is terminated for any reason,
including death and Disability, other than retirement, as provided in Section 7,
expires upon such termination; in such event the total amount credited to him in
the Account, with interest, will be returned to him or, in the event of his
death, to his estate.

9. STOCK CERTIFICATES

9.1 As soon as practicable after the exercise of an Option by a
Participant, the Company will deliver to such Participant a certificate for the
shares of Common Stock purchased.

9.2 All certificates of Common Stock issued under the Plan shall be
registered in the name of the Participant.

9.3 A Participant shall have no rights as a shareholder with respect to
any shares covered by the Option until the date of the issuance of a stock
certificate to him for such shares.

10. INTEREST

10.1 The Participant will receive simple interest on money held for him in
the Account during any Plan Year at a rate set by the Committee at the beginning
of the Plan Year. The amount of interest will be calculated on the Participant's
average monthly balance.

10.2 The Committee is authorized to revise the interest rate at any time
during a Plan Year to reflect market conditions.

11. ADMINISTRATION OF THE PLAN

11.1 The Plan shall be administered by a Committee comprised of two
directors or such greater number, as may be determined by the Board from time to
time, who are not Participants. The Committee shall have the authority to
interpret the Plan, and to adopt, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan.

11.2 Determinations and actions of the Committee on all matters relating
to the Plan shall be in its sole discretion and shall be conclusive. No member
of the Committee shall be liable for any determination made or other action or
omission in good faith relating to the Plan.

12. AMENDMENT AND TERMINATION OF THE PLAN

12.1 The Board may, at any time, amend, suspend or terminate the Plan in
any respect; provided, however, that no such termination or amendment shall
adversely affect the rights of any Participant with respect to amounts
previously credited to him in the Account.

12.2 The Plan shall automatically terminate at the end of the fifth Plan
Year.

D-3
<PAGE> 48

13. NON-ASSIGNABILITY

No Option shall be assignable or transferable except by will or by the laws
of descent and distribution. Options shall be exercisable only by the
Participants entitled thereto.

14. DILUTION AND OTHER ADJUSTMENTS

In the event of any change in the outstanding Common Stock by reason of a
stock dividend or stock split, recapitalization, merger, consolidation, exchange
of shares or other corporate change, the Committee may adjust the aggregate
number of shares of Stock which may be issued under the Plan, the number of
shares of Stock subject to Options granted under the Plan, the Option Price of
Options granted under the Plan, and any or all other matters deemed appropriate
by the Committee, including, without limitation, making Options exercisable
solely for the securities or other property received by the shareholders of the
Company by reason of such transactions.

15. LIMITATIONS ON ISSUANCE OF SHARES OF COMMON STOCK

15.1 Shares of Common Stock to be issued under the Plan shall be
authorized but unissued, or treasury shares. The maximum number of shares of
Common Stock which may be issued under the Plan shall be 150,000 shares.

15.2 Neither the Company nor any Participating Company shall be obligated
to honor the exercise of any Option if such would constitute a violation of any
applicable law or regulation.

16. ADOPTION AND APPROVAL OF THE PLAN

The Plan shall not take effect until approved by the holders of a majority
of the shares of Common Stock voting at the meeting. The Plan was adopted by the
Board of Directors on February 2, 1998.

D-4
<PAGE> 49
/x/ Please mark your
votes as in this
example.

1. ELECTION OF DIRECTORS TO SERVE UNTIL THE 1999 ANNUAL MEETING OF
SHAREHOLDERS AND UNTIL THEIR SUCCESSORS SHALL HAVE BEEN ELECTED AND
QUALIFIED.

FOR NOMINEES LISTED ON THE WITHHOLD AUTHORITY TO
FRONT OF THIS CARD (EXCEPT AS VOTE FOR ALL NOMINEES LISTED ON
MARKED TO THE CONTRARY BELOW). THE FRONT OF THIS CARD.
/ / / /

INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
CHECK THE BOX MARKED "FOR" ABOVE AND WRITE THAT NOMINEE'S NAME ON THE
LINE PROVIDED.

---------------------------------------------------------------------

FOR AGAINST ABSTAIN
2. ADOPTION OF A NEW STOCK OPTION PLAN / / / / / /
FOR OUTSIDE DIRECTORS TO TAKE EFFECT
ON JANUARY 1, 1999.

3. ADOPTION OF A NEW STOCK OPTION AND / / / / / /
RESTRICTED STOCK PLAN TO TAKE EFFECT
ON JANUARY 1, 1999.

4. ADOPTION OF A NEW STOCK OPTION PLAN / / / / / /
TO TAKE EFFECT ON JANUARY 1, 1999.

5. ADOPTION OF A NEW EMPLOYEE STOCK / / / / / /
PURCHASE PLAN TO TAKE EFFECT ON
JANUARY 1, 1999.

6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.

Please sign exactly as name appears on the other side. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please sign your name and indicate full
title as such. If a corporation, an authorized officer should sign his/her name
and indicate his/her title. If a partnership, please sign in partnership name by
authorized person.

Date:
- ----------------------------------- --------------------------------------
Signature

Date:
- ----------------------------------- --------------------------------------
Signature if held jointly
<PAGE> 50
RUSS BERRIE AND COMPANY, INC.
111 Bauer Drive
Oakland, New Jersey 07436

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

P The undersigned hereby appoints Russell Berrie and Eric Lohwasser, and each
R of them, as proxies of the undersigned, each with the power to appoint his
O substitute, and hereby authorizes them to represent and to vote as
X designated below all the shares of Common Stock of Russ Berrie and Company,
Y Inc. held of record by the undersigned on March 6, 1998, at the Annual
Meeting of Shareholders to be held on April 22, 1998 and any adjournment
thereof.

Election of Directors. Nominees: (Change of Address/Comments)
Raphael Benaroya, Angelica Berrie,
Russell Berrie, A. Curts Cooke, ----------------------------
Ilan Kaufthal, Charles Klatskin, ----------------------------
Joseph Kling, William A. Landman and ----------------------------
Sidney Slauson ----------------------------

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL PROPOSALS.

A VOTE FOR ALL PROPOSALS IS RECOMMENDED. SEE REVERSE
SIDE
Your vote for the election of Directors and other proposals
submitted to Shareholders may be indicated on the reverse.