10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                          to

Commission files number 1-8681

RUSS BERRIE AND COMPANY, INC.

(Exact name of registrant as specified in its charter)

New Jersey	22-1815337
(State of or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
111 Bauer Drive, Oakland, New Jersey	07436
(Address of principal executive offices)	(Zip Code)
Registrant’s Telephone Number, Including Area Code: (201) 337-9000

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class	Name of each exchange on which registered
Common Stock, $0.10 stated value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o              No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o              No ý

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer ý Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o              No ý

The aggregate market value of the voting stock held by non-affiliates of the Registrant computed by reference to the price of such stock at the close of business on June 30, 2005 was $150.8 million.

The number of shares outstanding of each of the Registrant’s classes of common stock, as of March 24, 2006, was as follows:

Class	Number of Shares
Common Stock, $0.10 stated value	20,835,972

Documents Incorporated by Reference

Certain information called for by Part III is incorporated by reference to the definitive Proxy Statement for the Company’s 2006 Annual Meeting of Stockholders, which will be filed on or before May 1, 2006.

PART I

ITEM 1. BUSINESS

General

Russ Berrie and Company, Inc. is a leading designer, importer, marketer and distributor of gift, infant and juvenile consumer products with annual net sales of $290.2 million in 2005. The Company currently operates in two segments: (i) its gift business and (ii) its infant and juvenile business. The term “Company” refers to Russ Berrie and Company, Inc. and its consolidated subsidiaries, unless the context requires otherwise.

The Company’s gift business designs, manufactures through third parties and markets a wide variety of gift products to retail stores throughout the United States and throughout the world via the Company’s international wholly-owned subsidiaries and independent distributors. The Company’s gift products are designed to appeal to the emotions of consumers to reflect their feelings of happiness, friendship, fun, love and affection. The Company believes that its present position as one of the leaders in the gift industry is due primarily to its imaginative product design, broad marketing of its products, efficient distribution, high product quality and commitment to customer service.

The Company’s infant and juvenile segment designs, manufactures through third parties and markets products in a number of baby categories including, among others, infant bedding and accessories, bath toys and accessories, developmental toys, feeding items and baby comforting products. The infant and juvenile segment consists of Sassy, Inc. (“Sassy”), since its acquisition on July 26, 2002, and Kids Line LLC (“Kids Line”), since its acquisition as of December 15, 2004. These products are sold to consumers, primarily in the United States, through mass merchandisers, toy, specialty, food, drug and independent retailers, apparel stores and military post exchanges.

The Company maintains a direct sales force and distribution network to serve its customers in the United States, Europe, Canada and Australia. In countries where the Company does not maintain a direct salesforce and distribution network, the Company’s products are sold through distributors. See Note 22 of Notes to Consolidated Financial Statements for information regarding segment and geographic information.

For a discussion of the implementation of various Company initiatives during 2005, including a restructuring, an increased use of licensing, and implementation of a branding strategy, see Item 7, “Management’s Discussion and Analysis of Results of Operations and Financial Condition” under the captions “Overview” and “Results of Operations—Years Ended December 31, 2005 and 2004.”

The Company was founded in 1963 by the late Mr. Russell Berrie, and was incorporated in New Jersey in 1966. The Company’s common stock has been traded on the New York Stock Exchange under the symbol “RUS” since its initial public offering on March 29, 1984.

The Company maintains its principal executive offices at 111 Bauer Drive, Oakland, New Jersey, 07436, along with its flagship 18,000 square foot showroom, and also maintains satellite showrooms in Atlanta, Chicago and Los Angeles, and internationally in Australia, Canada, England and Hong Kong. The Company’s wholly-owned subsidiaries are located worldwide with distribution centers situated in key locations in the United States, Canada, the United Kingdom and Australia. The Company’s telephone number is (201) 337-9000.

Products

Gift Segment. The Company’s gift product line of approximately 12,870 products is marketed under the trade names and trademarks RUSS® and APPLAUSE®. The APPLAUSE® trade name was purchased on October 26, 2004, and serves as the Company’s brand platform for the mass market. The extensive gift line encompasses both seasonal and everyday products that focus on theme or concept groupings such as collectible heirloom bears, stuffed animals, wedding, anniversary and baby gifts, tabletop accessories and home décor, including home and garden accessories, glass, porcelain and ceramic gifts and contemporary lifestyle gifts and accessories. Extensive seasonal lines include products for all major holidays.

Most of the Company’s gift products have suggested retail prices between $1.00 and $30.00. Product sales are highly diverse, and no single gift item represented more than 1% of the Company’s gift segment’s net sales in 2005 or 1% of the Company’s consolidated net sales in 2005.

2

In connection with the Company’s recent 2006 bank refinancing, the Company formed a wholly-owned Delaware subsidiary, Russ Berrie U.S. Gift, Inc. (“Newco”), to which it assigned (the “Assignment”) substantially all of its assets and liabilities which pertain primarily to its domestic gift business. See Item 7, “Management’s Discussion and Analysis of Results of Operations and Financial Condition” under the caption “Liquidity and Capital Resources.”

Infant and Juvenile Segment. The Company’s infant and juvenile product line currently consists of approximately 3,340 products that principally focus on children of the age group newborn to two years, primarily under the trade names Sassy™ and Kids Line™. Sassy has concept groupings such as bath toys and accessories, developmental toys, feeding utensils and bowls, pacifiers, bottles, bibs, soft toys, mobiles and feeders. Sassy benefits from United States distribution rights to certain baby soothing and comforting products from MAM Babyartikel GmbH, of Vienna, Austria, a developer and manufacturer of children’s products. Since December 15, 2004, when the Company acquired Kids Line, LLC, (see Note 3 of Notes to Consolidated Financial Statements), the Company’s infant and juvenile product line has been expanded to include Kids Line™ products. Kids Line™ products consist primarily of infant bedding and related accessories such as blankets, rugs, mobiles, nightlights, hampers, lamps and wall art.

Most of the Company’s infant and juvenile businesses’ products have suggested retail prices between $2.00 and $300.00. Product sales are highly diverse, and no single infant and juvenile item represented more than 3% of the Company’s infant and juvenile segment’s net sales in 2005 or 1% of the Company’s consolidated net sales in 2005.

Design and Production

The Company has a continuing program of new product development. The Company designs most of its own gift and infant and juvenile products and then generally evaluates consumer response in selected unaffiliated retail stores and consumer focus groups. Items are added to the product line only if the Company believes that they can be obtained and marketed on a basis that meets the Company’s profitability standards.

The Company has approximately 100 employees, located in the United States and in Eastern Asia, responsible for its gift and infant and juvenile product development and design. Generally, a new design is brought to market in less than one year after a decision is made to produce the product. Sales of the Company’s products are, in large part, dependent on the Company’s ability to identify and react quickly to changing consumer preferences and to effectively utilize its sales and distribution systems to bring new products to market.

The Company engages in market research and test marketing to evaluate consumer reactions to its products. Research into consumer buying trends often suggests new products. The Company assembles information from retail stores, the Company’s salesforce, focus groups and the Company’s internal Product Development department. The Company continually analyzes its products to determine whether they should be adapted into new or different products using elements of the initial design or whether they should be removed from the product line.

Substantially all of the Company’s gift and infant and juvenile products are produced by independent manufacturers, generally in Eastern Asia, under the quality review of the Company’s personnel. During 2005, approximately 89% of the Company’s products were produced in Eastern Asia, approximately 3% in the United States and approximately 8% in other foreign countries. Purchases in the United States predominantly consist of displays, corrugated and retail packaging items and plastic feeding items.

The Company utilizes approximately 130 manufacturers in Eastern Asia, with facilities primarily in the People’s Republic of China (“PRC”). During 2005, approximately 89% of the Company’s dollar volume of purchases was attributable to manufacturing in the PRC. The PRC currently enjoys “permanent normal trade relations” (“PNTR”) status under U.S. tariff laws, which provides a favorable category of U.S. import duties. The loss of such PNTR status would result in a substantial increase in the import duty for products manufactured for the Company in the PRC and imported into the United States and would result in increased costs for the Company.

A significant portion of the Company’s staff of approximately 200 employees in Hong Kong and Korea, and in the cities of Shenzhen and Qingdao in the PRC, monitor the production process with responsibility for the quality, safety and prompt delivery of the Company’s products, as well as design and product development. Members of the Company’s Eastern Asia staff make frequent visits to such manufacturers. Certain of the Company’s manufacturers sell exclusively to the Company. In 2005, the supplier accounting for the greatest dollar volume of the Company’s purchases accounted for approximately 16% of such purchases and the five largest suppliers accounted for

3

approximately 40% in the aggregate. The Company believes that there are many alternate manufacturers for the Company’s products and sources of raw materials.

Marketing and Sales

The Company’s gift business products are marketed primarily through its own direct salesforce of approximately 330 full-time employees as of December 31, 2005. The Company’s gift business maintains a telemarketing department which is responsible for servicing the Company’s smaller customers. The Company’s gift products are sold directly to retail customers in the United States and certain foreign countries, including but not limited to gift stores, pharmacies, card shops, home decor shops, apparel stores, craft stores, garden stores, book stores, stationery stores, hospitals, college and airport gift shops, resort and hotel shops, florists, chain stores, department stores, military post exchanges and internet companies. In recent years, the Company has also expanded its distribution to national accounts, primarily through the use of its APPLAUSE® trademark as the mass market brand platform. During 2005, the Company sold gift products to approximately 30,000 customers worldwide.

The Company’s infant and juvenile segment’s products are marketed through its own direct salesforce of nine full-time employees as of December 31, 2005 and through independent manufacturers’ representatives to retail customers in the United States and certain foreign countries including, but not limited to, mass merchandisers, toy, specialty, food, drug and independent retailers, apparel stores and military post exchanges. During 2005, the Company sold infant and juvenile products to approximately 1,900 customers worldwide. Toys “R” Us, Inc. and Babies “R” Us, Inc. in the aggregate accounted for approximately 18% of the consolidated net sales of the Company and approximately 39% of the net sales of the infant and juvenile segment during 2005. The loss of this customer, or the loss of certain other large customers of the infant and juvenile segment, could have a material adverse affect on the infant and juvenile segment and the consolidated results of the Company.

The Company’s products are sold under the RUSS®, RUSS® Baby, Sassy™, APPLAUSE®, and Kids Line™ brand names and under trademark names of licensed products.

The Company reinforces the marketing efforts of its salesforce through an active promotional program, including showrooms, participation in trade shows, trade and consumer advertising and a program of seasonal and theme based catalogs. The Company maintains a marketing plan which recognizes its most valued gift segment customers as “Preferred Partners”, based upon attainment of certain sales levels, and offers them special benefits and privileges including, but not limited to, access to exclusive product offerings and dedicated customer service.

The Company believes that effective packaging and merchandising of its product lines are also very important to its marketing success. Many products are shipped in colorful, corrugated cartons which can be used as freestanding displays and then recycled or discarded when all the products have been sold. The Company also provides to certain of its customers semi-permanent freestanding Lucite, metal and wooden displays, thereby providing an efficient promotional vehicle for selling the Company’s products at retail locations.

The Company believes that customer service is another essential component of its marketing strategy and therefore maintains a Customer Service Department that responds to customer requests, investigates and resolves problems and generally assists customers.

The Company believes its general terms of sale are competitive with others in its industries. The Company provides extended payment terms to its gift segment’s customers, which typically do not exceed five months, on sales of seasonal merchandise, e.g., Christmas, Halloween, Easter and other seasonal items. The Company has a general policy that all sales are final.

In 2005, the Company also maintained a direct sales force and distribution network to serve its gift segment’s customers in England, Holland, Belgium, Ireland, Spain, Germany, Canada, France and Australia. Where the Company does not maintain a direct sales force and distribution network, the Company’s gift segment products are sold worldwide through distributors. The Company’s consolidated foreign sales, including export sales from the United States, aggregated $81.4 million, $96.7 million, and $121.1 million for the years ended December 31, 2005, 2004 and 2003, respectively.

In connection with the ongoing development and phased implementation of the Company’s Profit Improvement Program (the “PIP”), the Company is currently evaluating the need to maintain direct sales and distribution efforts in several European countries. To date, the Company has determined to terminate its direct sales and distribution operations in France, Germany, Belgium and Holland, and has restructured certain of its sales operations in the U.K.

4

The Company anticipates that it will establish alternative means of reaching certain customers in the affected countries, including through the use of independent sales representatives or distributors, although the Company expects that its aggregate sales from France, Germany, Belgium and Holland will be reduced by approximately $6 million on an annualized basis as a result of these actions, at least for the near term. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Overview.”

Distribution

The Company’s gift customers are located in the United States and throughout the world and are principally served through U.S. distribution centers in South Brunswick, New Jersey, and Petaluma, California, each of which receives products directly from suppliers and then distributes such products to the Company’s gift customers. On January 19, 2006, the Company announced its intention to consolidate its domestic gift warehousing and distribution into the South Brunswick, New Jersey facility and close its Petaluma, California distribution center during the second quarter of 2006. The Company also maintains distribution facilities in the Toronto, Canada area, in Southampton, England and in the Sydney, Australia area, to serve its gift customers in Canada, Europe and Australia, respectively. The Company generally uses common carriers to distribute its products to its customers. See Note 16 of Notes to Consolidated Financial Statements and Item 13, “Certain Relationships and Related Transactions.”

The Company’s infant and juvenile customers are located primarily in the United States and are served by distribution centers in Grand Rapids, Michigan and Southgate, California.

Seasonality

In addition to its everyday products, the Company’s gift segment produces specially designed products for holiday seasons which include: Christmas/Chanukah, Valentine’s Day, Easter, Mother’s Day, Father’s Day, Halloween/Thanksgiving, Graduation and St. Patrick’s Day.

During 2005, gift items specially designed for individual seasons accounted for approximately 25% of the Company’s consolidated net sales, although no individual season accounted for more than 13% of the Company’s consolidated net sales.

The following table sets forth the Company’s consolidated quarterly net sales as a percentage of the Company’s consolidated annual sales during 2005, 2004 and 2003.

	Quarterly Sales ($ in Thousands)
	2005			2004			2003
Quarter Ended	Sales		%	Sales		%	Sales		%
March 31	$	70,740	24.4	$	65,713	24.7	$	87,551	26.6
June 30	$	62,019	21.4	$	53,420	20.1	$	67,167	20.4
September 30	$	83,237	28.7	$	79,272	29.8	$	87,848	26.6
December 31	$	74,160	25.5	$	67,554	25.4	$	87,121	26.4

The pattern of the Company’s gift segment sales is influenced by the shipment of seasonal merchandise. The Company ships the majority of orders each year for Christmas in the quarter ended September 30, for Valentine’s Day in the quarter ended December 31 and for Easter in the quarter ended March 31. The Company’s infant and juvenile segment is not significantly influenced by shipments of seasonal merchandise.

Backlog

It is characteristic of the Company’s gift segment for seasonal merchandise orders to be taken in advance of shipment. The Company’s gift segment represents 65% of the Company’s backlog at December 31, 2005. The Company’s infant and juvenile segment is not significantly influenced by shipments of seasonal merchandise. The Company’s consolidated backlog at December 31, 2005 and 2004 was $21.2 million and $21.7 million, respectively. It is expected that substantially all of the Company’s backlog at December 31, 2005 will be shipped during 2006.

5

Competition

The Company’s gift segment operates in a highly competitive market. The Company believes that the principal competitive factors in the gift segment include price/value, marketing ability, reliable delivery, product design and quality and customer service. The Company believes that its positive principal competitive factors are its marketing ability, reliable delivery, proprietary product design, quality, customer service and licensing agreements. Certain of the Company’s existing or potential competitors, however, may have financial resources that are greater than those of the Company, greater customer acceptance of products and/or more profitable distribution outlets.

The infant and juvenile segment industry is highly competitive and is characterized by the frequent introduction of new products and includes numerous domestic and foreign competitors, many of which are substantially larger and have greater financial and other resources than the Company. The Company competes with a number of different competitors, depending on the product category, and competes against no single company across all product categories. The Company’s competition includes large, infant and juvenile product companies and specialty infant and juvenile product manufacturers. The Company competes principally on the basis of brand name recognition, product quality, innovation, proprietary product design, and customer service and price/value relationship. In addition, the Company believes that it competes favorably with respect to breadth of product line.

In addition, certain of the potential customers of each of our segments, in particular mass merchandisers, have the financial and other resources necessary to buy products similar to those that we sell directly from manufacturers in Asia and elsewhere, thereby reducing the size of our potential market.

Copyrights, Trademarks, Patents and Licenses

The Company prints notices of claim of copyright on substantially all of its products and has registered hundreds of its designs with the United States Copyright Office. The Company has registered, in various countries throughout the world, the trademark RUSS® with a distinctive design and APPLAUSE®, for use on most of its gift products, and Sassy™ and Kids Line™ for use on its infant and juvenile products. The Company believes its copyrights, trademarks and patents are valid, and has pursued a policy of aggressively protecting them from infringement. Copyright and trademark protections are limited or even unavailable in some foreign countries and preventing unauthorized use of the Company’s intellectual properties can be difficult even in countries with substantial legal protection. In addition, the portion of the Company’s business that relies on the use of intellectual property is subject to the risk of challenges by third parties claiming infringement of their proprietary rights. However, even in light of the Company’s increased use of licensing (discussed below) it does not consider its business materially dependent on copyright, trademark or patent protection due to the availability of substitutes, creation of other designs, and the variety of other Russ® products.

The Company enters into license agreements relating to trademarks, copyrights, patents, designs and products which enable the Company to market items compatible with its product line. The Company’s gift segment has increased its use of licensing in recent years to differentiate its products from its competitors. During 2004,  the Company entered into license agreements, some of which include: (i) Marvel Enterprises, Inc. relating to Spider-Man® and X-Men™ classic characters and certain other characters; (ii) Hasbro International, Inc. and Simon & Schuster, Inc. relating to the Raggedy Ann and Andy™ property; and (iii) DreamWorks Animation LLC relating to Madagascar. In 2005, the company entered into additional license agreements, including: (i) Universal Studios Licensing LLP relating to Curious George™ and The Little Engine That Could™; (ii) New England Confectionary Company relating to Necco Sweetheart™; and (iii) Twentieth Century Fox and Merchandising, a division of Fox Entertainment Group, Inc., relating to The Simpsons™. All gift segment license agreements mentioned above are for three year terms with extensions possible if agreed to by both parties. The Company’s infant and juvenile segment’s primary license is with MAM Babyartikel GmbH, of Vienna, Austria, which has a remaining term of five years with a renewal option. Royalties are paid on licensed items and, in many cases, advance royalties and minimum guarantees are required by these license agreements.

Employees

As of December 31, 2005, the Company employed approximately 1,220 persons. The Company considers its employee relations to be good. Most of the Company’s employees are not covered by a collective bargaining agreement, although approximately 50 employees of the Company’s infant and juvenile segment, representing 23% of such segment’s employees or 4% of the Company’s total employees, are represented by a collective bargaining agreement.

6

The Company’s policy is to require that its management, sales, product development, and design personnel enter into confidentiality agreements and, in the case of sales management and sales personnel, non-competition agreements (subject to certain territorial limitations) which restrict their ability to compete with the Company for periods ranging between six months and one year after termination of their employment.

Government Regulation

Certain of the Company’s products are subject to the provisions of, among other laws, the Federal Hazardous Substances Act and the Federal Consumer Product Safety Act. Those laws empower the Consumer Product Safety Commission (the “Commission”) to protect consumers from certain hazardous articles by regulating their use or excluding them from the market and requiring a manufacturer to repurchase articles that become banned. The Commission’s determination is subject to judicial review. Similar laws exist in some states and cities in the United States and in certain foreign jurisdictions in which the Company’s products are sold. The Company maintains a quality control program in order to comply with such laws, and the Company believes it is in substantial compliance with all the foregoing laws. Notwithstanding the foregoing, no assurance can be made that all products are or will be hazard-free or free from defects.

Corporate Governance and Available Information

The Company makes available a wide variety of information free of charge on its website at www.russberrie.com. The Company’s filings with the United States Securities and Exchange Commission (the “SEC”), including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to such reports, are available on the Company’s website as soon as reasonably practicable after the reports are electronically filed with the SEC. The Company’s website also contains news releases, financial information, Company profiles and certain corporate governance information, including copies of the “Company’s Complaint Procedures for Accounting and Auditing Matters”, “Corporate Governance Guidelines”, the Company’s “Code of Business Conduct and Ethics”, the Company’s “Code of Ethics for Principal Executive Officer and Senior Financial Officers”, the charters of the Audit Committee, the Compensation Committee and the Nominating/Governance Committee of the Board of Directors, and information regarding how interested parties may contact the Board. To access our SEC reports or amendments, log onto our website and click onto “Investor Relations” on the main menu and then onto the “SEC Filings” link provided under “Investor News.”  Mailed copies of such information can be obtained free of charge by writing to the Company at Russ Berrie and Company, Inc., 111 Bauer Drive, Oakland, NJ  07436, Attention: Corporate Secretary. The contents of the Company’s websites are not incorporated into this filing.

ITEM 1A. RISK FACTORS

The risks described below are not the only risks we face. Additional risks that we do not yet know of or that we currently believe are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In such cases, the trading price of our common stock could decline.

Our net sales and profitability depend on our ability to continue to conceive, design and market products that appeal to consumers.

The introduction of new products is critical in our industry and to our growth strategy. A significant percentage of our product line is replaced each year with new products. Our business depends on our ability to continue to conceive, design and market new products and upon continuing market acceptance of our product offerings. Rapidly changing consumer preferences and trends make it difficult to predict how long consumer demand for our existing products will continue or which new products will be successful. Our current products may not continue to be popular or new products that we introduce may not achieve adequate consumer acceptance for us to recover development, manufacturing, marketing and other costs. A decline in consumer demand for our products, our failure to develop new products on a timely basis in anticipation of changing consumer preferences or the failure of our new products to achieve and sustain consumer acceptance could reduce our net sales and profitability.

Increased consolidation and a declining number of independent retail outlets may have a continued negative impact on sales.

The Company’s gift segment has incurred significant losses during the past two years as a result of (i) retailer consolidation and a declining number of independent retail outlets; (ii) increased competition from other entities; and (iii) changing buying habits of consumers, marked by a shift from independent retailers to mass market retailers.

7

Although the Company has increased its presence in, and focus on, the mass market, a significant portion of the Company’s gift segment products continue to be marketed to independent retail outlets. If increased consolidation of such outlets continues, as well as a continued decline in the number of such outlets, the Company’s sales therefrom will likely continue to decline.

The success of our gift segment will depend largely on the results of our Profit Improvement Program.

The Company is developing and implementing in phases a Profit Improvement Program (the “PIP”) with respect to its global gift business, which reflects a continuation and expansion of certain restructuring activities undertaken in the past two years. The PIP involves an analysis and, in some instances, reevaluation of key operational aspects of the Company’s gift business and will be designed to help enable the Company to return its gift business to a sustainable level of profitability. The PIP is expected to involve reengineering the manner in which the gift segment operates, and will likely involve reducing the size of the gift business by focusing on the most profitable products, customers and territories as a means of providing a platform for potential profitable growth in the future. The scope of the PIP is intended to be broad and significant and may cause losses to our business that we cannot predict, including a loss of gift segment sales. Although the Company has not yet completed the development of its Profit Improvement Program, the implementation of the PIP will result in the recognition of certain significant restructuring charges and the incurrence of certain severance obligations. The Company may also be required to make certain investments to generate the efficiencies that the PIP will be designed to achieve, although the nature and magnitude of these investments cannot be determined at this time. There can be no assurance that the PIP will ultimately be successful in stemming the losses generated by the gift segment and returning the segment to profitability, or that we will be able to successfully grow the gift segment at any time. If we fail to successfully implement the PIP, our results of operations and financial position will suffer and our ability to maintain compliance with the financial covenants in our Giftline Credit Agreement will be impaired. See “Business – Marketing and Sales” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Overview” and “– Liquidity and Capital Resources.”

Gross margin could be adversely affected by several factors.

Gross margin may be adversely affected in the future by increases in vendor costs (including as a result of increases in the cost of raw materials), excess inventory, obsolescence charges, changes in shipment volume, price competition and changes in channels of distribution or in the mix of products sold. Gross margin may also be impacted by the geographic mix of products sold. Gross margin is often lower in the mass market distribution channel, which represents a growing percentage of our sales.

Competition in our markets could reduce our net sales and profitability.

We operate in highly competitive markets. Many of our competitors have greater brand recognition and greater financial, technical, marketing and other resources than we have. In addition, we may face competition from new participants in our markets because the gift and infant/juvenile product industries have limited barriers to entry. In addition, certain of our potential customers, in particular mass merchandisers, have the financial and other resources necessary to buy products similar to those that we sell directly from manufacturers in Eastern Asia and elsewhere, thereby reducing the size of our potential market. We also experience price competition for our products, competition for shelf space at retailers and competition for licenses, all of which may increase in the future. If we cannot compete successfully in the future, our net sales and profitability will likely decline.

Our debt covenants may affect our liquidity or limit our ability to complete acquisitions, incur debt, make investments, sell assets, merge or complete other significant transactions.

Our 2006 Credit Agreements include provisions that place limitations on a number of our activities, including our ability to:

•incur additional debt;

•create liens on our assets or make guarantees;

•make certain investments or loans;

•pay dividends;

•dispose of or sell assets or enter into a merger or similar transaction; or

•distribute cash from our domestic subsidiaries to the Company or to other subsidiaries, which could impact our ability to pay our corporate overhead expenses.

These covenants could restrict our ability to pursue opportunities to expand our business operations. The Giftline Credit Agreement (defined below) also provides that the lenders will sweep all cash of the Giftline Borrowers (defined below) on a daily basis, which will restrict such borrowers’ ability to use such cash. In addition, during

8

2005, we funded losses in our gift division with cash flow from our infant and juvenile business. The covenants in our 2006 Credit Agreements limit the ability of our domestic subsidiaries to distribute cash to the Company or to other subsidiaries, which could negatively impact the liquidity of the Company or its gift business. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Liquidity and Capital Resources” and Note 8 of Notes to Consolidated Financial Statements.

Inability to maintain compliance with the bank covenants.

The Company’s ability to maintain compliance with the financial and other covenants in its credit facilities is dependent upon the successful implementation of its PIP and various current operational plans. If an event of default in such covenants occurs and is continuing, among other things, the lenders may accelerate the loans, declare the commitments thereunder to be terminated, seize collateral or take other actions of secured creditors. If the loans are accelerated or commitments terminated, we could face substantial liquidity problems and may be forced to dispose of material assets or operations, seek to obtain equity capital, or restructure or refinance our indebtedness. Such alternative measures may not be available or successful. Also, our bank covenants may limit our ability to dispose of material assets or operations or to restructure or refinance our indebtedness. Even if we are able to restructure or refinance our indebtedness, the economic terms may not be favorable to us. All of the foregoing could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent.

Our cash flows and capital resources may be insufficient to make required payments on our indebtedness.

Our ability to generate cash to meet scheduled payments with respect to our debt depends on our financial and operating performance, which, in turn, is subject to prevailing economic and competitive conditions and the other factors discussed in this “Risk Factors” section. If our cash flow and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and may be forced to dispose of material assets or operations, seek to obtain equity capital, or restructure or refinance our indebtedness. As discussed in the immediately preceding risk factor, such alternative measures may not be successful and may not permit us to meet our scheduled debt services obligations. The breach of any covenants or restrictions in the Credit Agreements could result in a default thereunder, which would permit the lenders to take the actions discussed in the immediately preceding risk factor. As discussed above, this could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent.

If we lose key personnel we may not be able to achieve our objectives.

We are dependent on the continued efforts of various members of senior management, as well as senior executives of several of our subsidiaries, including Andrew R. Gatto, President and Chief Executive Officer, Michael Levin, President and Chief Executive Officer of Kids Line, LLC and Fritz Hirsch, President of Sassy, Inc. If for any reason, these or other senior executives or other key members of management do not continue to be active in management, our business, financial condition or results of operations could be adversely affected. We cannot assure you that we will be able to continue to retain our senior executives or other personnel necessary for the continued success of our business.

Our infant and juvenile business is dependent on several large customers.

The continued success of our infant and juvenile segment depends on our ability to continue to sell our products to several large mass market retailers. We typically do not have long-term contracts with these customers and the loss of one or more of these customers could have a material adverse affect on the results of operations of our infant and juvenile segment and ultimately the Company. In addition, our access to shelf space at retailers for the products of both of our segments may be reduced by store closings, consolidation among these retailers and competition from other products. An adverse change in our relationship with, or the financial viability of, one or more of our customers could reduce our net sales and profitability. See “Business – Marketing and Sales” and Note 5 of Notes to Consolidated Financial Statements.

We may not be able to collect outstanding accounts receivable from our major retail customers.

Certain of our retail customers purchase large quantities of our products on credit, which may cause a concentration of accounts receivable among some of our largest customers. Our profitability may be harmed if one or more of our largest customers were unable or unwilling to pay these accounts receivable when due or demand credits or other concessions for products they are unable to sell.

9

Disruptions in our current information technology system or difficulties in implementing an alternative global information technology system could harm our business.

Our global gift operations are currently managed and monitored with an Enterprise Resource Planning (“ERP”) system. System failure or malfunctioning in the ERP system may result in disruption of operations and the inability to process transactions and could adversely affect our financial results. In addition, the Company has recently begun the exploration of whether the implementation of an alternative global information technology system for the gift business would provide greater efficiencies, lower costs and greater reporting capabilities than those provided by the current ERP system. Implementation of a new system solution would likely proceed in stages across the geographic breadth of the Company, and could require several years for completion. In the event that we elect to implement a new system, we anticipate incurring significant financial and resource costs, and our business may be subject to transitional difficulties as we replace the current ERP system. These difficulties may include disruption of our operations, loss of data, and the diversion of our management and key employees’ attention away from other business matters. The difficulties associated with any such implementation, and our failure to realize the anticipated benefits from the implementation, could harm our business, results of operations and cash flows.

We rely on foreign suppliers, primarily in the PRC, to manufacture most of our products, which subjects us to numerous international business risks that could increase our costs or disrupt the supply of our products.

Approximately 89% of the Company’s purchases are attributable to manufacturers in the PRC. The supplier accounting for the greatest dollar volume of purchases accounted for approximately 16% and the five largest suppliers accounted for approximately 40% in the aggregate. The Company uses approximately 130 manufacturers in Eastern Asia. While we believe that there are many other manufacturing sources available for our product lines, difficulties encountered by one or several of our larger suppliers such as a fire, accident, natural disaster or an outbreak of illness (e.g., SARS or avian flu) at one or more of their facilities, could halt or disrupt production at the affected facilities, delay the completion of orders, cause the cancellation of orders, delay the introduction of new products or cause us to miss a selling season applicable to some of our products. In addition, our international operations subject us to certain other risks, including:

•economic and political instability;

•restrictive actions by foreign governments;

•greater difficulty enforcing intellectual property rights and weaker laws protecting intellectual property rights;

•changes in import duties or import or export restrictions;

•delays in shipping of product and unloading of product through ports, as well as timely rail/truck delivery to the Company’s warehouses and/or a customer’s warehouse;

•complications in complying with the laws and policies of the United States affecting the importation of goods, including duties, quotas and taxes;

•complications in complying with trade and foreign tax laws; and

•the effects of terrorist activity, armed conflict and epidemics.

Any of these risks could disrupt the supply of our products or increase our expenses. The costs of compliance with trade and foreign tax laws increase our expenses and actual or alleged violations of such laws could result in enforcement actions or financial penalties that could result in substantial costs.

Currency exchange rate fluctuations could increase our expenses.

Our net sales are primarily denominated in U.S. dollars, except for a small amount of net sales denominated in U.K. pounds, Australian dollars, Euros or Canadian dollars. Our purchases of finished goods from Chinese manufacturers are denominated in Hong Kong dollars. Expenses for these manufacturers are denominated in Chinese Yuan. As a result, any material increase in the value of the Hong Kong dollar or the Yuan relative to the U.S. dollar or the U.K. pound would increase our expenses and therefore could adversely affect our profitability. We are also subject to exchange rate risk relating to transfers of funds denominated in U.K. pounds, Australian dollars, Canadian dollars or Euros from our foreign subsidiaries to the United States. See Note 5 of Notes to Consolidated Financial Statements for more information regarding foreign currency forward exchange contracts.

Product liability, product recalls and other claims relating to the use of our products could increase our costs.

We face product liability risks relating to the use of our products. We also must comply with a variety of product safety and product testing regulations. If we fail to comply with these regulations or if we face product liability claims, we may be subject to damage awards or settlement costs that exceed our insurance coverage and we may incur significant costs in complying with recall requirements. In addition, substantially all of our licenses give the licensor the right to terminate the license agreement if any products marketed under the license are subject to a product liability claim, recall or similar violations of product safety regulations or if we breach covenants relating to

10

the safety of the products or their compliance with product safety regulations. A termination of a license could adversely affect our net sales. Even if a product liability claim is without merit, the claim could harm our reputation and divert management’s attention and resources from our business.

Competition for licenses could increase our licensing costs or limit our ability to market products.

We market a growing portion of our products, particularly in the gift segment, through licenses with other parties. These licenses are generally limited in scope and duration and generally authorize the sale of specific licensed products on a nonexclusive basis. Our license agreements often require us to make minimum guaranteed royalty payments that may exceed the amount we are able to generate from actual sales of the licensed products. Any termination of or failure to renew our significant licenses, or inability to develop and enter into new licenses, could limit our ability to market our licensed products or develop new products, and could reduce our net sales and profitability. Competition for licenses could require us to pay licensors higher royalties and higher minimum guaranteed payments in order to obtain or retain attractive licenses, which could increase our expenses. In addition, licenses granted to other parties, whether or not exclusive, could limit our ability to market products, including products we currently market, which could cause our net sales and profitability to decline.

Trademark infringement or other intellectual property claims relating to our products could increase our costs.

Our industry is characterized by frequent litigation regarding trademark infringement and other intellectual property rights. We are and have been a defendant in trademark and other intellectual property infringement claims and claims of breach of license from time to time, and we may continue to be subject to such claims in the future. The defense of intellectual property litigation is both costly and disruptive of the time and resources of our management, even if the claim is without merit. We also may be required to pay substantial damages or settlement costs to resolve intellectual property litigation.

We may experience difficulties in integrating strategic acquisitions.

As part of our growth strategy, we may pursue acquisitions that are consistent with our mission and enable us to leverage our competitive strengths. We acquired Sassy, Inc. in 2002 and Kids Line, LLC in 2004. The integration of acquired companies and their operations into our operations involves a number of risks including:

•possible failure to maintain customer, licensor and other relationships after the closing of the transaction of the acquired company;

•the acquired business may experience losses which could adversely affect our profitability;

•unanticipated costs relating to the integration of acquired businesses may increase our expenses;

•difficulties in achieving planned cost-savings and synergies may increase our expenses or decrease our net sales;

•diversion of management’s attention could impair their ability to effectively manage our business operations, and unanticipated management or operational problems or liabilities may adversely affect our profitability and financial condition; or

•possible failure to obtain any necessary consents to the transfer of licenses or other agreements of the acquired company.

Additionally, we financed our acquisition of Kids Line, LLC with senior debt financing. This debt leverage could adversely affect our profit margins and limit our ability to capitalize on future business opportunities. See Note 8 of Notes to Consolidated Financial Statements.

Sales of our gift segment products are seasonal, which causes our operating results to vary from quarter to quarter.

Sales of our gift segment products are seasonal. Historically, our net sales with respect to gift segment products have peaked in the third and fourth quarters due to holiday season buying patterns. See “Business – Seasonality.”

The trading price of our common stock has been volatile and investors in our common stock may experience substantial losses.

The trading price of our common stock has been volatile and may continue to be volatile in the future. The trading price of our common stock could decline or fluctuate in response to a variety of factors, including:

•changes in financial estimates of our net sales and operating results or buy/sell recommendations by securities analysts;

11

•the timing of announcements by us or our competitors concerning significant product developments, acquisitions or financial performance;

•fluctuation in our quarterly operating results;

•other economic or external factors;

•continued losses in our gift segment;

•our failure to meet the performance estimates of securities analysts;

•substantial sales of our common stock; or

•general stock market conditions.

You may be unable to sell your stock at or above your purchase price.

A limited number of our shareholders can exert significant influence over us.

As of March 31, 2006, The Russell Berrie Foundation, The Russell Berrie 2002A Trust and the Estate of Mr. Russell Berrie beneficially owned an aggregate of approximately 43% of the outstanding shares of our common stock. This share ownership would permit these stockholders, if they chose to act together, to exert significant influence over the outcome of stockholder votes, including votes concerning the election of directors, by-law amendments, possible mergers, corporate control contests and other significant corporate transactions.

Various restrictions in our charter documents, policies, New Jersey law and our 2006 Credit Agreements could prevent or delay a change in control of us which is not supported by our board of directors.

We are subject to a number of provisions in our charter documents, policies, New Jersey law and our 2006 Credit Agreements that may discourage, delay or prevent a merger, acquisition or change of control that a stockholder may consider favorable. These anti-takeover provisions include:

•advance notice procedures for nominations of candidates for election as directors and for stockholder proposals to be considered at stockholders’ meetings;

•covenants in our credit agreement restricting mergers, asset sales and similar transactions and a provision in our credit agreement that triggers an event of default upon certain acquisitions by a person or group of persons with beneficial ownership of 50.1% or more of our outstanding common stock; and

•the New Jersey Shareholders Protection Act.

The New Jersey Shareholders Protection Act, as it pertains to the Company, prohibits a merger, consolidation, specified asset sale or other similar business combination or disposition between the Company and any stockholder of 10% or more of our voting stock for a period of five years after the stockholder acquires 10% or more of our voting stock, unless the transaction is approved by our board of directors before the stockholder acquires 10% or more of our voting stock. In addition, no such transaction shall occur at any time unless: (1) the transaction is approved by our board of directors before the stockholder acquires 10% or more of our voting stock, (2) the transaction is approved by the holders of two-thirds of our voting stock excluding shares of our voting stock owned by such “interested” stockholder or (3) (A) the aggregate consideration received per share by stockholders in such transaction is at least equal to the higher of (i) the highest per share price paid by the interested stockholder (x) within the 5-year period preceding the announcement date of such transaction or (y) within the 5-year period preceding, or in the transaction, in which the stockholder became an interested stockholder, whichever is higher, in each case plus specified interest, less the value of dividends paid up to the amount of such interest, and (ii) the market value per share of common stock on the announcement date of such transaction or on the date the interested stockholder became an interested stockholder, whichever is higher, plus specified interest, less the value of dividends paid up to the amount of such interest, (B) the consideration in the transaction received by stockholders is in cash or in the same form as the interested stockholder used to acquire the largest number of shares previously acquired by it, and (C) after the date the interested stockholder became an interested stockholder, and prior to the consummation of the transaction, such interested stockholder has not become the beneficial owner of additional shares of our stock, except (w) as part of the transaction which resulted in the interested stockholder becoming an interested stockholder, (x) by virtue of proportionate stock splits, stock dividends or other distributions not constituting a transaction covered by the New Jersey Shareholders Protection Act, (y) through a transaction meeting the conditions of paragraph (B) above and this paragraph (C) or (z) through purchase by the interested stockholder at any price, which, if that price had been paid in an otherwise permissible transaction under the New Jersey Shareholders Protection Act, the announcement date and consummation date of which were the date of that purchase, would have satisfied the requirements of paragraphs (A) and (B) above.

12

Actual results differing from estimates.

If actual events, circumstances, outcomes and amounts differ from judgments, assumptions and estimates made or used in determining the amount of certain assets (including the amounts of related allowances and reserves), liabilities and/or other items reflected in our financial statements, it could adversely affect our results of operations and financial condition.

Increased costs associated with corporate governance compliance may affect our results of operations.

The Sarbanes Oxley Act of 2002 has required changes in some of our corporate governance and securities disclosure and compliance practices, and requires ongoing review of our internal control procedures. These developments have increased our legal compliance and financial reporting costs, and to the extent that we identify areas of our disclosures controls and procedures and/or internal controls requiring improvement (such as the material weakness in internal controls identified as of December 31, 2005 and discussed in Item 9A, “Controls and Procedures – Management’s Report on Internal Control Over Financial Reporting” included herein), we may have to incur additional costs and diversion of management’s time. Any such action could adversely affect our results of operations and financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

The principal facilities of the Company’s gift segment consist of its corporate offices in Oakland, New Jersey (120,000 square feet), and distribution centers in South Brunswick, New Jersey (522,000 square feet), and Petaluma, California (234,000 square feet), all of which the Company leases. On January 19, 2006, the Company announced it would be closing its Petaluma distribution center during the second quarter of 2006. Additionally, leased principal office and distribution facilities are located in Southampton, England (157,000 square feet), the Sydney, Australia area (67,000 square feet) and the Toronto, Canada area (117,000 square feet). The Toronto area facility had been owned by the Company’s wholly-owned subsidiary, Amram’s Distributing, Limited (“Amram’s”), until December 29, 2005, when the facility was sold to a third party with whom Amram’s entered into a long-term lease. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Liquidity and Capital Resources” and the Current Reports filed by the Company with the SEC on December 15, 2005 and December 30, 2005 for more information regarding this sale-leaseback transaction. The Company also operates showroom facilities for its gift business segment in Oakland, New Jersey; Los Angeles, California; Atlanta, Georgia; Chicago, Illinois; Sydney, Australia; Montreal, Vancouver and Toronto, Canada; Southampton, England; and Kowloon, Hong Kong. Certain showrooms are located within the leased facilities listed above; others are leased separately with remaining lease terms primarily ranging between three months and three years.

The Company owns office and distribution facilities used by its infant and juvenile operations in Grand Rapids, Michigan. Another facility used by its infant and juvenile operations, located in South Gate, California, is leased.

LaSalle Business Credit, LLC and certain of its affiliates (“LaSalle”), as administrative agent for the lenders under the 2006 Credit Agreements, has a lien on substantially all of the assets of the Company. Such lien includes a mortgage on the real property located at 2305 Breton Industrial Park Drive, S.E., Kentwood, Michigan (the “Facility Encumbrance”). California KL Holdings, Inc., as agent, has a subordinated lien with respect to the Facility Encumbrance and all of the assets of the infant and juvenile segment. See Note 8 of Notes to Consolidated Financial Statements.

The Company believes that the facilities of the Company are maintained in good operating condition and are, in the aggregate, adequate for the Company’s purposes and are generally fully utilized. At December 31, 2005, the Company and its subsidiaries were obligated under operating lease agreements (principally for buildings and other leased facilities) for remaining lease terms ranging from three months to seventeen years. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Contractual Obligations.”

Certain of the properties leased by the Company’s gift segment are leased from parties related to the late Mr. Russell Berrie, including Angelica Berrie, entities established by him or his estate. See Note 16 of Notes to Consolidated Financial Statements and Item 13, “Certain Relationships and Related Transactions,” with respect to encumbrances on the South Brunswick, New Jersey facility leased by the Company.

13

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table provides information with respect to the executive officers of the Company. All officers are elected by the Board of Directors and may be removed with or without cause by the Board.

NAME	AGE	POSITION WITH THE COMPANY
Jeffrey A. Bialosky	46	Senior Vice President—National Accounts
Anthony Cappiello(2)	52	Executive Vice President and Chief Administrative Officer
Teresa Chan	51	Vice President—Far East Operations
Andrew R. Gatto(1)(3)	58	President and Chief Executive Officer
Eva J. Goldenberg(2)	44	Vice President—Human Resources
Marc S. Goldfarb(2)	42	Vice President, General Counsel and Corporate Secretary
Thomas K. Higgerson	57	Vice President—Operations
Y.B. Lee	60	Senior Vice President—Design and Development, Far East Operations and President—Korean Operations
James J. O’Reardon, Jr.(2)	62	Vice President—Corporate Audits
Chris Robinson (3)	51	President—International Division
Thomas J. Sancetta	42	Vice President—Inventory Management
Keith Schneider	42	Executive Vice President —Sales
Arline Wall	53	Senior Vice President — Product Development and Marketing
John D. Wille (3)	50	Vice President and Chief Financial Officer

(1)Member of the Company’s Board of Directors

(2)Member of the Company’s Disclosure Committee

(3)Member of the Company’s Executive Management Committee

Jeffrey A. Bialosky was appointed Senior Vice President—National Accounts in February 2004 and joined the Company as Senior Vice President—Product Development (Plush) in April 2003. Prior to joining the Company, Mr. Bialosky was employed with Commonwealth Toy, a designer, developer, manufacturer and marketer of toys to the mass market, as Senior Vice President of Product Development and Marketing since February 1995.

Anthony P. Cappiello has been employed as Executive Vice President and Chief Administrative Officer since August 2005. Prior to joining the Company, Mr. Cappiello was Chief Operating Officer at Waterford & Wedgwood U.S.A, a marketer, manufacturer and distributor of fine crystal, china, linens, jewelry, cookware, heirlooms and flatware, since May 1991.

Teresa Chan was appointed Vice President—Far East Operations in January 2004. Ms. Chan was elected as an officer of the Company in October 1999 and had been employed by the Company as Vice President—International Sales since January 1997.

Andrew R. Gatto joined the Company as President and Chief Executive Officer in June 2004. Prior to joining the Company, Mr. Gatto was employed with Toys “R” Us, Inc. as Senior Vice President, Product Development, Imports and Strategic Sourcing since October 1997.

14

Eva J. Goldenberg was elected an officer of the Company in January 2001 and has been employed by the Company as Vice President—Human Resources since April 2000. Prior to that, Ms. Goldenberg was Director of Human Resources since September 1999 and Associate General Counsel since August 1994.

Marc S. Goldfarb joined the Company as Vice President, General Counsel and Corporate Secretary in September 2005. Prior to joining the Company, Mr. Goldfarb was Vice President, General Counsel and Corporate Secretary of Journal Register Company, a publicly traded newspaper publishing company, from January 2003 to September 2005. From July 1998 to January 2003, he served as Managing Director and General Counsel of The Vertical Group, an international private equity firm. Prior to that, Mr. Goldfarb was a Partner at Bachner, Tally, Polevoy & Misher LLP.

Thomas K. Higgerson was appointed Vice President—Operations in October 2004 and joined the Company as Vice President—Global Logistics in January 2000. Prior to joining the Company, Mr. Higgerson was employed with Hygrade Integrated Logistics Systems, Inc., a third party logistics company, as Executive Vice President, responsible for operations, information systems, transportation/logistics, and project management, since March 1997.

Y.B. Lee was appointed Senior Vice President—Design and Development, Far East Operations and President—Korean Operations in 2004. Prior to that, Mr. Lee was Senior Vice President—Far East and President—Far East Operations since June 1996.

James J. O’Reardon, Jr. has been employed by the Company as Vice President—Corporate Audits since April 2000. Prior to that, Mr. O’Reardon was Vice President—Administration since September 1997.

Chris Robinson was appointed President—International Division in February 2003. Prior to that Mr. Robinson served as Managing Director of Russ Berrie U.K. Ltd. since June 1988.

Thomas J. Sancetta was appointed Vice President—Inventory Management in July 2003. Mr. Sancetta was elected an officer of the Company in January 2003 and had been employed by the Company as Vice President—Sales Administration since January 2002. Prior to that Mr. Sancetta was Director of Internal Audit since September 1997.

Keith Schneider was appointed Executive Vice President—Sales in November 2005. Prior to that, Mr. Schneider was Managing Director of Russ Australia since August 1999.

Arline Wall joined the Company as Senior Vice President—Product Development and Marketing in December 2005. Prior to joining the Company, from September 2004 to November 2005, Ms. Wall was employed by MAF Marketing, Inc., a premium incentive sales company, as Vice President—New Product Development. Prior to that, from August 1998 to September 2004, Ms. Wall was employed by Toys “R” Us, Inc., most recently holding the position of Global Brand Director.

John D. Wille has been employed by the Company as Vice President and Chief Financial Officer since February 2001. Prior to joining the Company, Mr. Wille was employed by the Betesh Group, a privately held designer, manufacturer and distributor of handbags, small leather goods, infant accessories and toys, as Vice President Finance and Chief Financial Officer since November 2000. Prior to that, Mr. Wille was employed by Time Life Inc., a book, music and video publisher, as Vice President and Corporate Controller since May 1997.

15

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

At March 31, 2006, the Company’s Common Stock was held by approximately 427 shareholders of record. The Company’s Common Stock has been traded on the New York Stock Exchange, under the symbol RUS, since its initial public offering on March 29, 1984. The following table sets forth the high and low sale prices on the New York Stock Exchange Composite Tape for the calendar periods indicated, as furnished by the New York Stock Exchange:

	2005				2004
	HIGH		LOW		HIGH		LOW
First Quarter	$	24.25	$	18.62	$	37.24	$	31.20
Second Quarter	18.76		12.33		36.14		19.10
Third Quarter	16.90		12.75		20.57		18.01
Fourth Quarter	15.02		11.07		24.12		20.25

The Board of Directors declared its first dividend to holders of the Company’s Common Stock in November 1986. Cash dividends were paid quarterly from November 1986 through the first quarter of 2005. In addition, the Board declared a special cash dividend of $7.00 per share that was paid in June 2004. The quarterly dividend rate was decreased from $0.30 in 2004 to $0.10 per common share for the first quarter of 2005. The Company has not paid a dividend since April 2005 and currently does not anticipate paying any dividends at least through 2006.

In accordance with the terms of the 2006 Credit Agreements, the Company’s domestic operating subsidiaries are subject to certain restrictions in distributing cash to the Company for the purpose of enabling the Company to pay dividends to its shareholders. See Item 7, “Managements Discussion and Analysis of Results of Operations and Financial Condition – Liquidity and Capital Resources” and Note 8 of Notes to Consolidated Financial Statements for a description of the material terms of the Credit Agreements.

See Item 12 of this Annual Report on Form 10-K for Equity Compensation Plan Information.

16

ITEM 6. SELECTED FINANCIAL DATA

	Years Ended December 31,
	2005*			2004*			2003*			2002*			2001*
	(Dollars in Thousands, Except Per Share Data)
Statement of Operations Data:
Net Sales	$	290,156		$	265,959		$	329,687		$	321,355		$	294,291
Cost of Sales	173,807			155,389			154,639			145,050			132,611
Operating (Loss)/Income	(8007		)	(23,917		)	42,301			55,138			49,110
(Loss)/Income before Provision for Income Taxes	(22,914		)	(25,363		)	48,432			63,638			57,670
Provision/(Benefit) for Income Taxes	12,185			(5,363		)	13,703			17,618			17,496
Net (Loss)/Income	(35,099		)	(20,000		)	34,729			46,020			40,174
Net (Loss)/Income Per Share:
Basic	(1.69		)	(0.96		)	1.69			2.25			2.00
Diluted	(1.69		)	(0.96		)	1.68			2.24			1.99
Dividends Per Share**	.10			8.20			1.12			1.04			1.46
Balance Sheet Data:
Working Capital	$	71,111		$	119,293		$	333,952		$	314,321		$	322,936
Property, Plant and Equipment, net	17,856			28,690			46,108			42,096			24,623
Total Assets	330,592			411,098			462,748			430,452			386,644
Debt	76,517			125,000			—			—			—
Shareholders’ Equity	193,854			234,516			415,418			388,891			354,417
Statistical Data:
Current Ratio	1.8			2.6			8.1			8.6			11.0
Return on Average Shareholders’ Equity	(16.4		)%	(6.2		)%	8.6		%	12.4		%	11.7		%
Net Profit Margin	(12.1		)%	(7.5		)%	10.5		%	14.3		%	13.7		%
Number of Employees	1,216			1,340			1,591			1,750			1,563

*The years ended December 31, 2005, 2004, 2003 and 2002 include the results of Sassy, Inc. since its acquisition on July 26, 2002. The years ended December 31, 2005 and December 31, 2004 include the results of Kids Line, LLC since its acquisition on December 15, 2004. All years include Bright of America Inc. until its sale as of July 30, 2004.

**Dividends per share for the years ended December 31, 2004 and 2001 include a one-time special cash dividend in the amount of $7.00 and $0.50 per common share, respectively.

17

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of the Company’s consolidated financial condition, changes in financial condition and results of operations. This financial and business analysis should be read in conjunction with the Company’s consolidated financial statements and accompanying Notes to Consolidated Financial Statements set forth in Item 8 below.

Overview

The Company is a leader in the gift industry. The Company’s gift business designs, manufactures through third parties and markets a wide variety of gift products to retail stores throughout the world. The Company’s infant and juvenile businesses design, manufacture through third parties and market products in a number of baby categories, including infant bedding and accessories, bath toys and accessories, developmental toys, feeding items and baby comforting products. These products are sold to consumers, primarily in the United States, through mass merchandisers, toy, specialty, food, drug and independent retailers, apparel stores, military post exchanges and other venues.

The Company’s revenues are primarily derived from sales of its products, a significant portion of which are attributable its gift segment. Sales and operating profits in the Company’s gift segment began to decline during 2003 as a result of several factors including: (i) retailer consolidation and a declining number of independent retail outlets, which in turn had a negative impact on sales from such outlets; (ii) increased competition from other entities, both wholesalers and retailers, which offered lower pricing and achieved greater customer acceptance of their products; and (iii) changing buying habits of consumers, marked by a shift from independent retailers to mass market retailers. Commencing in the third quarter of 2003, the Company began to implement a multi-pronged approach to address these trends, which consists of: (i) focusing on categorizing and rationalizing its product range; (ii) segmenting its selling efforts to address customer requirements and shifting channels of distribution; (iii) increasing its focus on national accounts, in order to build and strengthen the Company’s presence in the mass market through the use if its APPLAUSE® trademark as the mass market brand platform; (iv) focusing on growing its international business and infant and juvenile segments; (v) selectively increasing its use of licensing to differentiate its products from its competitors;  (vi) implementing a three tiered “good”, “better”, “best” branding strategy within its gift segment to differentiate products sold into the mass market, the Company’s traditional specialty retail market and the upscale department store market; and (vii) “right-sizing” its operations in order to reduce overhead expenses through headcount reductions and the closure of certain domestic showrooms and warehouses.

During 2004, the Company implemented a comprehensive strategic review of the Company’s business, which resulted in an inventory write-down of $13 million (pre-tax) recorded in cost of sales in the second quarter of 2004. In addition, the Company continued to evaluate “right-sizing” its infrastructure in response to the changing business environment. As a result of such evaluation, the Company reduced headcount during the second half of 2004 by an aggregate of approximately 120 positions and recorded a restructuring charge of an aggregate of $6.3 million in the third and fourth quarters of 2004. Management believes that future operating expenses, predominantly through reduced employee costs, were reduced by an aggregate of approximately $10.5 million on an annualized basis as a result of these reductions. The effects of these reduced costs began in the third and fourth quarters of 2004. Severance payments for employees affected by this restructuring continued through the third and fourth quarters of 2005.

The Company has continued to address the challenges in its gift business through the multi-pronged approach discussed above, which has enabled the Company to reduce significantly its operating expenses. However, the Company achieved only limited success in reversing the challenges facing its gift business and the industry in general. As a result, in November 2005, the Company commenced the implementation of a further restructuring of its domestic gift business designed to “right size” the infrastructure consistent with existing business levels and re-align domestic gift operations to better meet the needs of different distribution channels. The restructuring included the immediate elimination of approximately 50 positions, which resulted in a pre-tax restructuring charge of approximately $1.4 million in the fourth quarter of 2005, primarily related to employee severance costs. As part of the November 2005 restructuring, the Company also commenced a plan to reduce its facilities expenses by

18

rationalizing certain warehouse and distribution activities, which is expected to result in additional pre-tax restructuring charges in 2006 of approximately $2.5 million, primarily related to employee severance and facility exit costs. In connection with this rationalization, the Company announced in January 2006 its intention to consolidate its domestic gift warehousing and distribution into its South Brunswick, New Jersey facility and intends to close the Petaluma, California facility during the second quarter of 2006. In addition, in connection with the November 2005 restructuring, the Company conducted another comprehensive review of its gift product line to identify product categories and individual items that did not fit into its future sales and marketing plans. As a result of product line decisions made in the fourth quarter, an additional inventory write-down of $4.2 million (pre-tax) was recorded in the fourth quarter of 2005. The Company anticipates selling substantially all of this inventory through other than its normal sales channels. The Company expects to incur additional restructuring costs as it continues to implement the November 2005 restructuring plan and expects to incur further restructuring costs as it implements the Profit Improvement Program currently under development, as described below.

Management believes that future operating expenses will be reduced by approximately $15 million on an annualized basis as a result of the restructuring commenced in November 2005. A portion of these expense savings related to employee expenses are reflected in the Company’s results of operations for the fourth quarter of 2005, with the remaining cost reductions expected to be achieved during 2006. Severance payments to employees impacted by the restructuring will continue through the end of 2006, although such payments will not impact the Company’s results of operations, as they are reflected in the restructuring charge recorded in the fourth quarter of 2005. All of the restructuring costs recorded in the fourth quarter of 2005 have been recorded in selling, general and administrative expenses.

As an expansion of its November 2005 restructuring and ongoing analysis, in 2006, the Company commenced the development and phased implementation of a Profit Improvement Program (“PIP”) with respect to its global gift business. The Company has retained the services of an independent advisor to assist in the development of the PIP. The PIP involves an analysis and, in some instances, re-evaluation of key operational aspects of the Company’s gift business and will, when completed, be designed to help enable the Company to return its gift business to a sustainable level of profitability. The PIP is expected to involve reengineering the manner in which the gift segment operates, and will likely involve reducing the size of the gift business by focusing on the most profitable products, customers and territories as a means of providing a platform for potential profitable growth in the future. The scope of the PIP is intended to be broad and significant and may cause losses to our business that we cannot predict, including a loss of gift segment sales. Although the Company has not yet completed the development of the PIP, the implementation (portions of which are already underway in phases) will result in the recognition of certain significant restructuring charges and the incurrence of related severance obligations. The Company may also be required to make certain investments to generate the efficiencies and focus on profitable operations that the PIP will be designed to achieve. Because the PIP is still being developed, estimates of the total charges to be incurred and investments or other expenditures required cannot be determined at this time, although the Company believes that it will have the resources available to implement the PIP plan.

As part of the PIP, the Company is currently evaluating the need to maintain direct sales and distribution efforts in several European countries. To date, the Company has determined to terminate its direct sales and distribution operations in France, Germany, Belgium and Holland, and has restructured certain of its sales operations in the U.K. As a result of these actions, the Company will reduce headcount by an aggregate of approximately 48 positions during the first half of 2006 and intends to record a restructuring charge of an aggregate of approximately $1.7 million in the first quarter of 2006. Management believes that future operating expenses, predominantly through reduced employee costs, will be reduced by an aggregate of approximately $4.2 million on an annualized basis as a result of these reductions. The Company is currently evaluating the legal requirements related to severance payments in each affected country, but anticipates that a substantial portion of the severance will be required to be paid upon termination of the related positions. The Company anticipates that it will establish alternative means of reaching certain customers in the affected countries, including through the use of independent sales representatives or distributors, although the Company expects that its aggregate sales from France, Germany, Belgium and Holland will be reduced by approximately $6 million on an annualized basis as a result of these actions, at least for the near term. See Item 1A, “Risk Factors” and “– Liquidity and Capital Resources.”

Effective December 28, 2005, the Company amended all outstanding stock option agreements which pertained to options with exercise prices in excess of the market price for the Company’s Common Stock at the close of business on December 28, 2005 (“Underwater Options”) which have remaining vesting requirements. As a result of these amendments, all Underwater Options, which represent all outstanding options (to purchase approximately 1,497,000 shares of the Company’s common stock) which had not yet fully-vested, became fully vested and immediately exercisable at the close of business on December 28, 2005.  Of the options accelerated, approximately 120,000 options are held by non-employee directors, approximately 868,000 are held by officers of the Company and the balance are held by other employees of the Company.  Because the company has accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, and because these options were priced above the then current market price, the acceleration of vesting of these options did not require accounting recognition in the Company’s financial statements. The options were accelerated to reduce the financial statement expense impact in 2006 and beyond of a new accounting standard (SFAS No. 123(R), “Share Based Payment”) for stock based compensation (described below under the heading “Recently Issued Accounting Standards”).  Management believes that accelerating the vesting of these options prior to the adoption of the new accounting standard will result in the Company not being required to recognize compensation expense in 2006 in the amount of approximately $1.6 million (pre-tax) and in subsequent years through 2010 of approximately $3.7 million (pre-tax).

19

Segments

The Company currently operates in two segments:  (i) its gift business and (ii) its infant and juvenile business. See Note 22 of Notes to Consolidated Financial Statements for a discussion on reclassification of the Company’s segments.

Results of Operations

Fiscal year ended December 31, 2005 compared to fiscal year ended December 31, 2004

The Company’s consolidated net sales for the year ended December 31, 2005 increased 9.1% to $290.2 million compared to $266.0 million, for the year ended December 31, 2004. The net sales increase was primarily attributable to growth in the Company’s infant and juvenile segment as a result of the acquisition in December 2004 of Kids Line LLC, partially offset by a sales decrease in the Company’s gift segment.

The Company’s gift segment net sales for the year ended December 31, 2005 decreased 22.2% to $158.5 million compared to $203.9 million for the year ended December 31, 2004, primarily as a result of the factors discussed in the “Overview” above. Net sales in the Company’s gift segment benefited by foreign exchange rates of approximately $1.4 million for the year ended December 31, 2005. The Company’s infant and juvenile segment net sales for the year ended December 31, 2005 increased 130.1% to $131.6 million compared to $57.2 million for the year ended December 31, 2004, primarily as a result of the acquisition of Kids Line as of December 15, 2004. Non-core sales for the year ended December 31, 2005 were $0 compared to $4.9 million for the year December 31, 2004, as a result of the sale of Bright of America, Inc. as of July 31, 2004.

Consolidated gross profit was 40.1% of consolidated net sales for the year ended December 31, 2005 as compared to 41.6% of consolidated net sales for the year ended December 31, 2004. The decrease in the consolidated gross profit percentage is primarily due to greater competitive pricing pressure in the gift segment, partially offset by lower inventory write-downs in 2005 in the gift business segment and a higher gross profit margin in the Company’s infant and juvenile segment. (See Note 6 of Notes to Consolidated Financial Statements and “Overview” above for a discussion of the inventory write-downs.)  Gross profit for the Company’s gift segment was 40.0% of net sales for the year ended December 31, 2005 as compared to 43.7% of net sales for the year ended December 31, 2004 as a result of the foregoing. Gross profit for the Company’s infant and juvenile segment was 40.3% of net sales for the year ended December 31, 2005 as compared to 34.1% of net sales for the year ended December 31, 2004 due primarily to the full year impact in 2005 of Kids Line.

Consolidated selling, general and administrative expense was $124.4 million, or 42.9% of consolidated net sales, for the year ended December 31, 2005 compared to $134.5 million, or 50.6% of consolidated net sales, for the year ended December 31, 2004. This decrease in consolidated selling, general and administrative expense is due primarily to lower expenses in the gift segment as a result of the impact of the 2004 restructuring initiatives partially offset by increased selling, general and administrative expenses in the infant and juvenile segment. The infant and juvenile segment increase is attributable to the full year impact in 2005 of Kids Line.

Consolidated operating loss was $8.0 million for the year ended December 31, 2005 compared to a loss of $23.9 million for the year ended December 31, 2004. The $15.9 million improvement was primarily the result of an increase in operating income in the Company’s infant and juvenile segment, to $34.1 million for the year ended December 31, 2005, as compared to operating income of $8.5 million for the year ended December 31, 2004, partially offset by an increase in the operating loss in the Company’s gift segment, from a loss of $32.8 million for

20

the year ended December 31, 2004 to a loss of $42.1 million for the year ended December 31, 2005. The increase in operating income in the Company’s infant and juvenile segment was a result of the full year impact of Kids Line, acquired in December 2004. The increased operating loss in the Company’s gift segment was a result of lower net sales and a lower gross profit margin, partially offset by decreased selling, general and administrative expense.

Consolidated other income/(expense) was an expense of $14.9 million for the year ended December 31, 2005 compared to an expense of $1.4 million for the year ended December 31, 2004, an increase of $13.5 million. This increase in expense was primarily the result of (i) a decrease in investment income of $2.6 million due to lower investment balances and (ii) an increase of $14.8 million in interest expense in 2005, due to the financing for the Kids Line acquisition which was consummated on December 15, 2004, partially offset by an impairment charge in 2004 associated with a write-down to fair value of facilities held for disposal with no such comparable charge in 2005. See Note 2 of Notes to Consolidated Financial Statements.

The income tax provision in 2005 was $12.2 million as compared to an income tax benefit of $5.4 million in 2004. The income tax provision in 2005 was the result of the Company increasing the valuation allowance on its deferred tax assets by $13.8 million, partially offset by a reduction in the Company’s reserve for tax exposures of $1.8 million. During 2005 and 2004, the Company repatriated earnings from its foreign subsidiaries which were offset by losses from operations, the Section 965 Dividends Received Deduction, and foreign tax credits.

As a result of the foregoing, consolidated net loss for the year ended December 31, 2005 was $35.1 million, or $1.69 per diluted share, compared to consolidated net loss of $20.0 million, or $0.96 per diluted share, for the year ended December 31, 2004. See Note 15 of Notes to Consolidated Financial Statements.

Fiscal year ended December 31, 2004 compared to fiscal year ended December 31, 2003

The Company’s consolidated net sales for the year ended December 31, 2004 decreased 19.3% to $266.0 million compared to $330.0 million for the year ended December 31, 2003. The net sales decline was primarily attributable to the Company’s gift segment, as described below. The Company’s infant and juvenile segment’s net sales increased 13.7% for the year ended December 31, 2004. Such segment’s net sales included two weeks of Kids Line, LLC net sales (discussed below), as compared to the year ended December 31, 2003.

 The Company’s gift segment’s net sales for the year ended December 31, 2004 decreased 24.3% to $203.9 million compared to $269.3 million for the year ended December 31, 2003, primarily as a result of the factors discussed in the “Overview” above. Net sales in the Company’s gift segment benefited from foreign exchange rates by approximately $7.5 million for the year ended December 31, 2004. The Company’s infant and juvenile segment net sales for the year ended December 31, 2004 increased 13.7% to $57.2 million compared to $50.3 million for the year ended December 31, 2003. Infant and juvenile sales were positively affected by approximately $3.0 million by the purchase of Kids Line, LLC as of December 15, 2004. Non-core sales for the year ended December 31, 2004 were $4.9 million compared to $10.0 million for the year December 31, 2003, primarily as a result of the sale of Bright of America, Inc. effective August 2, 2004.

Consolidated gross profit was 41.6% of consolidated net sales for the year ended December 31, 2004 as compared to 53.1% of consolidated net sales for the year ended December 31, 2003. The erosion in the consolidated gross profit percentage is primarily due to a significant inventory write-down (as discussed below) and competitive pricing pressure in the gift segment. In response to strategic changes in product direction made in June 2004 under its recently appointed CEO, the Company undertook a comprehensive review of its worldwide inventory during the second quarter. As a result of this review, an additional inventory write-down of $13 million (pre tax) was recorded in the second quarter to reflect excess inventory in the gift segment at the lower of its cost or market value. The Company sold substantially all of this inventory through other than its normal sales channels. See “Overview” above and Note 6 to the Notes to Consolidated Financial Statements for a discussion of the additional inventory write-down. Gross profit for the Company’s gift segment was 43.7% of net sales for such segment for the year ended December 31, 2004 as compared to 57.1% of net sales for the year ended December 31, 2003 as a result of the forgoing. Gross profit for the Company’s infant and juvenile segment was 34.1% of net sales for such segment for the year ended December 31, 2004 as compared to 34.6% of net sales for the year ended December 31, 2003. Gross profit for the Company’s non-core segment was 40.2% of net sales for such segment for the year ended December 31, 2004 as compared to 39.3% of net sales for the year ended December 31, 2003.

Consolidated selling, general and administrative expense was $134.5 million, or 50.6% of consolidated net sales, for the year ended December 31, 2004 compared to $132.7 million, or 40.3% of consolidated net sales, for the year

21

ended December 31, 2003. This increase in consolidated selling, general and administrative expense is due primarily to a $4.9 million increase in restructuring expenses in 2004 compared to 2003 as described in Note 10 of Notes to Consolidated Financial Statements and the “Overview” above, unfavorable exchange rate variances of $3.9 million, costs associated with the Company’s tender offer for outstanding plan options of $0.9 million (See Notes 10 and 19 of Notes to Consolidated Financial Statements and “Liquidity and Capital Resources” below) and costs associated with the Company’s Sarbanes-Oxley Section 404 compliance efforts of $1.7 million, partially offset by lower selling costs of $3.6 million, lower system implementation costs of $1.1 million and  the fact that there were no Troll litigation settlement costs in 2004 as compared to $2.9 million expensed in connection therewith in 2003.

Consolidated other expense/(income) was an expense of $1.4 million for the year ended December 31, 2004 compared to income of $6.1 million for the year ended December 31, 2003, a decrease of $7.6 million. This decrease was primarily the result of lower investment income due to lower investment balances and the losses associated with a write-down of facilities to fair value at the Company’s offices in Hong Kong and the United Kingdom, for the year ended December 31, 2004 as compared to the year ended December 31, 2003 in the Company’s gift segment. See Note 2 of Notes to Consolidated Financial Statements.

The consolidated (benefit)/provision for income taxes as a percent of income before taxes for the year ended December 31, 2004 was a (21.1%) benefit compared to a 28.3% expense for the year ended December 31, 2003. The decrease in the effective rate reflects the Company’s lower taxes on foreign dividend remittances, tax associated with the limitations on the deductibility of anticipated losses related to foreign real estate transactions, partially offset somewhat by lower relative tax-exempt interest income and charitable contributions.

As a result of the foregoing, consolidated net loss for the year ended December 31, 2004 was $20.0 million compared to consolidated net income of $34.7 million for the year ended December 31, 2003, representing a decrease of $54.7 million and a decrease of $2.64 per diluted share. See Note 15 of Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

The Company’s principal sources of liquidity are cash and cash equivalents, funds from operations, and availability under its bank facilities. The Company believes that it will be able to fund its capital requirements for 2006 from such sources. In addition, subject to the discussion below under “Kids Line and Related Financing” with respect to the Earnout Consideration and the Company’s continued compliance with the financial covenants included in its 2006 Credit Agreements (defined below), the Company believes that cash flows from operations and future borrowings will be sufficient to fund its operating needs for at least the next 12 months.

As of December 31, 2005, the Company had cash and cash equivalents of $28.7 million compared to $48.1 million at December 31, 2004. This reduction of $19.4 million was primarily the result of the repayment of debt, partially offset by proceeds from the sale of receivables in the UK during the fourth quarter of 2005, the sale-leaseback of the Company’s Canadian facility, proceeds from a tax refund, proceeds from the sale of assets held for disposal as of December 31, 2004 and collections of accounts receivable. As of December 31, 2005 and December 31, 2004, working capital was $71.1 million and $119.3 million, respectively. This decrease of $48.2 million was primarily the result of a decrease in cash for the aforementioned reasons as well as a decrease in accounts receivable of $22.4 million in 2005 and an increase in short-term debt to $34.5 million as of December 31, 2005 from $25.3 million as of December 31, 2004.

Cash and cash equivalents decreased by $19.4 million during the twelve months ended December 31, 2005 compared to a decrease of $33.4 million during the twelve months ended December 31, 2004, primarily as a result of the factors described in the preceding paragraph. Net cash provided by operating activities was approximately $20.6 million for the year ended December 31, 2005, as compared to net cash used by operating activities of approximately $4.4 million during the year ended December 31, 2004. This increase of $25.0 million was due primarily to the higher net loss in 2005 compared to 2004, offset by reduced restricted cash requirements under the 2005 Credit Agreement and a decrease in the Company’s deferred income taxes. Net cash provided by investing activities was approximately $15.1 million for the year ended December 31, 2005, compared to net cash provided by investing activities of approximately $14.0 million for the year ended December 31, 2004. This increase of approximately $1.1 million was due primarily to the proceeds in the year ended December 31, 2005 from the sale and leaseback of the Company’s Canadian office and distribution center and from the sale of assets held for disposal as of December 31, 2004, offset in part by proceeds from the sale of marketable securities offset by the purchase of Kids Line LLC in the year ended December 31, 2004. Net cash used in financing activities was approximately

22

$54.3 million for the year ended December 31, 2005, compared to net cash used of $47.2 million for the year ended December 31, 2004. The increase in net cash used in financing activities of approximately $7.1 million was due primarily to a reduction in long-term debt in 2005 offset in part by proceeds from long term debt offset by dividends paid to shareholders in the year ended December 31, 2004.

During the year ended December 31, 2005, the Company paid approximately $2.5 million for income taxes. The Company currently expects that its cash flows will exceed any income tax payments during 2005.

Kids Line and Related Financing

The Company purchased all of the outstanding equity interests and warrants in Kids Line (the “Purchase”) in accordance with the terms and provisions of a Membership Interest Purchase Agreement (the “Purchase Agreement”) executed as of December 15, 2004. At closing, the Company paid approximately $130.5 million, which represented the portion of the purchase price due at closing plus various transaction costs. The aggregate purchase price under the Purchase Agreement, however, also includes the potential payment of the Earnout Consideration, which is defined as 11.724% of the Agreed Enterprise Value of Kids Line as of the last day of the three year period ending November 30, 2007 (the “Measurement Period”). The Earnout Consideration shall be paid as provided in the Purchase Agreement (approximately the third anniversary of the Closing Date). The “Agreed Enterprise Value” shall be the product of (i) Kids Line’s EBITDA during the twelve (12) months ending on the last day of the Measurement Period and (ii) the applicable multiple (ranging from zero to eight) as set forth in the Purchase Agreement. The amount of the Earnout Consideration will be charged to goodwill if and when it is earned. Because the amount payable with respect to the Earnout Consideration, if any, and the Company’s financial condition at the time any such payment is due are not currently determinable, the Company cannot assure that payment of the Earnout Consideration will not have a material impact on the Company’s liquidity.

The Kids Line acquisition was financed with the proceeds of a term loan (the “Financing Agreement”), which is described in further detail in the Current Report on Form 8-K filed by the Company with the SEC on December 22, 2004. The Financing Agreement was subsequently replaced by the 2005 Credit Agreement and the 2005 Canadian Credit Agreement (as defined below), which are described in further detail in Note 8 of Notes to Consolidated Financial Statements and in the Current Report on Form 8-K filed by the Company with the SEC on July 5, 2005. On October 11, 2005, the Company and its lenders amended certain provisions of the 2005 Credit Agreement unrelated to the financial covenants contained therein. As of December 31, 2005, the Company was not in compliance with the “Total Debt to EBITDA Ratio” covenant in the 2005 Credit Agreement.

In order to reduce overall interest expense and gain increased flexibility with respect to the financial covenant structure of the Company’s senior bank financing, on March 14, 2006, the 2005 Credit Agreement was terminated and the obligations thereunder were refinanced (the “LaSalle Refinancing”). For a detailed description of the 2006 Credit Agreements, which are defined and summarized below, see Note 8 of Notes to Consolidated Financial Statements and the Company’s Current Report on Form 8-K filed with the SEC on March 17, 2006. On March 14, 2006, in connection with the LaSalle Refinancing, all outstanding obligations under the 2005 Credit Agreement (approximately $76.3 million) were repaid using proceeds from the Infantline Credit Agreement (defined below). The Company paid a fee of approximately $1.3 million in connection with the early termination of the 2005 Credit Agreement, which had been scheduled to mature on June 28, 2010. In addition, the Company will write-off, in the first quarter of 2006, approximately $2.5 million in deferred financing costs in connection with the LaSalle Refinancing.

As part of the LaSalle Refinancing, the Company formed a wholly-owned Delaware subsidiary, Russ Berrie U.S. Gift, Inc. (“Newco”), to which it assigned (the “Assignment”) substantially all of its assets and liabilities which pertain primarily to its domestic gift business, such that separate loan facilities could be made directly available to each of the Company’s domestic gift business and infant and juvenile business, respectively. The Assignment transaction reinforces the operation of the Company as two separate segments, and the credit facilities that have been extended to each segment are separate and distinct. There are no cross-default provisions between the new Infantline Credit Agreement and Giftline Credit Agreement (described below).

Infantline Credit Agreement. Accordingly, on March 14, 2006, Kids Line and Sassy (the “Infantline Borrowers”), entered into a credit agreement as borrowers, on a joint and several basis, with LaSalle Bank National Association as administrative agent and arranger (the “Agent”), the lenders from time to time party thereto, the Company as loan party representative, Sovereign Bank as syndication agent, and Bank of America, N.A. as documentation agent (the

23

“Infantline Credit Agreement”). The commitments under the Infantline Credit Agreement consist of (a) a $35.0 million revolving credit facility (the “Revolving Loan”), with a subfacility for letters of credit in an amount not to exceed $5.0 million, and (b) a $60.0 million term loan facility (the “Term Loan”). The Infantline Borrowers drew down approximately $79.7 million under the Infantline Credit Agreement on the Closing Date, including the full amount of the Term Loan, which reflects the payoff of all amounts outstanding under the 2005 Credit Agreement and certain fees and expenses associated with the LaSalle Refinancing. The Infantline loans will bear interest at a rate per annum equal to the Base Rate (for Base Rate Loans) or the LIBOR Rate (for LIBOR Loans) plus an applicable margin, in accordance with a pricing grid based on the most recent quarter-end Total Debt to EBITDA Ratio, which applicable margin shall range from 1.75% - 2.50% for LIBOR Loans and from 0.25% - 1.00% for Base Rate Loans.

The principal of the Term Loan under the Infantline Credit Agreement must be repaid in installments as follows: (a) $750,000 on the last day of each calendar month for the period commencing March 2006 through and including February 2008, (b) $1 million on the last day of each calendar month for the period commencing March 2008 through and including February 2009, (c) $1.25 million on the last day of each calendar month for the period commencing March 2009 through and including February 2011. A final installment in the aggregate amount of the unpaid principal balance of the Term Loan (in addition to all outstanding amounts under the Revolving Loan) is due and payable on March 14, 2011, in each case subject to earlier termination in accordance with the terms of the Infantline Credit Agreement.

The Infantline Credit Agreement contains customary affirmative and negative covenants, as well as the following financial covenants:  (i) a minimum EBITDA test, (ii) a minimum Fixed Charge Coverage Ratio, (iii) a maximum Total Debt to EBITDA Ratio and (iv) an annual capital expenditure limitation.

Giftline Credit Agreement. Also on March 14, 2006 (as amended on April 11, 2006 to clarify the application of a financial covenant), Newco and other specified wholly-owned domestic subsidiaries of the Company (collectively, the Giftline Borrowers”), entered into a credit agreement as borrowers, on a joint and several basis, with LaSalle Bank National Association, as issuing bank (the “Issuing Bank”), LaSalle Business Credit, LLC as administrative agent (the “Administrative Agent”), the lenders from time to time party thereto, and the Company, as loan party representative (the “Giftline Credit Agreement” and, together with the Infantline Credit Agreement, the “2006 Credit Agreements”). The Giftline Credit Agreement contemplates the potential inclusion of additional lenders subsequent to the initial closing, and a simultaneous increase in the commitment, and the facility consists of a revolving credit loan commitment (a) before such commitment is increased, if at all, in an amount equal to the Borrowing Base minus amounts outstanding under the Canadian Credit Agreement (as defined below) and (b) after such commitment is increased, if at all, in an amount equal to the lesser of (i) $25.0 million and (ii) the then-current Borrowing Base, in each case minus amounts outstanding under the Canadian Credit Agreement (the “Giftline Revolver”), with a subfacility for letters of credit to be issued by the Issuing Bank in an amount not to exceed $8.0 million. The Borrowing Base is primarily a function of a percentage of eligible accounts receivable and eligible inventory and, as of March 14, 2006, the Borrowing Base was approximately $18.9 million. The Giftline Borrowers did not draw down on the Giftline Revolver on the Closing Date. The Giftline Revolver will bear interest at a rate per annum equal to the sum of the Base Rate (for Base Rate Loans) or the LIBOR Rate (for LIBOR Loans) plus a margin of 2.75% for LIBOR Loans and 1.25% for Base Rate Loans.

The Giftline Credit Agreement contains the following financial covenants:  (i) a minimum EBITDA test, (ii) a minimum Excess Revolving Loan Availability requirement of $5.0 million, (iii) an annual capital expenditure limitation and (iv) a minimum Fixed Charge Coverage Ratio (for quarters commencing with the quarter ending March 31, 2008). In addition, at any time after December 31, 2007 in respect of which the Fixed Charge Coverage Ratio for the Computation Period ending as of the Fiscal Quarter end most recently preceding such date was less than 1.00 to 1.00, the aggregate amounts outstanding under the Giftline Agreement and the Canadian Loan Agreement may not exceed $10.0 million.

As contemplated by the 2005 Credit Agreement, on June 28, 2005, the Company’s Canadian subsidiary, Amram’s Distributing Ltd. (“Amrams”), executed a separate Credit Agreement (acknowledged by the Company) with the financial institutions party thereto and LaSalle Business Credit, a division of ABN AMRO Bank, N.V., Canada Branch, a Canadian branch of a Netherlands bank, as issuing bank and administrative agent (the “Canadian Credit Agreement”), and related loan documents with respect to a maximum U.S. $10.0 million revolving loan (the “Canadian Revolving Loan”). Russ Berrie and Company, Inc. (“RB”), a corporate holding company, executed an unsecured Guarantee (the “Canadian Guarantee”) to guarantee the obligations of Amrams under the Canadian Credit

24

Agreement. In connection with the LaSalle Refinancing, on March 14, 2006, the Canadian Credit Agreement was amended to (i) replace references to the 2005 Credit Agreement with the Giftline Credit Agreement (such that, among other conforming changes, a default under the Giftline Credit Agreement will be a default under the Canadian Credit Agreement), (ii) release the Company from the Canadian Guaranty and (iii) provide for a maximum U.S. $5 million revolving loan. In connection with the release of the Company from the Canadian Guaranty, Newco executed an unsecured Guarantee (the “Newco Guarantee”) to guarantee the obligations of Amrams under the Canadian Credit Agreement. A default under the Infantline Credit Agreement will not constitute a default under the Canadian Credit Agreement.

The Company believes that the lower interest rates that were extended to the Company’s subsidiaries in connection with the LaSalle Refinancing will enable the Company to reduce its aggregate interest expense, on a comparable basis, by approximately $2 million per year. However, because the 2006 Credit Agreements are extended directly to RB’s domestic subsidiaries, RB is dependent upon its operating subsidiaries to provide the cash necessary to enable the Company to fund its corporate overhead and other expenses.

The 2006 Credit Agreements restrict the ability of the Company’s domestic subsidiaries to distribute cash to RB for the purpose of paying dividends to the shareholders of the Company or for the purpose of satisfying the Company’s corporate overhead expenses. Subject to certain exceptions, the aggregate maximum amount that can be distributed by the Company’s domestic subsidiaries to RB to enable to pay corporate overhead expenses is $6.5 million for each of 2006 and 2007, and $7.0 million annually thereafter, with only $2.0 million of this amount permitted to be distributed by the Infantline Borrowers on an annualized basis. The Company believes that the amounts permitted to be distributed to it by its subsidiaries will be sufficient to fund its corporate overhead expenses, although there can be no assurance that such expenses will not exceed current estimates. There are no restrictions in the 2006 Credit Agreements on the ability of the Company’s foreign subsidiaries to distribute cash to the Company.

As a result of the LaSalle Refinancing, the obligation to pay the Earnout Consideration is no longer the obligation of RB, but the joint and several obligations of the Infantline Borrowers. With respect to the Earnout Consideration, the Infantline Borrowers will be permitted to pay all or a portion of the Earnout Consideration to the extent that, before and after giving effect to such payment, (i) Excess Revolving Loan Availability will equal or exceed $3.0 million and (ii) no violation of the Infantline Financial Covenants would then exist, or would, on a pro forma basis, result therefrom.

The Company’s ability to maintain compliance with the financial covenants under the 2006 Credit Agreements is dependent, particularly in the case of the Giftline Credit Agreement, upon the successful implementation of the restructuring plan and the PIP described under “Overview” above and current operational plans. Based on these plans and management’s current projections, the Company anticipates that it will remain in compliance with the financial covenants in the 2006 Credit Agreements at least through December 31, 2006. However, in the event that the Company is unable to successfully implement the key elements of the PIP, there can be no assurance that the Company will remain in compliance with such financial covenants, particularly the financial covenants in the Giftline Credit Agreement.

Other Events and Circumstances Pertaining to Liquidity

Although the Company has not yet completed the development of the PIP, the implementation of the PIP (portions of which are already underway in phases) will result in the recognition of certain significant restructuring charges and the incurrence of related severance obligations. See “Overview” above for a more detailed description of the PIP and the restructuring activities undertaken in 2005.

On December 30, 2005, Russ Berrie (U.K.) Limited (“Russ UK”) entered into a Framework Agreement (“the A/R Agreement”) with Barclays Bank PLC (“Barclays”), pursuant to which Russ UK sold to Barclays all existing and future accounts receivable created during the term of the A/R Agreement, subject to an aggregate maximum facility limit of £6.0 million (approximately $10.2 million) outstanding at any time. For each transaction, Barclays will advance to Russ UK 75% of the value of the eligible accounts receivable, subject to reduction under certain circumstances and applicable reserves, in advance of their due dates. The remaining portion of the accounts receivable sold, including the full amount of any receivables not eligible for advance, less fees and expenses owing to Barclays, is paid to Russ UK upon collection of the related receivable. The amount due from Barclays of approximately $4.9 million is included in prepaid expenses and other current assets as of December 31, 2005.

25

The term of the A/R Agreement is one year with automatic renewals for additional one year periods unless either party provides advance notice of its intention to terminate. A one-time fee of £30,000 (approximately $50,000) was payable at closing and facility fees of £1,750 (approximately $3,000) are due monthly. The discount on the receivables sold is calculated monthly on the net advance balance at month end at the rate of Barclays’ base rate plus 1.5%.

As a condition of the A/R Agreement, Russ UK took out an insurance policy with respect to certain of the receivables naming Barclays as loss payee. In the event of a customer default, Barclays has only limited recourse to Russ UK and only under circumstances where Russ UK fails to perform its obligations in respect of a particular debt transferred, which obligations consist only of (i) providing evidence that Russ UK is not in breach of the relevant sales contract of the underlying debt and (ii) issuing a written demand for payment from the relevant account debtor.

On December 30, 2005, Russ UK sold net receivables outstanding pursuant to the A/R Agreement of approximately £6.7 million (approximately $11.5 million) and received a cash advance of approximately £3.8 million (approximately $6.5 million), consisting of 75% of the eligible accounts receivable sold, less approximately £1.2 million (approximately $2.1 million) due to the initial sales of receivables not eligible for advance.

Effective as of December 7, 2005, Amram’s entered into an agreement with Bentall Investment Management LP (“Bentall”) as purchaser (the “Sale-Leaseback Agreement”), pursuant to which Amram’s agreed to sell its principal facility located in Brampton, Ontario (Canada) (the “Facility”) to Bentall for an aggregate purchase price of $10.2 million Canadian dollars (approximately US $8.8 million), subject to customary adjustments (the “Sale”). The Sale closed on December 29, 2005. In accordance with the terms of the Sale-Leaseback Agreement, on the closing date, Amram’s entered into a lease agreement of approximately ten years at an annual net rental ranging over the term from approximately $737,498 Canadian dollars to $769,206 Canadian dollars (approximately U.S $632,773 to $659,979), payable monthly in advance, plus applicable taxes and defined operati ng costs (the “Amram’s Lease”). The Amram’s Lease is also subject to a management fee of 2% of the minimum annual rental, subject to adjustment as set forth therein. Amram’s has the option of extending the 10-year term for one additional term of 5 years, provided it is not then in default, at then-market rental rates. The gain on the Sale-Leaseback of approximately $4.0 million has been deferred and will be recognized as income over the term of the lease. See the Current Reports filed by the Company with the SEC on December 15, 2005 and December 30, 2005 for more information regarding this sale-leaseback transaction.

As disclosed under “Overview” above, during the fourth quarter of 2005, the Company recorded an additional inventory write-down of $4.2 million (pre-tax). The Company anticipates selling substantially all of this inventory through other than its normal sales channels.

Cash dividends of $2.1 million ($0.10 per share) were paid on April 21, 2005 to shareholders of record of the Company’s Common Stock on April 11, 2005. Cash dividends of $170.8 million ($0.30 per share per quarter plus $7.00 per share special dividend) were paid in the twelve months ended December 31, 2004. See Note 8 of Notes to Consolidated Financial Statement for a discussion of the restrictions on the Company’s ability to pay dividends as long as any obligations under the Credit Agreement remain outstanding. The Company currently does not anticipate paying any additional dividends at least through 2006.

The Company enters into foreign currency forward exchange contracts, principally to manage the economic currency risks associated with the purchase of inventory by its European, Canadian and Australian subsidiaries in the gift segment and by Sassy Inc. in the infant and juvenile segment.

The Company is dependent upon information technology systems in many aspects of its business. In 2002 the Company commenced a global implementation of an Enterprise Resource Planning (“ERP”) system for its gift businesses. During 2003 and continuing into 2004, certain of the Company’s international gift subsidiaries began to phase-in aspects of the new ERP system. In late 2005, the Company began to explore alternative global information technology systems for its gift business that could provide greater efficiencies, lower costs and greater reporting capabilities than those provided by the current ERP system. As a result of this review, all remaining international implementations were placed on hold pending a decision on whether or not to replace the current ERP system. The Company expects to make a decision on whether to replace its current ERP system in the first half of 2006.

In March 1990, the Board of Directors authorized the Company to repurchase an aggregate of up to 7,000,000 shares of common stock. As of December 31, 2005, 5,643,200 shares have been repurchased since the beginning of the Company’s stock repurchase program. The Company did not repurchase any shares pursuant to this program or otherwise during fiscal 2005.

26

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

Consistent with its past practices and in the normal course of its business, the Company regularly reviews acquisition opportunities of varying sizes. The Company may consider the use of debt or equity financing to fund potential acquisitions. The 2006 Credit Agreements impose restrictions on the Company that could limit its ability to respond to market conditions or to take advantage of acquisitions or other business opportunities.

The Company has entered into certain transactions with related parties which are disclosed in Note 16 of Notes to Consolidated Financial Statements and Item 13, “Certain Relationships and Related Transactions.”

Contractual Obligations

The following table summaries the Company’s significant known contractual obligations as of December 31, 2005 and the future periods in which such obligations are expected to be settled in cash (dollars in thousands):

	Total		2006		2007		2008		2009		2010		Thereafter
Operating Lease Obligations(1)	$	64,849	$	8,492	$	7,218	$	6,537	$	6,014	$	5,330	$	31,258
Purchase Obligations(2)	$	25,066	$	25,066	$	—	$	—	$	—	$	—	$	—
Debt Repayment Obligations(3)	$	76,517	$	34,524	$	1,993	$	—	$	—	$	40,000	$	—
Royalty Obligations	$	3,044	$	1,679	$	1,295	$	70	$	—	$	—	$	—
Total Contractual Obligations	$	169,476	$	69,761	$	10,506	$	6,607	$	6,014	$	45,330	$	31,258

(1)See Note 17 of Notes to Consolidated Financial Statements.

(2)The Company’s purchase obligations consist of purchase orders for inventory.

(3)Reflects repayment obligations under the 2005 Credit Agreement, which was refinanced and terminated on March 14, 2006. Mandatory repayment obligations under the 2006 Credit Agreements are as follows (dollars in thousands): $7,500 in 2006; $9,000 in 2007; $11,500 in 2008; $14,500 in 2009; $15,000 in 2010; and $2,500 in 2011. See Note 8 of Notes to Consolidated Financial Statements for a description of (i) the 2005 Credit Agreement, effective from June 28, 2005 until its termination, including provisions that create, increase and/or accelerate obligations thereunder and (ii) the 2006 Credit Agreements, each effective March 14, 2006.

Off Balance Sheet Arrangements

Since 1983, the Company had been a guarantor of a loan agreement between the late Mr. Russell Berrie and the New Jersey Economic Development Authority (the “EDA”), which was entered into on December 1, 1983, pursuant to which the EDA issued its Economic Development Bonds in the principal amount of $7,000,000 (the “EDA Bonds”) to finance the construction of the South Brunswick, New Jersey facility now leased by the Company from the Estate of Mr. Russell Berrie, as described in further detail in Note 16 of the Notes to Consolidated Financial Statements. Such guarantee was not issued or modified after December 31, 2002. Mr. Berrie (and after his death, his Estate) was the primary obligor with respect to the EDA Bonds. In connection therewith, the Company, in 1983, caused the issuance of a letter of credit in an amount of approximately $7.4 million (and on March 14, 2006, caused the issuance of a back-stop letter of credit in the same amount) to secure the payment obligations with respect to the EDA Bonds and had granted a security interest on accounts receivable and inventory of the Company up to $2.0 million to secure its obligations under its guarantee and the Amended and Restated Letter of Credit Reimbursement Agreement (“L/C RA”) executed in connection therewith. On April 3, 2006, the Estate (with funds provided by Ms. Berrie) redeemed the EDA Bonds. As a result, the Company’s obligations under the guarantee discussed above (as well as the L/C RA, all letters of credit and related security interests) are in the process of being terminated. Further detail with respect to EDA matters can be found in the Company’s Current Report on Form 8-K filed on March 17, 2006.

27

The Company has obligations under certain letters of credit that contingently require the Company to make payments to guaranteed parties upon the occurrence of specified events. See Note 8 of Notes to Consolidated Financial Statements for further descriptions of the Company’s letters of credit. There have not been any draws under any of the foregoing obligations, although there can be no assurance that no such draws will be required in the future.

In order to secure their respective obligations under the Infantline Credit Agreement and the Giftline Credit Agreement, (A) (i) the Infantline Borrowers have pledged and have granted security interests to the Agent in substantially all of their existing and future personal property, (ii) each Infantline Borrower has guaranteed the performance of the other Infantline Borrower, (iii) Sassy granted a mortgage for the benefit of the Agent and the lenders on its real property located at 2305 Breton Industrial Park Drive, S.E., Kentwood, Michigan and (iv) RB pledged 100% of the equity interests of each of the Infantline Borrowers to the Agent and (B) (i) the Giftline Borrowers pledged and have granted security interests to the Administrative Agent in substantially all of their existing and future personal property, (ii) each Giftline Borrower guaranteed the performance of the other Giftline Borrowers under the Giftline Credit Agreement and (iii) RB provided a limited recourse guaranty of the obligations of the Giftline Borrowers under the Giftline Credit Agreement, which guarantee is secured by a lien on the assets intended to be assigned to Newco pursuant to the Assignment. RB also pledged 100% of the equity interests of each of the Giftline Borrowers and 65% of its equity interests in certain of its First Tier Foreign Subsidiaries to the Administrative Agent. In addition, Newco provided the Newco Guarantee to guarantee the obligations of Amram’s under the Canadian Credit Agreement.

In addition, the Infantline Borrowers have agreed, on a joint and several basis, to assume sole responsibility to pay the Earnout Consideration in the place of the Company. To secure the obligations of the Infantline Borrowers to pay the Earnout Consideration, the Infantline Borrowers have granted a subordinated lien on substantially all of their assets, on a joint and several basis, and RB has granted a subordinated lien on the equity interests of each of the Infantline Borrowers to the Earnout Sellers’ Agent. All such security interests and liens are subordinated to the senior indebtedness of the Infantline Borrowers arising under the Infantline Credit Agreement. The Earnout Consideration is not secured by the Giftline Borrowers or their assets or equity interests.

Critical Accounting Policies

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

Management is required to make certain estimates and assumptions during the preparation of its consolidated financial statements that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Estimates and assumptions are reviewed periodically, and revisions made as determined to be necessary by management. The Company’s significant accounting estimates described below have historically been and are expected to remain reasonably accurate, but actual results could differ from those estimates under different assumptions or conditions.

Note 2 of Notes to Consolidated Financial Statements includes a summary of the significant accounting policies used in the preparation of the Company’s consolidated financial statements. The following, however, is a discussion of those accounting policies which management considers being “critical” within the SEC definition discussed above.

Accounts Receivable Allowances

In the normal course of business, the Company extends credit to customers which satisfy established credit criteria. The Company’s infant and juvenile segment sells to certain large customers, the loss of any one of which could have a material adverse affect on the Company and the infant and juvenile segment. Accounts receivable, trade, as shown on the Consolidated Balance Sheets, is net of allowances, discounts and estimated bad debts. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibles based on historical trends and an evaluation of the impact of current and projected economic conditions. If such historical trends or economic conditions deteriorate the results could differ from the Company’s estimates.

28

Revenue Recognition

The Company recognizes revenue when persuasive evidence of a sales arrangement exists, title and risk of loss has passed to its customers, the selling price is fixed and determinable, and collectability is reasonably assured.

Inventory Reserves

The Company values inventory at the lower of cost or estimated market value. The Company regularly reviews inventory quantities on hand, by item, and records a write-down of inventory to fair market value based primarily on the Company’s historical experience and estimated forecast of product demand using historical and recent ordering data relative to the quantity on hand for each item. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Overview” for information regarding inventory valuation reserves.

Long-Lived Assets

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

Goodwill and intangible assets not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Based on the Company’s annual test performed in 2005 there was no impairment, however, if actual future cash flows are less than the estimated future cash flows, the Company’s goodwill and intangible assets could be impaired.

The Company uses third party valuation specialists to assist in the valuation of intangible assets and their related estimated lives. The Company follows the provisions of SFAS No. 141 “Business Combinations” in determining whether an intangible asset has an indefinite life or is amortizable.

Accrued Liabilities and Deferred Tax Valuation Allowances

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

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment”,which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. This statement is a revision to SFAS 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123(R) requires Companies to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans, based on the grant-date fair value of the award. This Statement applies to all awards unvested or granted after the required effective date and to awards modified, repurchased, or cancelled after that date. SFAS No. 123(R) is effective as of the beginning of the first annual period beginning on or after June 15, 2005 (for the Company, the first quarter of 2006). The Company adopted SFAS No. 123(R) effective January 1, 2006, using the modified prospective method and expects that the impact, if any, will be immaterial to the Company’s financial position or results of operations.

29

Forward-Looking Statements

This Annual Report on Form 10-K contains certain forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission (“SEC”) filings and otherwise. The Private Securities Litigation Reform Act of 1995 provides a safe-harbor for forward-looking statements. These statements may be identified by the use of forward-looking words or phrases including, but not limited to, “anticipate”, “project”, “believe”, “expect”, “intend”, “may”, “planned”, “potential”, “should”, “will” or “would”. The Company cautions readers that results predicted by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Specific risks and uncertainties include, but are not limited to, those set forth under Item 1A, “Risk Factors.”

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk primarily from changes in interest rates and foreign currency exchange rates.

Interest Rate Changes

Marketable Securities. At December 31, 2005 and 2004, a sensitivity analysis to measure potential changes in the market value of the Company’s investments in marketable securities from a change in interest rates is not applicable as the Company liquidated its entire portfolio of marketable securities during 2004.

Debt. The interest applicable to the loans under the 2005 Credit Agreement, as amended, is based upon the LIBOR Rate (as defined in the Credit Agreement) and LaSalle’s Base Rate. At December 31, 2005, a sensitivity analysis to measure potential changes in interest rates indicates that a one percentage point increase in interest rates would increase the Company’s interest expense by approximately $765,000. See Note 8 of Notes to Consolidated Financial Statements for a discussion of the interest rate applicable to the Company’s senior bank facilities.

Foreign Currency Exchange Rates

At December 31, 2005 and 2004, a sensitivity analysis to changes in the value of the U.S. dollar on foreign currency denominated derivatives and monetary assets and liabilities indicates that if the U.S. dollar uniformly weakened by 10% against all currency exposures, the Company’s loss before income taxes would increase by approximately $476,000 in 2005 and the Company’s loss before income taxes would increase by approximately $201,000 in 2004. Additional information required for this Item is included in the section above entitled “Liquidity and Capital Resources” of Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition and Note 5 of Notes to Consolidated Financial Statements.

30

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

1. Financial Statements:

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2005 and 2004

Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003

Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003

Notes to Consolidated Financial Statements

2. Financial Statement Schedule:

Schedule II—Valuation and Qualifying Accounts

31

Report of Independent Registered Public Accounting Firm

The Board of Directors

Russ Berrie and Company, Inc.:

We have audited the accompanying consolidated balance sheets of Russ Berrie and Company, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule, “Schedule II – Valuation and Qualifying Accounts.”   These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Russ Berrie and Company, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Russ Berrie and Company, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 18, 2006 expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Short Hills, New Jersey

April 18, 2006

32

Report of Independent Registered Public Accounting Firm

The Board of Directors

Russ Berrie and Company, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (Item 9A.b.), that Russ Berrie and Company, Inc. (the Company) did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of the material weakness identified in management’s assessment, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment:  As of December 31, 2005, the Company did not maintain sufficient personnel resources with the requisite technical accounting and financial reporting expertise to: effect a timely financial closing process; sufficiently address non-routine and/or complex accounting issues that arise from time-to-time in the course of the Company’s operations; and effectively prepare timely account reconciliations and analyses. This lack of sufficient personnel resources with the requisite technical accounting and financial reporting expertise resulted in: material errors in the classification of long-term

33

debt and income tax expense; errors in equity accounts, inter-company accounts, depreciation expense, inventory, and foreign currency transactions; and material omissions of dislosures in the Company’s preliminary 2005 consolidated financial statements. This material weakness also results in more than a remote likelihood that material misstatements to the Company’s annual or interim consolidated financial statements would not be prevented or detected.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Russ Berrie and Company, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. The aforementioned material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and this report does not affect our report dated April 18, 2006, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, management’s assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

Short Hills, New Jersey

April 18, 2006

34

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2005 and 2004
(Dollars in Thousands)

	2005			2004
Assets (Note 8)
Current assets
Cash and cash equivalents	$	28,667		$	48,099
Restricted cash	—			4,604
Accounts receivable, trade, less allowances of $1,943 in 2005 and $2,950 in 2004	53,444			75,722
Inventories, net	56,346			47,391
Prepaid expenses and other current assets	12,152			6,090
Income tax receivable	2,979			11,359
Deferred income taxes	2,274			2,860
Total current assets	155,862			196,125
Property, plant and equipment, net	17,856			28,690
Goodwill	89,242			89,213
Intangible assets	61,599			61,927
Restricted cash	750			11,026
Deferred income taxes	—			4,518
Other assets	5,283			10,852
Assets held for sale	—			8,747
Total assets	$	330,592		$	411,098
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt	$	2,600		$	25,250
Short-term debt	31,924			—
Accounts payable	18,494			12,137
Accrued expenses	27,530			35,204
Accrued income taxes	4,203			4,241
Total current liabilities	84,751			76,832
Deferred income taxes	6,358			—
Long-term debt, excluding current portion	41,993			99,750
Other long-term liabilities	3,636			—
Total liabilities	136,738			176,582
Commitments and contingencies
Shareholders’ equity
Common stock: $0.10 stated value; authorized 50,000,000 shares; issued 26,472,256 and 26,460,759 shares at December 31, 2005 and 2004, respectively.	2,649			2,648
Additional paid in capital	88,751			88,693
Retained earnings	200,756			237,937
Accumulated other comprehensive income	11,848			15,388
Treasury stock, at cost, 5,636,284 shares at December 31, 2005 and 2004.	(110,150		)	(110,150		)
Total shareholders’ equity	193,854			234,516
Total liabilities and shareholders’ equity	$	330,592		$	411,098

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

35

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
(Dollars in Thousands, Except Per Share Data)

	2005			2004			2003
Net sales	$	290,156		$	265,959		$	329,687
Cost of sales	173,807			155,389			154,639
Gross profit	116,349			110,570			175,048
Selling, general and administrative expense	124,356			134,487			132,747
Operating income/(loss)	(8,007		)	(23,917		)	42,301
Other income/(expense):
Interest expense, including amortization and write-off of deferred financing costs	(15,454		)	(612		)	(70		)
Interest and investment income	898			3,488			5,357
Other, net	(351		)	(4,322		)	844
	(14,907		)	(1,446		)	6,131
(Loss)/income before income tax provision/(benefit)	(22,914		)	(25,363		)	48,432
Income tax provision/(benefit)	12,185			(5,363		)	13,703
Net (loss)/income	$	(35,099	)	$	(20,000	)	$	34,729
Net (loss)/income per share:
Basic	$	(1.69	)	$	(0.96	)	$	1.69
Diluted	$	(1.69	)	$	(0.96	)	$	1.68
Weighted average shares:
Basic	20,825,000			20,781,000			20,599,000
Diluted	20,825,000			20,781,000			20,697,000

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

36

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2005, 2004 and 2003

(Dollars in Thousands)

											Accumulated Other Comprehensive Income/(Loss)
	Total			Common Stock		Additional Paid In Capital		Retained Earnings			Foreign Currency Translation Adjustment			Net Unrealized Gain/(Loss) on Forward Exchange Contracts/ Marketable Securities			Treasury Stock
Balance at December 31, 2002	$	388,891		$	2,618	$	81,403	$	417,047		$	(1,252	)	$	(715	)	$	(110,210	)
Comprehensive income:
Net income	34,729			—		—		34,729			—			—			—
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustment	11,266			—		—		—			11,266			—			—
Unrealized loss on forward exchange contracts	(330		)	—		—		—			—			(330		)	—
Net unrealized gain on securities available-for-sale (net of tax benefit of $23)	67			—		—		—			—			67			—
Comprehensive income	45,732
Share transactions under stock plans (133,009 shares)	3,807			13		3,794		—			—			—			—
Cash dividends ($1.12 per share)	(23,072		)	—		—		(23,072		)	—			—			—
Transactions in treasury shares (3,030 shares)	60			—		—		—			—			—			60
Balance at December 31, 2003	$	415,418		$	2,631	$	85,197	$	428,704		$	10,014		$	(978	)	$	(110,150	)
Comprehensive loss:
Net loss	(20,000		)	—		—		(20,000		)	—			—			—
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustment	5,732			—		—		—			5,732			—			—
Unrealized gain on forward exchange contracts	782			—		—		—			—			782			—
Net unrealized loss on securities available-for-sale	(162		)	—		—		—			—			(162		)	—
Comprehensive loss	(13,648		)
Share transactions under stock plans (163,764 shares)	3,513			17		3,496		—			—			—			—
Cash dividends ($8.20 per share)	(170,767		)	—		—		(170,767		)	—			—			—
Balance at December 31, 2004	$	234,516		$	2,648	$	88,693	$	237,937		$	15,746		$	(358	)	$	(110,150	)
Comprehensive loss:
Net loss	(35,099		)	—		—		(35,099		)	—			—			—
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustment	(3,898		)	—		—		—			(3,898		)	—			—
Unrealized gain on forward exchange contracts	358			—		—		—			—			358			—
Net unrealized loss on securities available-for-sale	—			—		—		—			—			—			—
Comprehensive loss	(38,639		)
Share transactions under stock plans (11,497 shares)	59			1		58		—			—			—			—
Cash dividends ($0.10 per share)	(2,082		)	—		—		(2,082		)	—			—			—
Balance at December 31, 2005	$	193,854		$	2,649	$	88,751	$	200,756		$	11,848		$	—		$	(110,150	)

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

37

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
(Dollars in Thousands)

	2005			2004			2003
Cash flows from operating activities:
Net (loss)/income	$	(35,099	)	$	(20,000	)	$	34,729
Adjustments to reconcile net (loss)/income to net cash provided by/(used in)operating activities:
Depreciation and amortization	6,834			7,110			6,859
Amortization and write-off of deferred financing costs	6,026			—			—
Provision for accounts receivable	(131		)	1,225			1,730
Provision for inventory reserve	5,072			14,178			—
Deferred income taxes	11,462			1,964			(2,795		)
Loss on sale of Bright of America, Inc.	—			235			—
Impairment charges	—			3,628			—
Other	432			1,572			2,506
Change in assets and liabilities net of effects from purchase of Applause and Kids Line, LLC:
Restricted cash	14,880			(15,630		)	—
Accounts receivable	17,283			18,204			(10,587		)
Income tax receivable	8,380			(11,359		)	—
Inventories	(14,873		)	(2,580		)	(8,364		)
Prepaid expenses and other current assets	(740		)	(1,143		)	379
Other assets	3,339			1,875			(1,530		)
Accounts payable	5,549			1,159			(434		)
Accrued expenses	(7,752		)	(1,093		)	2,340
Accrued income taxes	(38		)	(3,759		)	3,537
Total adjustments	55,723			15,586			(6,359		)
Net cash provided by/(used in) operating activities	20,624			(4,414		)	28,370
Cash flows from investing activities:
Purchase of marketable securities and other investments	—			(322,770		)	(403,632		)
Proceeds from sale of marketable securities and other investments	—			472,689			382,383
Proceeds from sale of property, plant and equipment	16,336			4,786			53
Capital expenditures	(1,190		)	(2,495		)	(8,786		)
Payment for purchase of Kids Line LLC	(29		)	(130,532		)	—
Payment for purchase of Applause trade name	33			(7,679		)	—
Net cash provided by/(used in) investing activities	15,117			13,999			(29,982		)
Cash flows from financing activities:
Proceeds from issuance of common stock	59			3,513			3,807
Dividends paid to shareholders	(2,082		)	(170,767		)	(23,072		)
Issuance of long-term debt	53,000			125,000			—
Reduction of long-term debt	(133,407		)	—			—
Net borrowing on revolving credit facility	31,924			—			—
Payment of deferred financing costs	(3,796		)	(4,988		)	—
Issuance of treasury stock	—			—			60
Net cash used in financing activities	(54,302		)	(47,242		)	(19,205		)
Effect of exchange rate changes on cash and cash equivalents	(871		)	4,221			8,839
Net decrease in cash and cash equivalents	(19,432		)	(33,436		)	(11,978		)
Cash and cash equivalents at beginning of year	48,099			81,535			93,513
Cash and cash equivalents at end of year	$	28,667		$	48,099		$	81,535
Cash paid during the year for:
Interest expense	$	9,426		$	85		$	70
Income taxes	$	2,455		$	7,581		$	12,353

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

38

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005, 2004 and 2003

Note 1—Description of Business

Russ Berrie and Company, Inc. and its subsidiaries design, manufacture through third parties and market a wide variety of gift, infant and juvenile products to retail stores throughout the United States and other countries throughout the world.

Note 2—Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Russ Berrie and Company, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) after elimination of intercompany accounts and transactions.

Business Combinations

The Company accounts for business combinations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, which requires that the purchase method of accounting be used, and that certain other intangible assets be recognized as assets apart from goodwill if they arise from contractual or other legal rights, or if they are separable or capable of being separated from the acquired entity and sold, transferred, licensed, rented or exchanged. The Company applied SFAS No. 141 with respect to its acquisition of Sassy, Inc. during July 2002, and Kids Line LLC during December 2004.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of a sales arrangement exists, title and risk of loss has passed to its customers, the selling price is fixed and determinable, and collectability is reasonably assured.

Advertising Costs

Production costs for advertising are charged to operations in the year the related advertising campaign begins. All other advertising costs are charged to operations during the year in which they are incurred. Advertising costs for the years ended December 31, 2005, 2004 and 2003 amounted to $641,000, $1,887,000, and $1,633,000, respectively.

Cash and Cash Equivalents

Cash equivalents consist of investments in interest bearing accounts and highly liquid securities having a maturity of three months or less, at the date of purchase, and approximate fair market value.

Fair Value of Financial Instruments

Pursuant to SFAS No. 107, “Disclosure about Fair Value of Financial Instruments”, the Company has estimated that the carrying amount of accounts receivable, accounts payable and accrued expenses approximates fair value. The carrying value of the Company’s short-term and long-term debt approximates fair value as the debt was incurred recently as of June 2005 and bears interest at a variable market rate.

Inventories

Inventories, which consist primarily of finished goods, are stated at the lower of cost or market value.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which primarily range from three to twenty-five years. Leasehold improvements are amortized using the straight-line method over the term of the respective lease or asset life, whichever is shorter. Major improvements are capitalized, while expenditures for maintenance and repairs are charged to operations as incurred. Costs of internal use software and other related costs under certain circumstances are capitalized. External direct costs of materials and services related to the application development stage of the project are also capitalized. Such capitalized costs are amortized over a period of one to five years commencing when the system is placed in service. Training and travel costs related to systems implementations are expensed as incurred.

39

Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. Gain or loss on retirement or disposal of individual assets is recorded as income or expense in the period incurred and the related cost and accumulated depreciation removed from the respective accounts.

Restricted Cash

Restricted cash classified as a long-term asset on the accompanying balance sheet at December 31, 2005 represents cash collateral related to a long-term lease and at December 31, 2004 also represents cash collateral required to be maintained for as long as the Company’s long-term debt is outstanding. Restricted cash classified as a current asset at December 31, 2004 represents cash collateral required by certain banks related to commercial letters of credit. There was no restricted cash classified as a current asset at December 31, 2005.

Impairment of Long-Lived Assets

The Company accounts for the impairment or disposal of long-lived assets in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”. In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value as determined by an estimate of discounted future cash flows.

Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

As described below, goodwill and intangible assets not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.

Goodwill and Other Intangible Assets

Goodwill represents the excess of costs over fair value of assets of businesses acquired. The Company accounts for goodwill in accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. All of the Company’s goodwill, and all of the Company’s indefinite life intangibles except for the APPLAUSE® trade name, relate to the purchase of Sassy, Inc. in 2002 and Kids Line LLC in 2004, which together comprise the Company’s infant and juvenile segment. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”. The Company has defined its segments as its SFAS 142 reporting units. The Company tests goodwill for impairment on an annual basis in its fourth quarter. Goodwill of a reporting unit will be tested for impairment between annual test if events occur or circumstances change that would likely reduce the fair value of the reporting units below its carrying value. The Company uses a two-step process to test goodwill for impairment. First, reporting units’ fair value is compared to its carrying value. If a reporting unit’s carrying amount exceeded its fair value, an indication exists that the reporting unit’s goodwill may be impaired, and the second step of the impairment test would be performed. The second step of the goodwill impairment test is used to measure the amount of the impairments loss. In the second step, the implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill in a manner similar to a purchase price allocation. The resulting implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge would be recorded for the difference. There was no goodwill impairment in 2005, 2004, and 2003.

40

Assets Held For Sale

In 2004, The Company entered into a sales agreement to sell one of its two office locations in Hong Kong as a result of the Company transitioning a number of functions that had previously been performed in Hong Kong into our offices in mainland China. The closing occurred in the first quarter of 2005. As a result of this transaction, the Company recorded an impairment charge of $1.9 million pre-tax. In addition, the Company decided in 2004 to sell one of its two distribution centers in the UK to reduce future operating expenses. The closing also occurred in the first quarter of 2005. As a result of this transaction, the Company recorded an impairment charge of $1.7 million pre-tax. The proceeds from these sales were approximately $8,747,000 which was the carrying value after the impairment charges. The assets are recorded in assets held for sale on the balance sheet at December 31, 2004.

Foreign Currency Translation

Aggregate foreign exchange gains or losses resulting from the translation of foreign subsidiaries’ financial statements, for which the local currency is the functional currency, are recorded as a separate component of accumulated other comprehensive income (loss) within shareholders’ equity. Gains and losses from foreign currency transactions are included in investment and other income—net (see Note 12).

Accounting for Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with SFAS No. 109, “Accounting for Income Taxes” as disclosed in Note 14. Deferred tax assets and liabilities are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts.

Earnings Per Share

The Company presents both basic and diluted earnings per share in the Consolidated Statement of Income in accordance with SFAS No. 128, “Earnings per Share”. The Notes to the consolidated financial statements reflect basic earnings per share unless otherwise stated or indicated (see Note 15).

Use of Estimates

The preparation of these financial statements in conformity with generally accepted accounting principles in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the recoverability of property, plant and equipment, goodwill and other intangible assets; valuation allowances for receivables, inventories and deferred income tax assets; and accruals for income taxes and litigation. Actual results could differ from these estimates.

Comprehensive Income

The Company presents all information required by SFAS No. 130, “Reporting Comprehensive Income”, in the Consolidated Statement of Shareholders’ Equity.

Accounting for Derivatives and Hedging

The Company had entered into forward exchange contracts to hedge the effects of foreign currency on inventory purchases. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), the Company treated these forward exchange contracts as cash flow hedges. In 2005, the Company accounted for its forward exchange contracts as an economic hedge, with subsequent changes in the forward exchange contract’s fair value recorded as foreign currency gain/(loss) in the statement of operations.

Accounting for Stock Options

At December 31, 2005, the Company has stock-based employee compensation plans which are described more fully in Note 19. The Company has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”. The Company accounts for its stock options in accordance with the provisions of Accounting

41

Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. Accordingly, no compensation cost has been recognized for the options granted under the Company’s stock plans or otherwise except for the effect of Financial Accounting Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation” related to options repriced in 2000, which resulted in a reduction of compensation expense in 2005 of $21,000, and a charge of $216,000 and $13,000 in 2004 and 2003, respectively.

Had compensation cost for the Company’s stock options been determined based on the fair value recognition provisions of SFAS No. 123 at the grant date, the Company’s pro forma net (loss) income and related per share amounts would have been as set forth below:

	Years Ended December 31,
	2005			2004			2003
Net (loss) income—as reported	$	(35,099,000	)	$	(20,000,000	)	$	34,729,000
Deduction for stock-based compensation expense—pro forma	$	3,063,000		$	255,000		$	582,000
Net (loss) income—pro forma	$	(38,162,000	)	$	(20,255,000	)	$	34,147,000
Net (loss) income per share (basic)—as reported	$	(1.69	)	$	(0.96	)	$	1.69
Net (loss) income per share (basic)—pro forma	$	(1.83	)	$	(0.97	)	$	1.66
Net (loss) income per share (diluted)—as reported	$	(1.69	)	$	(0.96	)	$	1.68
Net (loss) income per share (diluted)—pro forma	$	(1.83	)	$	(0.97	)	$	1.65

The fair value of each option granted under the Stock Option Plans or otherwise is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for all grants:

	Years Ended December 31,
	2005			2004			2003
Dividend yield	2.08		%	4.87		%	3.22		%
Risk-free interest rate	3.83		%	3.40		%	2.09		%
Volatility	34.0		%	32.90		%	16.69		%
Expected life (years)	4.7			3.9			3.5
Weighted average fair value of options granted during the year	$	3.82		$	4.38		$	3.05

Effective December 28, 2005, the Company amended all outstanding stock option agreements which pertained to options with exercise prices in excess of the market price for the Company’s Common Stock at the close of business on December 28, 2005 (“Underwater Options”) which have remaining vesting requirements. As a result of these amendments, all Underwater Options, which represent all outstanding options (to purchase approximately 1,497,000 shares of the Company’s Common Stock) which had not yet fully-vested, became fully vested and immediately exercisable at the close of business on December 28, 2005. Of the options accelerated, approximately 120,000 options are held by non-employee directors, approximately 868,000 are held by officers of the Company and the bala nce are held by other employees of the Company. Because the company has accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, and because these options were priced above the then current market price, the acceleration of vesting of these options did not require accounting recognition in the Company’s financial statements. The options were accelerated to reduce the financial statement expense impact in 2006 and beyond of a new accounting standard (SFAS No. 123(R), “Share Based Payment”) for stock based compensation (described below under the heading “Recently Issued Accounting Standards”). Management believes that accelerating the vesting of these options prior to the adoption of the new accounting standard will result in the Company not being required to recognize compensation expense in 2006 in the amount of approximately $1.6 million (pre-tax) and in subsequent years through 2010 of approxim ately $3.7 million (pre-tax).

Reclassifications

Certain prior year amounts have been reclassified to conform to the 2005 presentation. In 2004, the Company restated its prior year segment disclosures to be consistent with the new segment classifications. See Note 22 for a discussion of the reclassification of the Company’s segments.

42

Recently Issued Accounting Standards

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”,which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. This statement is a revision to SFAS 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS 123(R) requires companies to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans, based on the grant-date fair value of the award. This Statement applies to all awards unvested or granted after the required effective date and to awards modified, repurchased, or cancelled after that date. SFAS No. 123(R) is effective as of the beginning of the first annual period beginning after June 15, 2005. The Company adopted SFAS 123(R) effective January 1, 2006, using the modified prospective method and currently expects that the impact, if any, will not be material to the Company’s financial position or ongoing results of operations.

Note 3—Acquisitions

Kids Line

In December 2004,  the Company purchased all of the outstanding equity interests in Kids Line, LLC (the “Purchase”), in accordance with the terms and provisions of a Membership Interest Purchase Agreement (the “Purchase Agreement”) executed on December 16, 2004, as of December 15, 2004.   Kids Line is a designer and distributor of infant bedding products, and its assets consisted primarily of accounts receivable and inventory and intangible assets. At closing, the Company paid approximately $130.5 million (adjusted in 2005 to $130.6 million), which represented the portion of the purchase price due at closing plus various transaction costs. The aggregate purchase price under the Purchase Agreement, however, includes the potential payment of contingent consideration (the “Earnout Consideration”).  The Earnout Consideration shall equal 11.724% of the Agreed Enterprise Value (described below) of Kids Line as of the last day of the Measurement Period (the three year period ended November 30, 2007), and shall be paid at the times described in the Purchase Agreement (approximately the third anniversary of the closing date). The “Agreed Enterprise Value” shall be the product of (i) Kids Line’s EBITDA during the twelve (12) months ending on the last day of the Measurement Period and (ii) the applicable multiple (ranging from zero to eight) as set forth in the Purchase Agreement. The amount of the Earnout Consideration will be charged to goodwill when and if it is earned.

In connection with the Purchase, the Company and certain of its subsidiaries entered into a Financing Agreement dated as of December 15, 2004, as amended on March 18 and March 31, 2005 (the “Financing Agreement”), with the lenders named therein and Ableco Finance LLC, as collateral agent and as administrative agent (the “Agent”). The Financing Agreement consisted of a term loan in the original principal amount of $125 million which was scheduled to mature on November 14, 2007 (the “Term Loan”). The Company used the proceeds of the Term Loan to substantially finance the Purchase and pay fees and expenses related thereto. See Note 8 of Notes to Consolidated Financial Statements.

The following table summarizes the allocation of the purchase price based upon fair values of the assets acquired and liabilities assumed at the date of the Kids Line acquisition, as of December 31, 2005. The fair values of certain intangibles were based upon a third-party valuation of such assets:

	As of December 31, 2005
	(In Thousands)
Current assets	$	23,466
Property, plant and equipment	230
Other assets	133
Goodwill	79,100
Customer relationships	31,100
Kids Line trade name	5,300
Backlog	358
Non-competition agreement	33
Total assets acquired	139,720
Current liabilities assumed	(9,160		)
Net assets acquired	$	130,560

43

Based on an analysis of the provisions of SFAS No. 141, management believes that the customer relationships and Kids Line® trade name intangible assets purchased in the acquisition have an indefinite life. Goodwill of $79,100,000 was assigned to the Company’s infant and juvenile segment for Kids Line. The aggregate amount of goodwill and intangible assets expected to be deductible for tax purposes is estimated to be $115,892,000.

Pro Forma Information

The following unaudited pro forma consolidated results of operations of the Company for the years ended December 31, 2004 and 2003 assumes the acquisition of Kids Line LLC occurred as of January 1, of each period.

	Years Ended December 31,
	2004			2003
Net sales	$	326,066,000		$	382,009,000
Net income	(13,879,000		)	37,978,000
Net income per share:
Basic	$	(0.67	)	$	1.84
Diluted	$	(0.67	)	$	1.83

The above amounts are based upon certain assumptions and estimates, and do not reflect any benefits from combined operations. The pro forma results have not been audited and do not necessarily represent results which would have occurred if the acquisition had taken place on the basis assumed above, and may not be indicative of the results of future combined operations.

Sassy

On July 26, 2002, pursuant to the terms of an asset purchase agreement, a wholly-owned subsidiary of the Company acquired the business and substantially all the assets of Sassy Inc. (“Sassy”), a designer, manufacturer and distributor of baby and juvenile products based in Grand Rapids, Michigan. The assets acquired, including the Sassy trade name and distribution rights to certain baby soothing and comforting products from MAM Babyartikel, GmbH, of Vienna Austria (“MAM”), continue to be used by the Company in Sassy’s business, which is part of the Company’s infant and juvenile segment (see Note 22). In 2005, the Company made final performance-based payments, as defined in the asset purchase agreement, of $413,000 which were recorded as compensation expense in accordance with the Company’s determination in accordance with Emerging Issues Task Force (“EITF”) No. 95-8, “Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination. As of December 31, 2005, there are no further purchase price obligations related to the acquisition of Sassy in 2002. Based on an analysis of the provisions of SFAS No. 141, management believes that the Sassy trade name and MAM distribution agreement purchased in the acquisition have an indefinite life. Goodwill of $10,141,000 was assigned to the Company’s infant and juvenile segment for Sassy. The aggregate amount of goodwill and intangible assets expected to be deductible for tax purposes is estimated to be $27,948,000. The results of operations of Sassy, Inc. have been included in the Company’s Consolidated Statements of Operations since July 26, 2002.

Note 4—Goodwill and Intangible Assets

The significant components of intangible assets consist of the following:

	Weighted Average Amortization Period	December 31, 2005		December 31, 2004
MAM distribution agreement and relationship	Indefinite life	$	10,400,000	$	10,400,000
Sassy trade name	Indefinite life	7,100,000		7,100,000
Applause trade name	Indefinite life	7,646,000		7,679,000
Kids Line customer relationships	Indefinite life	31,100,000		31,100,000
Kids Line trade name	Indefinite life	5,300,000		5,300,000
Other intangible assets	0.3 years	53,000		348,000
Total intangible assets		$	61,599,000	$	61,927,000

44

Other intangible assets as of December 31, 2005 includes the Kids Line and Sassy non-compete agreements. Other intangible assets in 2004 included the Kids Line backlog, with a 2 month life, and Kids Line and Sassy non-compete agreements of 4 and 5 years, respectively. Amortization expense was $295,000, $107,000 and $18,000 in 2005, 2004 and 2003, respectively. Estimated amortization expense for the fiscal years ending December 31, 2006 to December 31, 2009 is $26,000, $18,000, $8,000, and $1,000, respectively.

All of the Company’s goodwill is in the infant and juvenile segment. The changes in the carrying amount of goodwill for the year ended December 31, 2005 are as follows:

Balance as of December 31, 2004	$	89,213,000
Purchase price adjustment of goodwill	29,000
Balance as of December 31, 2005	$	89,242,000

Note 5—Financial Instruments

Marketable Securities and Other Investments

During 2004, the Company liquidated its marketable securities such that as of December 31, 2005 and 2004, the balance was zero. The liquidation in 2004 resulted in realized gains on sales of available-for-sale marketable securities of $839,000 for the year ended December 31, 2004. The proceeds from the liquidation were used to pay the special $7.00 per share dividend (See Note 25 – Dividends).

Foreign Currency Forward Exchange Contracts

Certain of the Company’s subsidiaries periodically enter into foreign currency forward exchange contracts to hedge inventory purchases, both anticipated and firm commitments, denominated in the United States dollar. These contracts reduce foreign currency risk caused by changes in exchange rates and are used to offset the currency impact of these inventory purchases, generally for periods up to 13 months. At December 31, 2005, the Company’s forward contracts have expiration dates which range from one to twelve months.

Prior to 2005, these contracts were treated as cash flow hedges under SFAS 133. In 2005, the Company accounted for its forward exchange contracts as an economic hedge, with subsequent changes in fair value recorded in the statement of operations. At December 31, 2005 and 2004, unrealized losses of $161,000 and $350,000, respectively, relating to forward contracts are included in accrued expenses in the Consolidated Balance Sheets.

The Company has forward contracts to exchange British pounds sterling, Canadian dollars and Australian dollars for United States dollars with notional amounts of $3,336,000 and $9,465,000 as of December 31, 2005 and 2004, respectively. The Company has forward contracts to exchange United States dollars to Euros with notional amounts of $6,377,000 and $744,000 as of December 31, 2005 and 2004, respectively. The Company does not anticipate any material adverse impact on its results of operations or financial position from these contracts.

Concentrations of Credit Risk

As part of its ongoing control procedures, the Company monitors concentrations of credit risk associated with financial institutions with which it conducts business. The Company avoids concentration with any single financial institution.

The Company also monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. Toys “R” Us, Inc. and Babies “R” Us, Inc. in the aggregate accounted for approximately 18% of the consolidated net sales of the Company and approximately 39% of the net sales of the infant and juvenile segment during 2005. The loss of this customer, or a significant reduction in the volume of business conducted with such customer, could have a material adverse impact on the Company. The Company’s infant and juvenile segment is dependent on several other large customers, the loss of one or more of which could have a material adverse impact on the Company. The Company does not normally require collateral or other security to support credit sales. See Item 1A, “Risk Factors.”

45

Factoring of Accounts Receivable, Trade

On December 30, 2005, Russ Berrie (U.K.) Limited (“Russ UK”) entered into a Framework Agreement (“the A/R Agreement”) with Barclays Bank PLC (“Barclays”), pursuant to which Russ UK sold to Barclays all existing and future accounts receivable created during the term of the A/R Agreement, subject to an aggregate maximum facility limit of £6.0 million (approximately $10.2 million) outstanding at any time. For each transaction, Barclays will advance to Russ UK 75% of the value of the eligible accounts receivable, subject to reduction under certain circumstances and applicable reserves, in advance of their due dates. The remaining portion of the accounts receivable sold, including the full amount of any receivables not eligible for advance, less fees and expenses owing to Barclays, is paid to Russ UK upon collection of the related receivable. The amount due from Barclays of approximately $4.9 million is included in prepaid expenses and other current assets as of December 31, 2005.

On December 30, 2005, Russ UK sold net receivables outstanding pursuant to the A/R Agreement of approximately £6.7 million (approximately $11.5 million) and received cash of approximately £3.8 million (approximately $6.5 million), consisting of 75% of the eligible accounts receivable sold, less approximately £1.2 million (approximately $2.1 million) due to the initial sales of receivables not eligible for advance.

The term of the A/R Agreement is one year with automatic renewals for additional one year periods unless either party provides advance notice of its intention to terminate. A one-time fee of £30,000 (approximately $50,000) was payable at closing and facility fees of £1,750 (approximately $3,000) are due monthly. The discount on the sold receivables is calculated monthly on the net advance balance at month end at the rate of Barclays’ base rate plus 1.5%.

As a condition of the A/R Agreement, Russ UK took out an insurance policy with respect to certain of the receivables naming Barclays as loss payee. In the event of a customer default, Barclays has only limited recourse to Russ UK and only under circumstances where Russ UK fails to perform its obligations in respect of a particular debt transferred, which obligations consist of (i) providing evidence that Russ UK is not in breach of the relevant sales contract of the underlying debt and (ii) issuing a written demand for payment from the relevant account debtor.

Note 6—Inventory Reserves

The Company values inventory at the lower of cost or its current estimated market value. The Company regularly reviews inventory quantities on hand, by item, and records a write-down of inventory to fair market value based primarily on the Company’s historical experience and estimated forecast of product demand using historical and recent ordering data relative to the quantity on hand for each item. During the fourth quarter of 2005, in connection with its previously announced domestic gift restructuring plan, the Company conducted a comprehensive review of its gift product line to identify product categories and individual items that did not fit into its future sales and marketing plans. As a result of this review, an additional inventory write-down of $4.2 million (pre-tax) was recorded in the fourth quarter of 2005. The Company is selling substantially all of this inventory through other than its normal sales channels. In June 2004, in response to changes in product direction made under its then recently appointed CEO, an inventory write-down of $13 million (pre-tax) was recorded in the second quarter of 2004 to reflect inventory in the gift segment at its lower of cost or market value. A significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand, however the Company manages inventory and monitors product purchasing to minimize this risk. Although the Company does not anticipate further material inventory write-downs at this time, a significant change in demand for the Company’s products or the identification of additional product items or categories that do not fit into the Company’s future plans could result in a change in the amount of excess inventories on hand.

46

Note 7—Property, Plant and Equipment

Property, plant and equipment consist of the following:

	December 31,
	2005			2004
Land	$	690,000		$	2,049,000
Buildings	2,070,000			5,955,000
Machinery and equipment	40,807,000			40,648,000
Furniture and fixtures	3,916,000			4,519,000
Leasehold improvements	14,393,000			15,687,000
	61,876,000			68,858,000
Less Accumulated depreciation and amortization	(44,020,000		)	(42,083,000		)
Construction and system development in progress	—			1,915,000
	$	17,856,000		$	28,690,000

In 2004, construction and system development in progress represented primarily the costs capitalized on the Company’s continued implementation of a new computer system.

Note 8—Debt

In connection with the Purchase of Kids Line as of December 14, 2004, the Company and certain of its subsidiaries entered into a financing agreement (the “Financing Agreement”). The Financing Agreement consisted of a term loan in the original principal amount of $125.0 million which was scheduled to mature on November 14, 2007 (the “2004 Term Loan”). The Company used the proceeds of the 2004 Term Loan to substantially finance the Purchase and pay fees and expenses related thereto. The 2004 Term Loan was repaid in full and the Financing Agreement was terminated in connection with the execution of the 2005 Credit Agreement, discussed below, as of June 28, 2005. There were no fees paid as a result of the early termination of the Financing Agreement. However, in conjunction therewith, the Company wrote off the remaining unamortized balance of approximately $4.8 million in deferred financing costs.

In order to reduce overall interest expense and gain increased flexibility with respect to the financial covenant structure of the Company’s senior financing, on March 14, 2006, the 2005 Credit Agreement was terminated and the obligations thereunder were refinanced (the “LaSalle Refinancing”). As of December 31, 2005, the Company was not in compliance with the “Total Debt to EBITDA Ratio” covenant in the 2005 Credit Agreement. In connection with the LaSalle Refinancing, all outstanding obligations under the 2005 Credit Agreement (approximately $76.5 million) were repaid using proceeds from the Infantline Credit Agreement (defined below), which is part of the LaSalle Refinancing. The Company paid a fee of approximately $1.3 million in connection with the early termination of the 2005 Credit Agreement, which was scheduled to mature on June 28, 2010. In addition, the Company will write-off, in the first quarter of 2006, approximately $2.5 million in deferred financing costs in connection with the LaSalle Refinancing.

As part of the LaSalle Refinancing, the Company formed a wholly-owned Delaware subsidiary, Russ Berrie U.S. Gift, Inc. (“Newco”), to which it assigned (the “Assignment”) substantially all of its assets and liabilities which pertain primarily to its gift business, such that separate loan facilities could be made directly available to each of the Company’s domestic gift business and infant and juvenile business, respectively. The Assignment transaction reinforces the operation of the Company as two separate segments, and the credit facilities that have been extended to each segment are separate and distinct. There are no cross-default provisions between the new Infantline Credit Agreement and Giftline Credit Agreement (described below).

47

Long-term debt at December 31, 2005 and 2004 consists of the following:

	December 31,
(Dollars in thousands)	2005		2004
2004 Term Loan	$	—	$	125,000
LaSalle Term Loan A	4,593		—
LaSalle Term Loan B	40,000		—
	44,593		125,000
Less current portion	2,600		25,250
Long-term debt	$	41,993	$	99,750

The aggregate maturities of long-term debt at December 31, 2005 are as follows:

(Dollars in thousands)	Prior to the effect of the LaSalle Refinancing		After giving effect to the LaSalle Refinancing
2006	$	2,600	$	7,500
2007	1,993		9,000
2008	—		11,500
2009	—		14,500
2010	40,000		15,000
Thereafter	—		2,500
Total	$	44,593	$	60,000

1.The LaSalle Refinancing – Effective March 14, 2006

A. The Infantline Credit Agreement

On March 14, 2006 (the “Closing Date”), Kids Line, LLC (“KL”) and Sassy, Inc. (“Sassy”, and together with KL, the “Infantline Borrowers”), each a wholly-owned subsidiary of the Company, entered into a credit agreement as borrowers, on a joint and several basis, with LaSalle Bank National Association as administrative agent and arranger (the “Agent”), the lenders from time to time party thereto, the Company as loan party representative, Sovereign Bank as syndication agent, and Bank of America, N.A. as documentation agent (the “Infantline Credit Agreement”). Unless otherwise specified herein, capitalized terms used but undefined in this Section A shall have the meanings ascribed to them in the Infantline Credit Agreement.

The commitments under the Infantline Credit Agreement (the “Infantline Commitments”) consist of (a) a $35.0 million revolving credit facility (the “Revolving Loan”), with a subfacility for letters of credit in an amount not to exceed $5.0 million, and (b) a $60.0 million term loan facility (the “Term Loan”). The Infantline Borrowers drew down approximately $79.7 million on the Infantline Credit Agreement on the Closing Date, including the full amount of the Term Loan, which reflects the payoff of all amounts outstanding under the 2005 Credit Agreement and certain fees and expenses associated with the LaSalle Refinancing.

The principal of the Term Loan will be repaid in installments as follows: (a) $750,000 on the last day of each calendar month for the period commencing March, 2006 through and including February, 2008, (b) $1 million on the last day of each calendar month for the period commencing March 2008 through and including February 2009 and $1.25 million on the last day of each calendar month for the period commencing March, 2009 through and including February 2011. A final installment in the aggregate amount of the unpaid principal balance of the Term Loan (in addition to all outstanding amounts under the Revolving Loan) is due and payable on March 14, 2011, in each case subject to customary early termination provisions in accordance with the terms of the Infantline Credit Agreement.

48

The Infantline Commitments will bear interest at a rate per annum equal to the Base Rate (for Base Rate Loans) or the LIBOR Rate (for LIBOR Loans) plus an applicable margin, in accordance with a pricing grid based on the most recent quarter-end Total Debt to EBITDA Ratio, which applicable margin shall range from 1.75% - 2.50% for LIBOR Loans and from 0.25% - 1.00% for Base Rate Loans; provided, however, that from the closing date under the Infantline Credit Agreement until delivery of the financial statements and compliance certificate with respect to each of the fiscal year ended December 31, 2005 and the fiscal quarter ending March 31, 2006 (the “Initial Period”), the applicable interest rate margins shall be as follows:  2.25% for LIBOR Loans and 0.75% for Base Rate Loans.

Interest will be due and payable (i) with respect to Base Rate Loans, monthly in arrears on the last day of each calendar month, upon a prepayment and at maturity and (ii) with respect to LIBOR Loans, on the last day of each Interest Period, upon a prepayment (and if the Interest Period is in excess of three months, on the three-month anniversary of the first day of such Interest Period), and at maturity.

In connection with the execution of the Infantline Credit Agreement, the Infantline Borrowers paid aggregate closing fees of $1.425 million and an aggregate agency fee of $25,000. An aggregate agency fee of $25,000 will be payable on each anniversary of the Closing Date. The Revolving Loan shall be subject to an annual non-use fee (payable monthly, in arrears, and upon termination of the relevant obligations) of 0.50% for unused amounts under the Revolving Loan, an annual letter of credit fee (payable monthly, in arrears, and upon termination of the relevant obligations) for undrawn amounts with respect to each letter of credit based on the most recent quarter-end Total Debt to EBITDA Ratio ranging from 1.75% - 2.50% and other customary letter of credit administration fees. In addition, if the credit facility is terminated for any reason prior to the first anniversary of the Closing Date, the Infantline Borrowers shall pay an aggregate early termination fee of $950,000.

The Infantline Borrowers are required to make prepayments of the Term Loan upon the occurrence of certain transactions, including most asset sales or debt or equity issuances, and, commencing with fiscal year 2007, annual mandatory prepayments of the Term Loan shall be required in an amount equal to 50% of Excess Cash Flow for each fiscal year unless the Total Debt to EBITDA Ratio for such fiscal year was equal to or less than 2.00:1.00.

The Infantline Credit Agreement contains customary affirmative and negative covenants, as well as the following financial covenants (the “Infantline Financial Covenants”):  (i) a minimum EBITDA test, (ii) a minimum Fixed Charge Coverage Ratio, (iii) a maximum Total Debt to EBITDA Ratio and (iv) an annual capital expenditure limitation.

The Infantline Credit Agreement contains significant limitations on the ability of the Infantline Borrowers to distribute cash to Russ Berrie and Company, Inc. (“RB”), a corporate holding company, for the purpose of paying dividends to the shareholders of the Company or for the purpose of paying RB’s corporate overhead expenses, including a cap (subject to certain exceptions) of $2 million per year on the amount that can be provided to RB to pay corporate overhead expenses.

As a result of the LaSalle Refinancing, the obligation to pay the Earnout Consideration pursuant to the Kids Line acquisition (see Note 3) is no longer the obligation of RB, but the joint and several obligation of the Infantline Borrowers. With respect to the Earnout Consideration, the Infantline Borrowers will be permitted to pay all or a portion of the Earnout Consideration to the extent that, before and after giving effect to such payment, (i) Excess Revolving Loan Availability will equal or exceed $3.0 million and (ii) no violation of the Infantline Financial Covenants would then exist, or would, on a pro forma basis, result therefrom.

In order to secure the obligations of the Infantline Borrowers, (i) the Infantline Borrowers have pledged and have granted security interests to the Agent in substantially all of their existing and future personal property, (ii) each Infantline Borrower has guaranteed the performance of the other Infantline Borrower, (iii) Sassy granted a mortgage for the benefit of the Agent and the lenders on its real property located at 2305 Breton Industrial Park Drive, S.E., Kentwood, Michigan and (iv) the Company pledged 100% of the equity interests of each of the Infantline Borrowers to the Agent (the “Infantline Pledge Agreement”). Pursuant to the Infantline Pledge Agreement, RB has agreed that it will function solely as a holding company and will not, without the prior written consent of the Agent, engage in any business or activity except for specified activities, including those relating to its investments in its subsidiaries existing on the Closing Date, the maintenance of its existence and compliance with law, the performance of obligations under specified contracts and other specified ordinary course activities.

49

B. The Giftline Credit Agreement

On March 14, 2006, (as amended on April 11, 2006 to clarify the application of a financial covenant) Russ Berrie U.S. Gift, Inc. (“Newco”) and other specified wholly-owned domestic subsidiaries of the Company (collectively, the Giftline Borrowers”), entered into a credit agreement as borrowers, on a joint and several basis, with LaSalle Bank National Association, as issuing bank (the “Issuing Bank”), LaSalle Business Credit, LLC as administrative agent (the “Administrative Agent”), the lenders from time to time party thereto, and the Company, as loan party representative (the “Giftline Credit Agreement” and, together with the Infantline Credit Agreement, the “2006 Credit Agreements”). Unless otherwise specified herein, capitalized terms used but undefined in this Section B shall have the meanings ascribed to them in the Giftline Credit Agreement.

The Giftline Credit Agreement contemplates the potential inclusion of additional lenders subsequent to the initial closing, and a simultaneous increase in the commitment, and the facility consists of a revolving credit loan commitment (a) before such commitment is increased, if at all, in an amount equal to the Borrowing Base minus amounts outstanding under the Canadian Credit Agreement (as defined below) and (b) after such commitment is increased, if at all, in an amount equal to the lesser of (i) $25.0 million and (ii) the then-current Borrowing Base, in each case minus amounts outstanding under the Canadian Credit Agreement (the “Giftline Revolver”), with a subfacility for letters of credit to be issued by the Issuing Bank in an amount not to exceed $8.0 million. The Borrowing Base is primarily a function of a percentage of eligible accounts receivable and eligible inventory and, as of March 14, 2006, the Borrowing Base was approximately $18.9 million. The Giftline Borrowers did not draw down on the Giftline Revolver on the Closing Date.

All outstanding amounts under the Giftline Revolver are due and payable on March 14, 2011, subject to earlier termination in accordance with the terms of the Giftline Credit Agreement.

The Giftline Revolver will bear interest at a rate per annum equal to the sum of the Base Rate (for Base Rate Loans) or the LIBOR Rate (for LIBOR Loans) plus a margin of 2.75% for LIBOR Loans and 1.25% for Base Rate Loans. Interest will be due and payable in the same manner as with respect to the Infantline Commitments.

In connection with the execution of the Giftline Credit Agreement, the Infantline Borrowers paid (on behalf of the Giftline Borrowers) aggregate closing fees of $150,000 and an aggregate agency fee of $20,000. Aggregate agency fees of $20,000 will be payable by the Giftline Borrowers on each anniversary of the Closing Date. The Giftline Revolver shall be subject to an annual non-use fee (payable monthly, in arrears, and upon termination of the relevant obligations) of 0.50% for unused amounts under the Giftline Revolver, and other fees as described with respect to the Giftline Revolver. If the commitment under the Giftline Credit Agreement is increased, an additional fee equal to 1% of the increase will be required. In addition, if the Termination Date (which includes customary termination events) occurs prior to the first anniversary of the Closing Date, the Giftline Borrowers shall pay a termination fee equal to 1% of the highest Maximum Revolving Commitment that had been in effect at any time prior to such termination.

All accounts of the Giftline Borrowers are required to be with the Administrative Agent or its affiliates, and cash in such accounts will be swept on a daily basis to pay down outstanding amounts under the Giftline Revolver.

The Giftline Credit Agreement contains affirmative and negative covenants substantially similar to those applicable to the Infantline Credit Agreement. In addition, the Giftline Credit Agreement contains the following financial covenants (the “Giftline Financial Covenants”):  (i) a minimum EBITDA test, (ii) a minimum Excess Revolving Loan Availability requirement of $5.0 million, (iii) an annual capital expenditure limitation and (iv) a minimum Fixed Charge Coverage Ratio (for quarters commencing with the quarter ended March 31, 2008). In addition, at any time after December 31, 2007 in respect of which the Fixed Charge Coverage Ratio for the Computation Period ending as of the Fiscal Quarter end most recently preceding such date was less than 1.00 to 1.00, the aggregate amounts outstanding under the Giftline Credit Agreement and the Canadian Loan Agreement may not exceed $10.0 million.

The Giftline Credit Agreement contains significant limitations on the ability of the Giftline Borrowers to distribute cash to RB for the purpose of paying dividends to the shareholders of the Company or for the purpose of paying RB’s corporate overhead expenses, including a cap (subject to certain exceptions) on the amount that can be provided to RB to pay corporate overhead expenses equal to $4.5 million per year for each of fiscal years 2006 and 2007, and $5.0 million for each fiscal year thereafter.

50

In order to secure the obligations of the Giftline Borrowers, the Giftline Borrowers pledged and have granted security interests to the Administrative Agent in substantially all of their existing and future personal property, and each Giftline Borrower guaranteed the performance of the other Giftline Borrowers under the Giftline Credit Agreement. In addition, RB provided a limited recourse guaranty of the obligations of the Giftline Borrowers under the Giftline Credit Agreement. This guarantee is secured by a lien on the assets intended to be assigned to Newco pursuant to the Assignment. RB also pledged 100% of the equity interests of each of the Giftline Borrowers and 65% of its equity interests in certain of its First Tier Foreign Subsidiaries to the Administrative Agent (the “Giftline Pledge Agreement”). The Giftline Pledge Agreement contains substantially similar limitations on the activities of RB as is set forth in the Infantline Pledge Agreement.

The Company’s ability to maintain compliance with the financial covenants under the 2006 Credit Agreements is dependent, particularly in the case of the Giftline Credit Agreement, upon the successful implementation of the restructuring plan (described in Note 10 herein) and the Profit Improvement Plan and current operational plans. Based on these plans and management’s current projections, management believes that the Company will remain in compliance with the financial covenants in the 2006 Credit Agreements at least through December 31, 2006. However, in the event that the Company is unable to successfully implement the key elements of the Profit Improvement Plan, there can be no assurance that the Company will remain in compliance with the financial covenants in the 2006 Credit Agreements.

C.Canadian Credit Agreement

As contemplated by the 2005 Credit Agreement on June 28, 2005, the Company’s Canadian subsidiary, Amram’s Distributing Ltd. (“Amrams”), executed a separate Credit Agreement (acknowledged by the Company) with the financial institutions party thereto and LaSalle Business Credit, a division of ABN AMRO Bank, N.V., Canada Branch, a Canadian branch of a Netherlands bank, as issuing bank and administrative agent (the “Canadian Credit Agreement”), and related loan documents with respect to a maximum U.S. $10.0 million revolving loan (the “Canadian Revolving Loan”). RB executed an unsecured Guarantee (the “Canadian Guarantee”) to guarantee the obligations of Amrams under the Canadian Credit Agreement. In connection with the LaSalle Refinancing, the Canadian Credit Agreement was amended to (i) replace references to the LaSalle Credit Agreement with the Giftline Credit Agreement (such that, among other conforming changes, a default under the Giftline Credit Agreement will be a default under the Canadian Credit Agreement), (ii) release RB from the Canadian Guaranty and (iii) provide for a maximum U.S. $5 million revolving loan. In connection with the release of the Company from the Canadian Guaranty, Newco executed an unsecured Guarantee (the “Newco Guarantee”) to guarantee the obligations of Amrams under the Canadian Credit Agreement. A default under the Infantline Credit Agreement will not constitute a default under the Canadian Credit Agreement.

D.Economic Development Authority (“EDA”) Loan Agreement

Since 1983, the Company had been a guarantor of the EDA Loan Agreement, pursuant to which the EDA issued the EDA Bonds in the principal amount of $7,000,000 to finance the construction of the South Brunswick, New Jersey facility now leased by the Company from the Estate of Mr. Russell Berrie. Mr. Berrie (and after his death, his Estate) was the primary obligor with respect to the EDA Bonds. In connection therewith, the Company, in 1983, caused the issuance of a letter of credit in an amount of approximately $7.4 million to secure the payment obligations with respect to the EDA Bonds and had granted a security interest on accounts receivable and inventory of the Company up to $2.0 million to secure its obligations under its guarantee and the Amended and Restated Letter of Credit Reimbursement Agreement (“L/C RA”) executed in connection therewith.

Consummation of the Assignment, however, resulted in a covenant default under the documents governing the EDA Bonds and a default under the L/C RA and, as a result, among other things, would have permitted the EDA Standby L/C Issuer to demand cash collateral in respect of the EDA Standby L/C. In consideration for the agreement of the EDA Standby L/C Issuer to refrain for a specified time period from demanding such cash collateral or additional collateral, the Administrative Agent had agreed to issue, on behalf of the Giftline Borrowers, a letter of credit in an approximate amount of $7.4 million (the “Back-Stop L/C”) that could have been drawn upon by the EDA Standby L/C Issuer under specified circumstances, including any draw on the EDA Standby L/C or the failure of the EDA

51

Bonds to be redeemed by August 15, 2006. In consideration for the establishment of the Back-Stop L/C, the EDA Standby L/C Issuer granted to the Administrative Agent a 100% participation in all rights of the EDA Standby L/C Issuer under L/C RA, including the EDA Standby L/C.

On April 3, 2006, the Estate (with funds provided by Ms. Berrie) redeemed the EDA Bonds. As a result, the Company’s obligations under the guarantee discussed above (as well as the L/C RA, all letters of credit and related security interests) are in the process of being terminated.

E.Earnout Security Documents

All capitalized terms used but undefined in this “Earnout Security Documents” Section shall have the meanings ascribed to them in the Giftline Credit Agreement.

As has been previously reported, the Company was obligated to pay the Earnout Consideration under the Kids Line Purchase Agreement. Pursuant to the Letter Agreement between the Infantline Borrowers and California KL Holdings, Inc., and the other parties thereto (the “Letter Agreement”), the Infantline Borrowers have agreed, on a joint and several basis, to assume sole responsibility to pay the Earnout Consideration in the place of the Company. In connection therewith, the Earnout Security Documents have been amended to effect the partial release of the Company as obligor and the full release of the security interests granted thereunder by any Giftline Borrowers. To secure the obligations of the Infantline Borrowers to pay the Earnout Consideration, the Infantline Borrowers have granted a subordinated lien on substantially all of their assets, on a joint and several basis, and the Company has granted a subordinated lien on the equity interests of each of the Infantline Borrowers to the Earnout Sellers Agent. All such security interests and liens are subordinated to the senior indebtedness of the Infantline Borrowers arising under the Infantline Credit Agreement. The Earnout Consideration is not secured by the Giftline Borrowers or their assets or equity interests.

2.2005 Credit Agreement – Effective June 28, 2005 through March 13, 2006

The Company and certain of its domestic wholly-owned subsidiaries party thereto (the “Specified Subsidiaries”), entered into a $105.0 million credit agreement dated as of June 28, 2005, and amended as of August 4 and October 11, 2005 (the “2005 Credit Agreement”), with the financial institutions parties thereto as Facility A Lenders, the financial institutions parties thereto as Facility B Lenders, LaSalle Bank National Association, in its capacity as “Issuing Bank” thereunder, LaSalle Business Credit, LLC (in its individual capacity, “LaSalle”), as administrative agent (in such capacity, the “Administrative Agent”) for the lenders and the Issuing Bank, and those lenders, if any, designated therein as the “Documentation Agent” or “Syndication Agent”. On October 11, 2005, the Company and its lenders amended provisions of the 2005 Credit Agreement unrelated to the Financial Covenants. Unless otherwise specified herein, capitalized terms used but undefined herein shall have the meanings ascribed to them in the 2005 Credit Agreement. Amounts available under the 2005 Credit Agreement were used for working capital requirements and general corporate purposes.

The obligations under the 2005 Credit Agreement (the “Commitments”) consisted of Facility A Obligations and Facility B Obligations. The Facility A Obligations were comprised of: (a) a $52.0 million revolving credit facility (the “Revolving Loan”), with a sub-facility for letters of credit to be issued by the Issuing Bank in an amount not to exceed $10.0 million; and (b) a $13.0 million term loan facility (“Term Loan A”). The Facility B Obligations consisted of a $40.0 million term loan facility (“Term Loan B”). Assuming no default or event of default, on the terms and conditions set forth in the 2005 Credit Agreement, and subject to the payment of applicable fees, the Revolving Loan could have been increased to a maximum of $75.0 million. As of December 31, 2005, the Company had $31.9 million outstanding under the Revolving Loan.

The principal of Term Loan A was due in equal monthly installments of $216,666.67 (subject to reduction by prepayments), to be made on the last day of each month (commencing July 31, 2005). A final installment in the aggregate amount of the unpaid principal balance of Term Loan A (in addition to all outstanding amounts under the Revolving Loan) was due and payable on June 28, 2010, and the principal of Term Loan B was due and payable on December 28, 2010, in each case subject to earlier termination in accordance with the terms of the 2005 Credit Agreement. Notwithstanding the foregoing, the Company was required to repay Term Loan B in full upon a full redemption of the Facility A Obligations.

52

The Commitments bore interest at a rate per annum equal to the sum of the Base Rate (for Base Rate Loans) or the LIBOR Rate (for LIBOR Loans) plus an applicable margin, in accordance with a pricing grid based on the most recent quarter-end Total Debt to EBITDA Ratio. Interest rates as of December 31, 2005 were as follows: 

	LIBOR loans		Base rate loans
Revolver Loan	5.48375	%	7.50	%
Term Loan A	5.98375	%	8.00	%
Term Loan B	11.71	%	—

Interest was due and payable (i) with respect to Base Rate Loans, monthly in arrears on the last day of each calendar month, upon a prepayment and at maturity and (ii) with respect to LIBOR Loans, on the last day of each Interest Period, upon a prepayment (and if the Interest Period was in excess of three months, on the three-month anniversary of the first day of such Interest Period), and at maturity.

In connection with the execution of the 2005 Credit Agreement and the Canadian Credit Agreement, the Company recorded approximately $2.3 million of deferred financing costs which are included in “other assets” on the Consolidated Balance Sheet at December 31, 2005 and were being amortized over the five-year period of the Commitments. These deferred financing costs will be written off in the first quarter of 2006 as a result of the LaSalle Refinancing in March 2006. The Revolving Loan was subject to an annual non-use fee (payable monthly, in arrears, and upon termination of the relevant obligations) based on the most recent quarter-end Total Debt to EBITDA Ratio ranging from 0.375% - 0.50% for unused amounts under the Revolving Loan, an annual letter of credit fee (payable monthly, in arrears, and upon termination of the relevant obligations) for undrawn amounts with respect to each letter of credit based on the most recent quarter-end Total Debt to EBITDA Ratio ranging from 1.50% - 2.25% (subject to increase by 2% at any time an event of default exists), customary letter of credit administration fees and a letter of credit fronting fee in amounts agreed to by the Company and the Issuing Bank. Notwithstanding the foregoing, during the Initial Period, the non-use fee was equal to 0.375% and the letter of credit fee was equal to 1.75%.

The 2005 Credit Agreement contained the following financial covenants (the “Financial Covenants”):  (i) a minimum Fixed Charge Coverage Ratio, (ii) a maximum Total Debt to EBITDA Ratio and (iii) a minimum Excess Revolving Loan Availability requirement of $2.5 million. Excess Revolving Loan Availability at December 31, 2005 was approximately $15.725 million. With respect to dividends, the Company was permitted to pay a dividend so long as before and after giving effect to the payment of such dividends, Excess Revolving Loan Availability would equal or exceed $15 million and no violation of the Financial Covenants would then exist, or would, on a pro forma basis, result therefrom. Any such dividends could be declared no more frequently than quarterly and were required to take the form of regular cash dividends. With respect to the Earnout Consideration, the Company was permitted to pay all or a portion of the Earnout Consideration to the extent that, before and after giving effect to such payment, Excess Revolving Loan Availability would equal or exceed $15 million and no violation of the Financial Covenants would then exist, or would, on a pro forma basis, result there from. As of December 31, 2005, the Company was not in compliance with the “Total Debt to EBITDA Ratio” covenant in the 2005 Credit Agreement. However, because the Company completed the LaSalle Refinancing on March 14, 2006, the long-term debt at December 31, 2005 remains classified as long-term.

As contemplated by the 2005 Credit Agreement, the Company’s Canadian subsidiary, Amram’s Distributing Ltd. (“Amrams”), entered into on June 30, 2005, as of June 28, 2005, and amended as of August 4 and October 11, 2005, a separate  credit agreement with the financial institutions party thereto and LaSalle Business Credit, a division of ABN AMRO Bank, N.V., Canada Branch, a Canadian branch of a Netherlands bank (the “Canadian Credit Agreement”) with respect to a maximum U.S. $10.0 million revolving loan (the “Canadian Revolving Loan”), with a sub-facility for letters of credit in an amount not to exceed U.S. $2.0 million. If there was no default or event of default occurring under the Canadian Credit Agreement, upon the terms and conditions set forth therein, and subject to the payment of applicable fees, the Canadian Revolving Loan could have been increased to a maximum commitment of U.S. $15.0 million. All outstanding amounts under the Canadian Revolving Loan were to be due and payable on June 28, 2010, subject to earlier termination in accordance with the terms of the Canadian Credit Agreement.

The Canadian Revolving Loan will bear interest at a rate per annum equal to the sum of (x)(i) the Base Rate or the Canadian Base Rate (as defined in the Canadian Credit Agreement), at the option of Amrams (for Base Rate Loans) or (ii) the LIBOR Rate (for LIBOR Loans) plus (y) an applicable margin, in accordance with a pricing grid based on

53

the most recent quarter-end Total Debt to EBITDA Ratio. The interest rate as of December 31, 2005 was 7.25%. The Canadian Credit Agreement is described in further detail in the Second Quarter 10-Q. The Canadian Credit Agreement was amended in connection with the execution of the 2006 Credit Agreement, as described above.

In order to secure its obligations under the Canadian Credit Agreement, Amrams has granted security interests to the administrative agent there under in substantially all of its real and personal property. In addition, the Company has executed an unsecured Guarantee (the “Canadian Guaranty”) to guarantee the obligations of Amrams under the Canadian Credit Agreement, which guaranty was released in connection with the 2006 Credit Agreement.

3.2004 Term Loan – Effective December 14, 2004 through June 28, 2005

As noted above, the Financing Agreement consisted of the 2004 Term Loan in the original principal amount of $125 million and was scheduled to mature on November 14, 2007. The 2004 Term Loan bore interest at an annual rate equal to a base rate (which was subject to a minimum rate of 4.75% per annum) plus a spread of 4.25%, or a LIBOR rate (which was subject to a minimum rate of 1.75% per annum) plus a spread of 7.00%. The spreads were adjusted to 5.25% and 8.00%, respectively, pursuant to a March 2005 amendment, subject to further adjustment downward if certain EBITDA milestones were met. Pursuant to the amendment, the Company also prepaid $18.25 million of the 2004 Term Loan.

Under the Financing Agreement, as amended, the Company was required to make prepayments of the 2004 Term Loan in an amount equal to $1.75 million per quarter with the balance due at maturity. In addition, beginning with the fiscal year ending December 31, 2005, the Company would have been required to make annual mandatory prepayments of the Term Loan, with specified percentages of excess cash flow and the proceeds of certain asset sales, debt issuances, equity issuances, tax refunds, insurance and other extraordinary receipts.

To secure the 2004 Term Loan, Ableco Finance LLC, as agent, had a lien on substantially all of the assets of the Company, and California KL Holdings, Inc., as agent, had a subordinated lien on these assets. The Company also pledged the equity interests of certain of its subsidiaries to the agent and provided an evergreen irrevocable letter of credit in an amount of $10 million, which the agent could draw upon if there was an event of default or other events specified under the Financing Agreement occurred. In addition, the Company’s domestic subsidiaries provided certain guarantees and security interests to the agent in order to secure the Company’s obligations.

The Financing Agreement, as originally executed, contained, among other things, various monthly and quarterly financial covenants to which the Company and its subsidiaries were subject, including a Funded Debt Ratio, a Fixed Charge Coverage Ratio, a Consolidated EBITDA covenant, an Infant Line EBITDA covenant and a Minimum Qualified Cash covenant. The amendment referred to above was executed because the Company believed that it would not be in compliance, as of March 31, 2005, with the Consolidated EBITDA Covenant and the Funded Debt Ratio set forth in the Financing Agreement as originally executed, and had substantial concerns over whether the Company would be in compliance with such covenants for the remainder of 2005.

For more information regarding the 2004 Term Loan, see the Current Report on Form 8-K filed by the Company with the SEC on December 22, 2004.

54

Note 9—Accrued Expenses

Accrued expenses consist of the following:

	December 31,
	2005		2004
Sales commissions	$	734,000	$	1,242,000
Interest	796,000		528,000
Payroll and incentive compensation	3,777,000		3,033,000
Restructuring	1,862,000		3,955,000
Executive deferred compensation	1,987,000		2,087,000
Rebates	2,159,000		4,408,000
Legal & professional	1,375,000		2,917,000
Other (a)	14,840,000		17,034,000
Total	$	27,530,000	$	35,204,000

(a) – No item exceeds five percent of current liabilities.

Note 10—Costs Associated With Disposal Activity

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

In furtherance of its efforts to right-size infrastructure, during the fourth quarter of 2004, the Company reduced headcount by 38 positions in the Company’s Eastern Asia operations and recorded a restructuring charge of $.6 million in connection therewith. Also during the fourth quarter, with respect to its domestic operations, the Company reduced headcount by nine positions and recorded a restructuring charge of $1.6 million in connection therewith. Although these employees are no longer employees of the Company, payments continued through the fourth quarter of 2005. All costs associated with these restructurings were recorded in selling, general and administrative expenses in the Consolidated Statements of Operations and are all related to the Company’s gift segment.

In November 2005, the Company began implementation of a further restructuring of its domestic gift business to reduce expenses, right-size the infrastructure consistent with current business levels and re-align domestic gift operations to better meet the needs of different distribution channels. The restructuring included the immediate elimination of approximately 50 positions, which resulted in a pre-tax restructuring charge of approximately $1.4 million in the fourth quarter of 2005, primarily related to employee severance costs. Additional restructuring charges of approximately $1.5 million were incurred in 2005 primarily as a result of right-sizing the Company’s Eastern Asian and European gift operations. As part of the restructuring, the Company also commenced a plan to reduce its facilities expenses by rationalizing certain warehouse and distribution activities in 2006.

55

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

	Employee		Facility
	Separation		Exit Cost		Total
Balance @ 12/31/02	$	—	$	—	$	—
2003 Provision	1,992,000		179,000		2,171,000
Less Payments	1,504,000		207,000		1,711,000
Additional Cost Incurred	—		115,000		115,000
Balance @ 12/31/03	$	488,000	$	87,000	$	575,000
2004 Provision	7,119,000		—		7,119,000
Less Payments	3,762,000		67,000		3,829,000
Additional Cost Incurred	90,000		—		90,000
Balance @ 12/31/04	$	3,935,000	$	20,000	$	3,955,000
2005 Provision	2,892,000		181,000		3,073,000
Less Payments	5,196,000		128,000		5,324,000
Additional Cost Incurred	100,000		58,000		158,000
Balance @ 12/31/05	$	1,731,000	$	131,000	$	1,862,000

Note 11—Sale of Bright of America

Effective August 2, 2004, the Company sold substantially all of the net assets from one of its then non-core subsidiaries, Bright of America, Inc. Assets of approximately $5.8 million less assumed liabilities of $0.7 million were sold for $4.1 million in cash and a $1.0 million promissory note bearing interest at 9% per annum, payable on October 31, 2007. The Company recorded a loss of approximately $158,000 net of tax, in the third quarter 2004 as a result of the sale. Until its sale on August 2, 2004, Bright generated net sales of approximately $4.9 million and net income of approximately $434,000 in 2004.

Note 12—Other (Expense)/Income

The significant components of other (expense)/income consist of the following:

	Years Ended December 31,
	2005			2004			2003
Investment income	$	898,000		$	3,488,000		$	5,357,000
Interest expense	(15,454,000		)	(612,000		)	(70,000		)
Foreign currency transactions, net	(300,000		)	(455,000		)	49,000
Impairment of long-term assets	—			(3,628,000		)	—
Other	(51,000		)	(239,000		)	795,000
Total	$	(14,907,000	)	$	(1,446,000	)	$	6,131,000

Note 13—Barter Transaction

During 2003, the Company entered into a barter transaction, exchanging inventory with a net book value of $1,192,000 for future barter credits to be utilized on future advertising, freight and other goods and services. Such credits were redeemable for a percentage of various goods and services purchased from certain vendors.

The credits were recorded at the fair value of the inventory exchanged, in accordance with APB 29, “Accounting for Non-Monetary Transactions” and EITF 93-11 “Accounting for Barter Transactions,” resulting in a pre-tax gain on this exchange of $491,000 which was recorded in the Company’s Consolidated Statement of Operations, in 2003.

In the fourth quarter of 2005, the Company evaluated the recoverability of such assets and determined that the likelihood of utilizing them was remote due to the lack of actual usage during 2005. Therefore, the Company wrote off the remaining value of the credits of $1,680,000 at December 31, 2005.

Note 14—Income Taxes

The Company and its domestic subsidiaries file a consolidated Federal income tax return.

(Loss)/income before income tax (benefit)/provision is as follow:

	Years Ended December 31,
	2005			2004			2003
United States	$	(22,633,000	)	$	(25,027,000	)	$	23,528,000
Foreign	(281,000		)	(336,000		)	24,904,000
	$	(22,914,000	)	$	(25,363,000	)	$	48,432,000

56

Income tax (benefit)/provision consists of the following:

	Years Ended December 31,
	2005			2004			2003
Current (benefit)/provision
Federal	$	(1,275,000	)	$	(9,322,000	)	$	7,463,000
Foreign	1,924,000			454,000			7,438,000
State	74,000			402,000			988,000
	723,000			(8,466,000		)	15,889,000
Deferred (benefit)/provision
Federal	10,460,000			2,650,000			(2,204,000		)
Foreign	51,000			232,000			195,000
State	951,000			221,000			(177,000		)
	11,462,000			3,103,000			(2,186,000		)
	$	12,185,000		$	(5,363,000	)	$	13,703,000

A reconciliation of the (benefit)/provision for income taxes with amounts computed at the statutory Federal rate is shown below:

	Years Ended December 31,
	2005			2004			2003
Tax at U.S. Federal statutory rate	$	(8,020,000	)	$	(8,876,000	)	$	16,951,000
State income tax, net of Federal tax benefit	666,000			(706,000		)	287,000
Foreign rate differences	(296,000		)	(205,000		)	(1,084,000		)
Capital gain/loss adjustment	(504,000		)	212,000			—
Foreign exchange	634,000			—			—
Charitable contributions	(103,000		)	(162,000		)	(668,000		)
Tax advantaged investment income	(59,000		)	(477,000		)	(1,178,000		)
Change in valuation allowance	13,771,000			1,803,000			294,000
Decrease in tax reserves	(1,705,000		)	(326,000		)	(520,000		)
Tax on foreign dividends	7,081,000			3,355,000			—
Other, net	720,000			19,000			(379,000		)
	$	12,185,000		$	(5,363,000	)	$	13,703,000

The Company has a United States federal income tax receivable of $1,046,000 as of December 31, 2005 as a result of foreign tax credit carry-backs generated in the calendar year ended December 31, 2004. The Company received a United States federal income tax refund of $8,393,000 during 2005 as a result of a net operating loss carry-back generated in the calendar year ended December 31, 2004. The Internal Revenue Service completed its audit of the Company’s 2002 federal income tax return during the first quarter of 2006. No additional tax was due as a result of the audit.

On October 22, 2004, President Bush signed into law the American Jobs Creation Act of 2004 which added Section 965 to the Internal Revenue Code. This section provides for a temporary dividends received deduction of 85% for dividends received by a shareholder from their controlled foreign corporations. The Company received $46,300,000 in dividends from certain of its controlled foreign corporations in 2004 and elected Section 965 treatment on these dividends on its Federal Income Tax return for 2004. The federal income tax provision related to these dividends which are included in the consolidated tax benefit for 2004, amounted to $3,355,000. During the second quarter of 2005, $2,360,000 of the provision was reversed as a result of the issuance of a Federal notice providing additional guidance related to the tax on these dividends.

57

The reversal of tax reserves resulted from changes in management’s estimates regarding certain tax exposures due to the closing of certain tax years.

Gross deferred tax assets were $24,684,000 and $12,404,000 as of December 31, 2005 and 2004, respectively. Gross deferred tax liabilities were $12,270,000 and $2,300,000 as of December 31, 2005 and 2004, respectively.

The components of the deferred tax asset and the valuation allowance, resulting from temporary differences between accounting for financial and tax reporting purposes were as follows:

	December 31,
	2005			2004
Assets/(liabilities)
Deferred tax asset—Current:
Inventory	$	3,336,000		$	2,344,000
Accrued expenses	848,000			698,000
Bad debts	642,000			—
Deferred Compensation	662,000			—
Other	97,000			611,000
Gross deferred tax asset—current	5,585,000			3,653,000
Less: valuation allowance	(3,311,000		)	(793,000		)
Net deferred tax asset—current	2,274,000			2,860,000
Deferred tax asset/(liability)—Non-current:
Foreign tax credit carryforward	9,071,000			—
Deferred compensation	113,000			712,000
Depreciation	(948,000		)	(460,000		)
Amortization	(5,619,000		)	(1,799,000		)
Other deferred liabilities	(50,000		)	(41,000		)
Charitable contributions carryforwards	3,383,000			3,731,000
Prepaid expenses	655,000			1,039,000
Loss on sale of business	(598,000		)	—
Royalty reserve	904,000			—
Deferred gain on sale of building	817,000			—
Unrepatriated earnings of foreign subs	(5,055,000		)	—
State net operating loss carryforwards	869,000			1,412,000
Foreign net operating loss carryforwards	2,485,000			300,000
Foreign impairment loss on fixed assets	508,000			508,000
Other foreign	284,000			816,000
Other	9,000			233,000
Gross deferred tax asset—non-current	6,828,000			6,451,000
Less: valuation allowance	(13,186,000		)	(1,933,000		)
Net deferred tax (liability)/asset—non-current	(6,358,000		)	4,518,000
Total net deferred tax (liability)/asset	$	(4,084,000	)	$	7,378,000

At December 31, 2005 and 2004, the Company has provided total valuation allowances of $16,497,000 and $2,726,000, respectively, on those deferred tax assets for which management has determined that it is more likely than not that such deferred tax assets will not be realized. These valuation allowances primarily relate to foreign tax credit carryforwards, charitable contributions, inventory, royalties, deferred compensation, bad debts, impairment losses on fixed assets and net operating loss carryforwards. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences

58

become deductible and other factors. The valuation allowance increased $13,771,000 in 2005 and $1,803,000 in 2004. At December 31, 2005, the Company has foreign net operating loss carryforwards aggregating $7,451,000 which expire at the earliest in 2019 with the balance of the carryforwards being indefinite.

Provisions are made for estimated United States and foreign income taxes, less available tax credits and deductions, which may be incurred on the remittance of foreign subsidiaries’ undistributed earnings. The Company has recorded a deferred tax liability of $5,055,000 related to the repatriation of its foreign subsidiaries’ undistributed earnings at December 31, 2005 that it is no longer treating as permanently reinvested due to the Company’s recent history of repatriation of earnings. The Company has sufficient foreign tax credit carryforwards to offset this deferred tax liability.

Note 15—Earnings Per Share

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

	Years Ended December 31,
	2005	2004	2003
Average common shares outstanding	20,825,000	20,781,000	20,599,000
Dilutive effect of common shares issuable	—	—	98,000
Average common shares outstanding assuming dilution	20,825,000	20,781,000	20,697,000

All stock options outstanding at December 31, 2005 and 2004 to purchase shares of common stock were not included in the computation of earnings per common share as they were anti-dilutive. Stock options outstanding at December 31, 2003 to purchase 188,527 shares of common stock were not included in the computation of earnings per common share assuming dilution because the options’ exercise prices were greater than the average market price of the common shares.

Note 16—Related Party Transactions

The Company’s facilities in Oakland, New Jersey (until its sale to an unaffiliated third party in January 2006), South Brunswick, New Jersey and Southampton, England are leased from parties related to the late Russell Berrie, entities established by him, or his estate. Rental expense under these leases for the years ended December 31, 2005, 2004 and 2003 were $5,959,000, $5,753,000 and $5,494,000, respectively. Since 1983, the Company had been a guarantor of a loan agreement, pursuant to which a bond was issued in the principal amount of $7.0 million (which amount was outstanding on Dec. 31, 2005) to finance the construction of one of the properties so leased. In connection therewith, the Company, in 1983, caused the issuance of a letter of credit in an amount of approximately $7.4 million (and on March 14, 2006, caused the issuance of a back-stop letter of credit in the same amount) to secure such payment obligations and had granted a security interest on accounts receivable and inventory of the Company up to $2.0 million to secure its obligations under its guarantee and the Amended and Restated Letter of Credit Reimbursement Agreement (“L/C RA”) executed in connection therewith. On April 3, 2006, the Estate of Mr. Russell Berrie (with funds provided by Ms. Berrie) redeemed such bonds. As a result, the Company’s obligations under the guarantee discussed above (as well as the L/C RA, all letters of credit and related security interests) are in the process of being terminated.

Certain of the Company’s investments were under management by Bear, Stearns & Co. Inc. (“Bear Stearns”) a firm of which a Director of the Company is a Vice-Chairman. Since December 31, 2004 there have been no investments with the firm. In addition, from time to time, the Company consults with or engages Bear Sterns to provide financial consulting services, including advice relating to potential acquisitions. In 2004, $1,775,000 was paid to Bear Stearns for such services.

During 2005 and 2004, the Company paid approximately $653,000 and $241,000, respectively, to Wilentz, Goldman & Spitzer, P.A. (“Wilentz”), a law firm that provided legal services to the Company. Mr. Rosner, who is deemed to beneficially own more than five percent of the Company’s Common Stock, was a shareholder and director of Wilentz until January 2005, when he became Of Counsel to Wilentz.

59

Note 17—Leases

At December 31, 2005, the Company and its subsidiaries are obligated under operating lease agreements (principally for buildings and other leased facilities) for remaining lease terms ranging from three months to 17 years.

Rent expense for the years ended December 31, 2005, 2004 and 2003 amounted to $8.6 million, $7.8 million and $8.2 million, respectively.

The approximate aggregate minimum future rental payments as of December 31, 2005 under operating leases are as follows:

2006	$	8,492,000
2007	7,218,000
2008	6,537,000
2009	6,014,000
2010	5,330,000
Thereafter	31,258,000
Total	$	64,849,000

Effective as of December 7, 2005, Amram’s entered into a Sale Agreement, with Bentall Investment Management LP (“Bentall”) as purchaser (the “Sale-Leaseback Agreement”), pursuant to which Amram’s agreed to sell its principal facility located in Brampton, Ontario (Canada) (the “Facility”) to Bentall for an aggregate purchase price of $10.2 million Canadian dollars (approximately US $8.8 million), subject to customary adjustments (the “Sale”). The Sale closed on December 29, 2005. In accordance with the terms of the Sale-Leaseback Agreement, on December 29, 2005, Amram’s entered into a lease agreement of approximately ten years at an annual net rental ranging over the term from approximately $737,498 Canadian dollars to $769,206 Canadian dollars (approximately U.S $632,773 to $659,979), payable monthly in advance, plus applicable taxes and defined operating costs (the “Amram’s Lease”). The Amram’s Lease is also subject to a management fee of 2% of the minimum annual rental, subject to adjustment as set forth therein. Amram’s has the option of extending the 10-year term for one additional term of 5 years, at then-market rental rates. The gain on the Sale-Leaseback of approximately $4.0 million has been deferred and will be recognized as income over the term of the lease.

Note 18—Stock Repurchase Program

In March 1990, the Board of Directors had authorized the Company to repurchase an aggregate of 7,000,000 shares of common stock.  As of December 31, 2005, 5,643,200 shares have been repurchased since the beginning of the Company’s stock repurchase program.  During the twelve months ended December 31, 2005, the Company did not repurchase any shares pursuant to this program or otherwise.

Note 19—Stock Plans

The Company currently operates under the 2004 Stock Option, Restricted and Non-Restricted Stock Plan and the 2004 Employee Stock Purchase Plan (collectively, the “2004 Stock Plans”). As of December 31, 2005 there were 1,507,844 shares of common stock reserved for issuance under the 2004 Stock Plans. Under the 2004 Stock Option, Restricted and Non-Restricted Stock Plan (the “2004 Option Plan”), options to purchase 3,436 shares of restricted stock were issued during the year ended December 31, 2004. The Company also continues to have options outstanding under the 1999 and 1994 Stock Option and Restricted Stock Plans, the 1999 and 1994 Stock Option Plans and the 1999 and 1994 Stock Option Plans for Outside Directors, (collectively, the “Predecessor Plans”). Under the 1999 Predecessor Plans, options to purchase 6,009 shares and 6,464 shares of restricted stock were issued for the years ended December 31, 2003 and 2002, respectively. No awards could be made after December 31, 2003 with respect to the 1999 Predecessor Plans and after December 31, 1998 with respect to the 1994 Predecessor Plans. (Please refer to Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters – Equity Compensation Plan Information” for further details with respect to outstanding options.)

The option price for the 2004 Option Plan and the Predecessor Plans is equal to the closing price of the Company’s common stock as of the date the option is granted, except for the options granted in 2000 which were repriced to the

60

closing price of the Company’s stock effective February 29, 2000 and at $2.00 above the closing price of the Company’s stock price effective February 29, 2000 for the Company’s 1999 Stock Plan for Outside Directors. Generally, stock options under the 2004 Option Plan and the Predecessor Plans vest between one and five years from the grant date unless otherwise stated by the specific grant. Options generally expire 10 years from the date of grant. See Note 2 of Notes to Consolidated Financial Statements for information on the acceleration of certain vesting provisions. Activity regarding outstanding options for 2005, 2004 and 2003 is as follows:

	All Stock Options Outstanding
	Shares		Weighted Average Exercise Price
Outstanding as of December 31, 2002	590,337		25.08
Options Granted	350,889		34.12
Options Exercised	(122,177	)	24.36
Options Cancelled	(29,380	)	31.42
Outstanding as of December 31, 2003	789,669		22.31
Options Granted	1,203,288		26.56
Options Exercised	(1,086,064	)	30.69
Options Cancelled *	(50,744	)	33.38
Outstanding as of December 31, 2004	856,149		23.11
Options Granted	1,115,000		13.02
Options Exercised	—		—
Options Cancelled	(201,911	)	19.62
Outstanding as of December 31, 2005	1,769,238		17.16
Option price range at December 31, 2005	$11.19 to $34.80
Option price range for exercised shares	—
Options available for grant and reserved for future issuance at December 31, 2005	1,376,122

The weighted-average fair value of options granted, on a per share basis, during the years 2005, 2004 and 2003 was $4.12, $4.38 and $3.05, respectively.

* On May 7, 2004 the Company announced that the Board of Directors authorized a cash tender offer to purchase outstanding options issued under the Company’s various equity compensation plans. The tender offer closed in June 2004 with an aggregate purchase price of approximately $844,000 paid by the Company, which was charged to compensation expense in the second quarter of 2004. In addition, during 2004, the Company purchased various options previously granted outside of the Company’s stock option plans to certain executives and members of the Board with an aggregate purchase price of $72,000, which was charged to compensation expense in the third quarter of 2004.

61

The following table summarizes information about fixed-price stock options outstanding at December 31, 2005:

	Options Outstanding			Options Exercisable
Exercise Prices	Number Outstanding at 12/31/05	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable at 12/31/05	Weighted Average Exercise Price
18.500	2,305	1 Year	18.500	2,305	18.500
26.250	8,431	2 Year	26.250	8,431	26.250
23.625	6,564	3 Year	23.625	6,564	23.625
18.375	1,387	5 Year	18.375	1,387	18.375
20.750	4,546	6 Year	20.750	4,546	20.750
30.980	6,868	6 Year	30.980	6,868	30.980
34.800	10,759	7 Year	34.800	10,759	34.800
19.530	250,000	8 Year	19.530	250,000	19.530
22.210	400,000	8 Year	22.210	400,000	22.210
34.050	78,378	8 Year	34.050	78,378	34.050
13.050	635,000	9 Year	13.050	635,000	13.050
13.060	120,000	9 Year	13.060	120,000	13.060
13.740	5,000	9 Year	13.740	5,000	13.740
11.610	135,000	9 Year	11.610	135,000	11.610
13.740	50,000	9 Year	13.740	50,000	13.740
11.190	15,000	9 Year	11.190	15,000	11.190
11.520	40,000	9 Year	11.520	40,000	11.520
	1,769,238			1,769,238

The fair value of each option granted under the stock option plans or otherwise is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Years Ended December 31,
	2005		2004		2003
Stock Options Outstanding
Dividend yield	1.009	%	4.87	%	3.22	%
Risk-free interest rate	3.83	%	3.40	%	2.09	%
Volatility	34.0	%	32.90	%	16.69	%
Expected life (years)	4.7		3.9		3.5

Under the 2004 Employee Stock Purchase Plan, the purchase price is the lesser of 85% of the closing market price of the stock on either the first trading day or the last trading day of the plan year.  Under the 1999 Employee Stock Purchase Plan, the purchase price was 90% of the closing market price of the stock on the first business day of the Plan year. Information regarding the 2004 and 1999 Employee Stock Purchase Plans for 2005, 2004 and 2003 is as follows:

	Employee Stock Purchase Plans
	2005		2004		2003
Exercise Price	$	9.70	$	19.41	$	31.32
Shares Issued	11,497		6,781		4,823

62

As of December 31, 2005, the 2004 Employee Stock Purchase Plan has 131,722 shares reserved for future issuance. The fair value of each option granted under the 2004 and 1999 Employee Stock Purchase Plans is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Years Ended December 31,
	2005	2004	2003
2004 and 1999 Employee Stock Purchase Plans
Dividend yield	1.03%	6.18%	3.22%
Risk-free interest rate	4.35%	1.31%	1.38%
Volatility	50.0%	31.00%	16.69%
Expected life (years)	1.0	1.0	1.0

Note 20—401(k) Plan

The Company and its U.S. subsidiaries maintains a 401(k) Plan to which employees may, up to certain prescribed limits, contribute a portion of their compensation and a portion of these contributions is matched by the Company. The provision for contributions charged to operations for the years ended December 31, 2005, 2004 and 2003 was $1,408,000, $1,585,000 and $1,562,000, respectively.

Note 21—Deferred Compensation Plan

Prior to December 31, 2005, the Company had a Deferred Compensation Plan (the “Plan”) for certain employees. The obligations of the Company under the Plan consist of the Company’s unsecured contractual commitment to deliver, at a future date, any of the following: (i) deferred compensation credited to an account under the Plan, and (ii) notional earnings on the foregoing amounts. The obligations are payable in cash upon retirement, termination of employment and/or at certain other times in a lump-sum distribution or in installments, as elected by the participant in accordance with the Plan. In December 2005, the Board of Directors of the Company authorized the discontinuation of the Plan as of December 31, 2005. The Plan assets have been converted into cash as of December 31, 2005. The Plan assets as of December 31, 2005 and 2004 of $0 and $1,670,000 and the Plan liabilities $1,987,000 and $2,087,000, respectively, are included in “Other Assets” and “Accrued Expenses”, respectively on the Company’s consolidated balance sheet. The Company made distributions of pre-2005 deferrals to the Plan participants of $1,708,000 in January of 2006, including earnings credited to participant’s accounts. Amounts deferred during 2005 totaling approximately $289,000 plus earnings will be distributed in 2007.

Note 22—Segment, Geographic and Related Information

In 2005, the Company operated in two segments: (i) the Company’s gift business and (ii) the Company’s infant and juvenile business, which includes the Company’s July 26, 2002 acquisition of Sassy, Inc. and the Company’s December 15, 2004 acquisition of Kids Line, LLC. This segmentation of the Company’s operations reflects how the Company’s Chief Executive Officer currently views the results of operations. There are no inter-segment revenues to eliminate. Corporate assets and overhead expenses are included in the gift segment. At December 31, 2004, the Company operated in three business segments: (i) the Company’s gift business, (ii) the infant and juvenile business and (iii) the non-core business, which included Bright of America, Inc., which was sold by the Company as of July 31, 2004. Prior to the acquisition of Kids Line, the Company had only two reportable segments: (i) core, now known as gift, and (ii) non-core, which previously included Sassy and Bright of America, Inc. As a result, in 2004, the Company reclassified the 2003 two-segment information to be consistent with the 2004 three-segment presentation.

The Company’s gift business designs, manufactures through third parties and markets a wide variety of gift products to retail stores throughout the United States and throughout the world via the Company’s international wholly-owned subsidiaries. The Company’s infant and juvenile businesses design and market products in a number of baby categories including, among others, infant bedding and accessories, bath toys and accessories, developmental toys, feeding items and baby comforting products,  and consists of Sassy, Inc., since its acquisition on July 26, 2002, and Kids Line, since its acquisition as of December 15, 2004. These products are sold to consumers, primarily in the United States, through mass merchandisers, toy specialty, food, drug and independent retailers, apparel stores and

63

military post exchanges. The Company’s non-core business consisted of Bright of America, Inc. whose products included educational products, placemats, candles and home fragrance products until its sale as of July 31, 2004. These products were sold to customers primarily in the United States through mass marketers.

	(Dollars in Thousands) Years Ended December 31,
	2005			2004			2003
Gift:
Net sales	$	158,512		$	203,854		$	269,327
Operating income/(loss)	(42,130		)	(32,827		)	34,275
Depreciation and amortization	5,746			6,152			5,556
(Loss)/income before income taxes	$	(41,948	)	$	(34,191	)	$	40,053
Infant and juvenile:
Net sales	$	131,644		$	57,216		$	50,330
Operating income/(loss)	34,123			8,494			6,628
Depreciation and amortization	1,088			784			993
Income before income taxes	$	19,034		$	8,420		$	6,627
Non-core:
Net sales	$	—		$	4,889		$	10,030
Operating income/(loss)	—			416			1,398
Depreciation and amortization	––			464			310
Income before income taxes	$	—		$	408		$	1,752
Consolidated:
Net sales	$	290,156		$	265,959		$	329,687
Operating income/(loss)	(8,007		)	(23,917		)	42,301
Depreciation and amortization	6,834			7,110			6,859
(Loss)/income before income taxes	$	(22,914	)	$	(25,363	)	$	48,432

Total assets of each segment were as follows:

	(Dollars in Thousands) December 31,
	2005			2004
Gift	$	111,129		$	201,096
Infant and juvenile	219,463			210,002
Total	$		330,592	$		411,098

64

The following table represents financial data of the Company by geographic area.

	Years Ended December 31,
	2005			2004			2003
	(Dollars in Thousands)
Revenues:
United States	$	203,302		$	171,843		$	210,493
Europe	43,977			46,682			63,548
Other	42,877			47,434			55,646
Total	$	290,156		$	265,959		$	329,687
Net Income:
United States	$	(32,360	)	$	(18,977	)	$	17,458
Europe	(6,193		)	(3,669		)	8,798
Other	3,454			2,646			8,473
Total	$	(35,099	)	$	(20,000	)	$	34,729
Identifiable Assets at December 31:
United States	$	273,397		$	327,029		$	328,357
Europe	29,704			48,583			73,000
Other	27,491			35,486			61,391
Total	$	330,592		$	411,098		$	462,748

There were no material sales or transfers among geographic areas and no material amount of export sales to customers from the United States. Outside of the United States, no single country is deemed material for separate disclosure.

Concentration of Risk

Substantially all of the Company’s gift and infant and juvenile products are produced by independent manufacturers, generally in Eastern Asia, under the quality review of the Company’s personnel. During 2005, approximately 89% of the Company’s products were produced in Eastern Asia, approximately 3% in the United States (U.S.) and approximately 8% in other foreign countries. Purchases in the United States predominantly consist of displays, corrugated and retail packaging items and plastic feeding items.

The Company utilizes approximately 130manufacturers in Eastern Asia, with facilities primarily in the People’s Republic of China (“PRC”). During 2005, approximately 89% of the Company’s dollar volume of purchases was attributable to manufacturing in the PRC. The PRC currently enjoys “permanent normal trade relations” (“PNTR”) status under U.S. tariff laws, which provides a favorable category of U.S. import duties. The loss of such PNTR status would result in a substantial increase in the import duty for products manufactured for the Company in the PRC and imported into the United States and would result in increased costs for the Company.

A significant portion of the Company’s staff of approximately 200 employees in Hong Kong and Korea, and the cities of Shenzhen and Qingdao in the PRC, monitor the production process with responsibility for the quality, safety and prompt delivery of the Company’s products as well as design and product development as described earlier. Members of the Company’s Eastern Asia staff make frequent visits to such manufacturers. Certain of the Company’s manufacturers sell exclusively to the Company. In 2005, the supplier accounting for the greatest dollar volume of the Company’s purchases accounted for approximately 16% of such purchases and the five largest suppliers accounted for approximately 40% in the aggregate. The Company believes that there are many alternate manufacturers for the Company’s products and sources of raw materials.

See Note 2 above for information regarding dependence on certain large customers.

65

Note 23—Litigation, Commitments and Contingencies

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

An action was commenced against the Company on August 22, 2001, in the United States District Court, District of New Jersey, by Dam Things from Denmark (a/k/a Troll Company ApS.), alleging, among other things, copyright infringement by the Company of the plaintiff’s reinstated United States copyrights for its troll designs, unfair competition under common law and violation of Danish and U.S. copyrights constituting copyright infringement under the laws of the People’s Republic of China. The plaintiff was seeking, among other things, injunctive relief prohibiting the Company from continuing to offer for sale its troll products, cancellation of the Company’s U.S. copyright registrations with respect to its various troll products, as well as unspecified damages and attorney’s fees and expenses. On February 28, 2004, the parties to this litigation executed a worldwide settlement agreement, pursuant to which, among other things, (i) the parties have executed and filed with the appropriate court a stipulation and order of dismissal of the lawsuit with prejudice, (ii) the Company paid $3,000,000 to the plaintiff, which amount was accrued as of December 31, 2003, (iii) the Company assigned to plaintiff any rights it has in the trademark “Good Luck Troll”, as well as any other trademarks relating to the Company’s troll products (exclusive of trademarks or designations in the word “Russ”) as well as relevant copyright registrations owned by the Company to its troll products, (iv) transferred its remaining inventory of troll products to the plaintiff, and (v) the Company agreed to refrain from making, using, or selling any work that is substantially similar to the Company’s troll products.

In connection with the Company’s continuing expansion of its operations in the People’s Republic of China (“PRC”), the Company completed a voluntary review in 2003 of the activities of its offices in the PRC to assess their compliance with applicable laws and regulations. As a result of this review, management became aware of some potential operational and tax compliance issues under applicable PRC laws and regulations and has taken appropriate corrective actions, including the establishment of a new subsidiary in the PRC which became effective January 2004, and settlement of prior year individual income tax underpayments and associated penalties, totaling approximately $464,000, which was expensed in 2004.

In connection with the Company’s purchase of Kids Line, LLC, the aggregate purchase price includes a potential payment of Earnout Consideration as more fully described in Note 3. The amount of Earnout Consideration, if any, is not currently determinable.

The Company enters into various license agreements relating to trademarks, copyrights, designs and products which enable the Company to market items compatible with its product line. All license agreements, other than the agreement with MAM Babyartikel GmbH (which has a remaining term of five years), are for three year terms with extensions if agreed to by both parties. Some of these license agreements include prepayments and minimum guarantee royalty payments. The amount of guaranteed royalty payments with respect to all license agreements over the next three years aggregates $5.6 million. The Company’s royalty expense for the years 2005, 2004 and 2003 was $1,800,000, $697,000 and $497,000, respectively.

Note 24—Quarterly Financial Information (Unaudited)

The following selected financial data for the four quarters ended December 31, 2005 and 2004 are derived from unaudited financial statements and include all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the results for the interim periods presented. The quarter ended December 31, 2005 includes a restructuring charge of $1.4 million before tax, an inventory write-down of $4.2 million before tax, a charge of $1.7 million before tax from the write-down of barter credits, a charge of $2.3 million before tax for a reserve against future royalty guarantees for a total charge of $9.6 million before tax. In addition, the quarter ended December 31, 2005 includes a charge of $4.6 million to increase the deferred tax valuation allowances and a reduction in tax reserves of $1.0 million. The fourth quarter of 2004 includes the results of Kids Line, LLC since its acquisition as of December 15, 2004. The quarter ended December 31, 2004 includes a restructuring charge of $2.3 million before tax and long-term asset impairment charges of $3.7 million before tax totaling $6.0 million before tax. The quarter ended September 30, 2005 includes a deferred financing cost write-off

66

of $4.8 million before tax, an increase in tax valuation allowances of $9.2 million, and a reduction in tax reserves of $0.8 million. The quarter ended September 30, 2004 includes a restructuring charge of $4.1 million before tax. The quarter ended June 30, 2004 includes an inventory write-down of 13.0 million before tax.

	For Quarters Ended
2005	March 31			June 30			September 30			December 31
	(Dollars in Thousands, Except Per Share Data)
Net sales	$	70,740		$	62,019		$	83,237		$	74,160
Gross profit	31,396			25,022			34,594			25,338
Net loss	$	(1,722	)	$	(6,162	)	$	(8,606	)	$	(18,607	)
Net loss per share
Basic	$	(0.08	)	$	(0.30	)	$	(0.41	)	$	(0.89	)
Diluted	$	(0.08	)	$	(0.30	)	$	(0.41	)	$	(0.89	)

2004	March 31		June 30			September 30		December 31
Net sales	$	65,713	$	53,420		$	79,272	$	67,554
Gross profit	33,103		10,829			37,379		29,259
Net income/(loss)	$	436	$	(15,550	)	$	2,248	$	(7,134	)
Net income/(loss) per share
Basic	$	.02	$	(0.75	)	$	.11	$	(0.34	)
Diluted	$	.02	$	(0.75	)	$	.11	$	(0.34	)

Note 25—Dividends

Cash dividends of $2,082,448 ($0.10 per share) were paid in the first quarter of the year ended December 31, 2005.

Cash dividends of $170,767,000 ($0.30 per share quarterly dividend plus $7.00 per share special dividend) were paid in the year ended December 31, 2004. On April 12, 2004, the Company declared a one-time special cash dividend in the amount of $7.00 per common share payable on May 28, 2004, to shareholders of record of the Company’s Common Stock on May 14, 2004.

Cash dividends of $23,072,000 ($0.28 per share per quarter) were paid in the year ended December 31, 2003.

See Note 8 for a discussion of dividend restrictions imposed by the Company’s senior bank facilities.

67

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures.

The Company has established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors.

As defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), disclosure controls and procedures are controls and other procedures of the Company that are designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Based on their evaluation as of December 31, 2005, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures are not effective as of December 31, 2005, because of the material weakness described below.

(b)  Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of the Company’s management,  including the principal executive officer and principal financial officer, the Company evaluated the effectiveness, as of December 31, 2005, of the Company’s internal control over financial reporting. In making this evaluation, management used the framework set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO Framework”). Based on its evaluation under the COSO Framework, and as a result of the material weakness described in the following paragraph, management has concluded that, as of December 31, 2005, the Company’s internal control over financial reporting was not effective.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified by management:

As of December 31, 2005, the Company did not maintain sufficient personnel resources with the requisite technical accounting and financial reporting expertise to: effect a timely financial closing process; sufficiently address non-routine and/or complex accounting issues that arise from time-to-time in the course of the Company’s operations; and effectively prepare timely account reconciliations and analyses. This lack of sufficient personnel resources with the requisite technical accounting and financial reporting expertise resulted in: material errors in the classification of long-term debt and income tax expense; errors in equity accounts, inter-company accounts, depreciation expense, inventory, and foreign currency transactions; and material omissions of disclosures in the Company’s preliminary 2005 consolidated financial statements. This material weakness also results in more than a remote likelihood that

68

material misstatements to the Company’s annual or interim consolidated financial statements would not be prevented or detected.

The Company’s independent registered public accounting firm, KPMG LLP, has issued an audit report on management’s assessment of the Company’s internal control over financial reporting as of December 31, 2005. This report is included herein.

(c)  Planned Remediation Actions to Address Internal Control Deficiencies

Management is committed to hiring a sufficient number of technically-qualified employees and/or consultants to ensure that all significant accounting issues, both routine and non-routine, are identified, researched and properly addressed.

(d)  Changes in Internal Control Over Financial Reporting

The material weakness identified above is primarily the result of unexpected turnover in the Company’s accounting and financial reporting department, particularly during the fourth quarter of 2005. Except as noted above, there have been no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

In connection with the November 2005 restructuring and the preparation of its financial statements for the year ended December 31, 2005, the Company conducted a comprehensive review of its gift product line to identify product categories and individual items that did not fit into its future sales and marketing plans. As a result of this review, an inventory write-down of $4.2 million (pre-tax) was recorded at December 31, 2005. The Company anticipates selling substantially all of this inventory through other than its normal sales channels. See “Management’s Discussion and Analysis of Results of Operations and Financial Condition – Overview.”

At December 31, 2005, the Company had $16.5 million of valuation allowances recorded against its deferred tax assets. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which those temporary differences become deductible and other factors. For the year ended December 31, 2005, the Company increased its total valuation allowance on its deferred tax assets by $13.8 million to $16.5 million, as management determined that it is more likely than not that the deferred tax assets for which the valuation allowances has been applied will not be realized. These valuation allowances primarily relate to foreign tax credit carryforwards, charitable contributions, inventory, royalties, deferred compensation, bad debts, impairment losses on fixed assets and net operating loss carryforwards. See Note 14 of Notes to Consolidated Financial Statements.

At December 31, 2005, in connection with the preparation of its financial statements for the year ended December 31, 2005, the Company evaluated the recoverability of certain barter assets and determined that the likelihood of utilizing them was remote due to the lack of actual usage during 2005. Therefore, the Company wrote off the remaining value of the credits of $1,680,000 at December 31, 2005. See Note 13 of Notes to Consolidated Financial Statements.

69

PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to directors and Section 16(a) compliance appears under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance”, respectively, of the 2006 Proxy Statement, which is incorporated herein by reference. Information relating to executive officers is included under the caption “Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K.

Audit Committee

The Company maintains a separately designated standing Audit Committee established in accordance with Section 3(a) 58 (a) of Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee consists of Messrs. Weston (Chair), Kling, and Landman. In November 2005, Charles Klatskin tendered his resignation from the Audit Committee, citing the Company’s intention to retain a real estate firm of which he is a principal with respect to certain real estate matters.

Audit Committee Financial Expert

The Board of Directors has affirmatively determined that the Chair of the Audit Committee, Mr. Weston, is an “audit committee financial expert”, as that term is defined in Item 401(h) of Regulation S-K of the Exchange Act, and is “independent” for purposes of current listing standards of the New York Stock Exchange.

Code of Ethics for Senior Financial Officers

The Company has adopted a Code of Ethics for Senior Financial Officers that applies to its principal executive officer and principal financial officer (the “SFO Code”). The SFO Code can be found on the Company’s website located at www.russberrie.com, by clicking onto the words “Corporate Governance” on the main menu and then on the “Code of Ethics for Principal Executive Officer and Senior Financial Officers” link and such SFO code will be provided, without charge, to any person who makes a written request therefore to the Company at 111 Bauer Drive, Oakland, New Jersey 07432, Attention: Chief Financial Officer. The Company will post any amendments to the SFO Code, as well as the details of any waivers to the SFO Code that are required to be disclosed by the rules of the Securities and Exchange Commission, on our website within four business days of the date of any such amendment or waiver.

New York Stock Exchange Certification

The certification of the Chief Executive Officer required by Section 303A.12(a) of the New York Stock Exchange listing standards, section 303A.12(a), relating to the Company’s compliance with such exchange’s corporate governance listing standards, was submitted to the New York Stock Exchange on May 20, 2005.

ITEM 11.   EXECUTIVE COMPENSATION

Information relating to this item appears under the captions “The Board of Directors and Committees of the Board”, “Director Compensation”, “Executive Compensation”, “Executive Compensation-Compensation Committee Report”, “Compensation Committee Interlocks and Insider Participation” and “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” of the 2006 Proxy Statement, which are each incorporated herein by reference thereto.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information relating to this item appears under the captions “Security Ownership of Management” and “Security Ownership of Certain Beneficial Owners” of the 2006 Proxy Statement, which is incorporated herein by reference thereto.

70

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information, as of December 31, 2005, regarding compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Plan Category	(a)	(b)		(c)
Equity compensation plans approved by security holders(1)	1,414,238	$	16.22	1,507,844	(2)
Equity compensation plans not approved by security holders(3)	355,000	$	20.93	0
Total(4)	1,769,238	$	17.16	1,507,844

(1) The plans are the Company’s 2004 Stock Option, Restricted and Non-Restricted Stock Plan (the “2004 Plan”), 2004 Employee Stock Purchase Plan (the “2004 ESPP”), 1999 Stock Option Plan for Outside Directors, 1999 Stock Option and Restricted Stock Plan (“1999 SORSP”), 1999 Stock Option Plan, 1999 Employee Stock Purchase Plan (the preceding four plans collectively, the “1999 Plans”) and corresponding predecessor plans for 1994 (collectively, the “1994 Plans”). On May 7, 2004, the Company announced that the Board of Directors had authorized a cash tender offer to purchase outstanding options issued under the Company’s various equity compensation plans for cash in amounts ranging from $0.25 per share to $5.00 per share, as is more fully described in the Statement on Schedule TO and related amendments filed by the Company with the Securities and Exchange Commission on May 7, 2004, May 28, 2004, June 15, 2004, June 22, 2004 and June 30, 2004, respectively.  The tender offer closed in June 2004, with an aggregate purchase price of approximately $844,000 paid by the Company for the tender of options to purchase 757,609 shares of Common Stock.

(2) The 2004 Plan and the 2004 ESPP were approved by the shareholders of the Company at the Annual Meeting of Shareholders on May 7, 2003; such plans became effective January 1, 2004. 1,376,122 shares of Common Stock remain available for issuance for grants of stock options, restricted and non-restricted stock under the 2004 Plan and 131,722 shares of Common Stock remain available for issuance under the 2004 ESPP. No awards could be made under the 1999 Plans after December 31, 2003. No awards could be made under the 1994 Plans after December 31, 1998.

(3) (a) Includes 150,000 shares issuable under stock options granted to Mr. Andrew R. Gatto in accordance with the terms of his employment agreement (the “Gatto Employment Agreement”), as a material inducement to Mr. Gatto becoming President and Chief Executive Officer of the Company. The options have an exercise price of $19.53 per share. As a result of the acceleration of the vesting provisions of all Underwater Options described in footnote 4 below, all such option became fully-vested as of December 28, 2005. In general, the options are exercisable for ten years from the date of grant. In the event of the termination of the employment of Mr. Gatto by the Company without Cause or by reason of his Disability or by Mr. Gatto for Good Reason (each as defined in the Gatto Employment Agreement), whether or not in connection with a change in control, or by reason of Mr. Gatto’s death, any unexercised portion of the options shall be exercisable for a period of two years or the remaining term of the options, whichever is shorter. In the event of the termination of the employment of Mr. Gatto by the Company for Cause or by Mr. Gatto without Good Reason, any vested portion of the options may be exercised for 30 days following the date of such termination or the remaining term of the options, whichever is shorter. The options are subject to anti-dilution and other adjustment provisions substantially similar to those set forth in the 2004 Plan. The Company shall, upon and to the extent of any written request from Mr. Gatto, use reasonable efforts to assure that all shares issued upon exercise of such options are, upon issuance and delivery, (i) fully registered (at the Company’s expense) under the Securities Act of 1933, as amended, for both issuance and resale, (ii) registered or qualified (at the Company’s expense) under such state securities laws as he may reasonably request, for issuance and resale and (iii) listed on a national securities exchange or eligible for sale on the NASDAQ National Market, and that all such shares, upon issuance, shall be validly issued, fully paid and nonassessable.

71

(b) Includes 100,000 shares issuable under stock options granted to Mr. Michael Levin (the “ML Options”) in accordance with the terms of his employment agreement (the “ML Employment Agreement”), as a material inducement to Mr. Levin becoming President and Chief Executive Officer of Kids Line following its acquisition by the Company. The ML Options have an exercise price of $22.21 per share. As a result of the acceleration of the vesting provisions of all Underwater Options described in footnote 4 below, all such option became fully-vested as of December 28, 2005. In general, the ML Options are exercisablefor ten years from thedate of grant. If the employment of Mr. Levin under the ML Employment Agreement is terminated by Kids Line by reason of his Disability (as defined in the ML Employment Agreement), or by reason of his death, any outstanding unexercised portion of the ML Options may be exercised by Mr. Levin’s legal representatives, estate, legatee(s) or permitted transferee(s), as applicable, for up to one (1) year after such termination or the stated term of the option, whichever period is shorter.  If the employment of Mr. Levin under the ML Employment Agreement is terminated by Kids Line for Cause or by Mr. Levin without Good Reason (each as defined in the ML Employment Agreement), any outstanding unexercised portion of the ML Options will be cancelled and deemed terminated as of the date of his termination.  If Mr. Levin’s employment under the ML Employment Agreement is terminated by Kids Line without Cause or by Mr. Levin with Good Reason (each as defined in the ML Employment Agreement), any outstanding unexercised portion of the ML Options may be exercised by Mr. Levin or his permitted transferee(s), as applicable, for up to six months after such termination or the stated term of the option, whichever period is shorter.  The provisions set forth in the last three sentences are referred to herein as the “Termination Provisions”. The ML Options are subject to anti-dilution and other adjustment provisions substantially similar to those set forth in the 2004 Plan.

(c) Includes 100,000 shares issuable under stock options granted to Ms. Joanne Levin (the “JL Options”) in accordance with the terms of her employment agreement (the “JL Employment Agreement”), as a material inducement to Ms. Levin becoming Executive Vice President of Kids Line following its acquisition by the Company. The JL Options have an exercise price of $22.21 per share. As a result of the acceleration of the vesting provisions of all Underwater Options described in footnote 4 below, all such option became fully-vested as of December 28, 2005. In general, the JL Options are exercisable for ten years from the date of grant. The JL Options are subject to the Termination Provisions. The JL Options are subject to anti-dilution and other adjustment provisions substantially similar to those set forth in the 2004 Plan.

(d) Includes 5,000 shares issuable under stock options granted to Mr. Keith Schneider (the “KS” Options) in accordance with the terms of his employment agreement. The KS Options have an exercise price of $11.61 per share. As a result of the acceleration of the vesting provisions of all Underwater Options described in footnote 4 below, all such option became fully-vested as of December 28, 2005.

(4) Effective December 28, 2005, the Company amended all outstanding stock option agreements which pertain to options with exercise prices in excess of the market price for the Company’s Common Stock at the close of business on December 28, 2005 (“Underwater Options”) which had remaining vesting requirements. As a result of these amendments, all Underwater Options became fully vested and immediately exercisable at the close of business on December 28, 2005.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information relating to this item appears under the captions “Certain Relationships and Related Transactions” of the 2006 Proxy Statement, which is incorporated herein by reference thereto.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information relating to this item appears under the captions “Independent Public Accountants”, “Audit Fees”, “Audit Related Fees”, “Tex Fees”, “All Other Fees” and “Audit Committee Pre-Approval Policies and Procedures” of the 2006 Proxy Statement, which is incorporated herein by reference thereto.

72

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Documents filed as part of this Report.

1. Financial Statements:
	Reports of Independent Registered Public Accounting Firm
	Consolidated Balance Sheets at December 31, 2005 and 2004
	Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003
	Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
	Notes to Consolidated Financial Statements

2. Financial Statement Schedules:
	Schedule II—Valuation and Qualifying Accounts- Years Ended December 31, 2005, 2004 and 2003

Other schedules are omitted because they are either not applicable or not required or the information is presented in the Consolidated Financial Statements or Notes thereto.

3. Exhibits:

(Listed by numbers corresponding to Item 601 of Regulation S-K)

Exhibit No.
2.1		Asset Purchase Agreement by and among RBSACQ, Inc. and Sassy, Inc. and its shareholders dated July 26, 2002. In accordance with Section 601(b)(2) of Regulation S-K, the registrant agrees to furnish supple mentally and omitted schedules to the Commission upon request.(18)
2.2		Membership Interest Purchase Agreement among Kids Line, LLC, Russ Berrie and Company, Inc. and the various sellers party hereto dated as of December 15, 2004 (29)
3.1	(a)	Restated Certificate of Incorporation of the Registrant and amendment thereto.(3)
	(b)	Certificate of Amendment to Restated Certificate of Incorporation of the Company filed April 30, 1987.(10)
3.2	(a)	By-Laws of the Registrant.(3)
	(b)	Amendment to Revised By-Laws of the Company adopted April 30, 1987.(10)
	(c)	Amendment to Revised By-Laws of the Company adopted February 18, 1988.(10)
	(d)	Amendment to Revised By-Laws of the Company adopted July 25, 1995.(15)
	(e)	Amendment to Revised By-Laws of the Company adopted April 21, 1999.(17)
	(f)	Amendment to revised By-Laws of the Company adopted July 26, 2000.(18)
	(g)	Amendment to revised By-Laws of the Company adopted January 20, 2003(21)
	(h)	Amendment to revised By-Laws of the Company adopted February 11, 2003(21)
	(i)	Amendment to revised By-Laws of the Company adopted February 11, 2003(21)
	(j)	Amendment to revised By-Laws of the Company adopted March 18, 2003(21)
	(k)	Amendment to revised By-Laws of the Company adopted March 2, 2004 (28)
	(l)	Amendment to Revised By-Laws of the Company adopted April 7, 2004(25)
	(m)	Amendment to Revised By-Laws of the Company adopted February 9, 2005(30)
	(n)	Amendment to Revised By-Laws of the Company adopted March 11, 2005(31)
4.1		Form of Common Stock Certificate.(1)
4.2		Financing Agreement by and among Russ Berrie and Company, Inc. (the “Borrower”), each subsidiary of the Borrower listed as a guarantor, the lenders from time to time a party hereto, and Ableco Finance LLC dated as of December 15, 2004 (29)

73

4.3	Security Agreement among Granters and Ableco Finance LLC dated as of December 15, 2004 (29)
4.5	Credit Agreement, dated as of June 28, 2005, among Russ Berrie and Company, Inc. and specified domestic wholly-owned subsidiaries thereof, the financial institutions parties thereto as Facility A Lenders, the financial institutions parties thereto as Facility B Lenders, LaSalle Bank National Association, in its capacity as “Issuing Bank” thereunder, and LaSalle Business Credit, LLC as administrative agent (the “Administrative Agent”) for the lenders and the Issuing Bank, and those lenders, if any designated therein as the “Documentation Agent” or “Syndication Agent.”(32)
4.6	Guaranty and Collateral Agreement made on June 28, 2005 among Russ Berrie and Company, Inc., its subsidiaries party thereto and the Administrative Agent.(32)
4.7	Credit Agreement dated as of June 28, 2005, among Amram’s Distributing Ltd., the financial institutions party thereto and LaSalle Business Credit, a division of ABN AMRO Bank, N.V., Canada Branch, a Canadian branch of a Netherlands bank, as agent.(32)
4.8	Guaranty Agreement dated as of June 28, 2005, among Russ Berrie and Company, Inc., the financial institutions party thereto and LaSalle Business Credit, a division of ABN AMRO Bank, N.V., Canada Branch, a Canadian branch of a Netherlands bank, as agent.(32)
4.9	First Amendments to Credit Agreement, dated as of August 4, 2005, among Russ Berrie and Company, Inc. its domestic signatories party thereto, the Facility A Lenders and the Facility B Lenders from time to time parties to the Credit Agreement, the Issuing Bank and the Administrative Agent.(33)
4.10	Credit Agreement, dated as of March 14, 2006, among Kids Line, LLC and Sassy, Inc., as the Borrowers, and together with certain subsidiaries of the foregoing borrowers, as the Loan Parties, those financial institutions party thereto, as the Lenders, LaSalle Bank National Association, as Administrative Agent and Arranger, Sovereign Bank, as Syndication Agent, and Bank of America, N.A., as Documentation Agent
4.11	Guaranty and Collateral Agreement, dated as of March 14, 2006, among Kids Line, LLC and Sassy, Inc. and the other parties thereto as Grantors, and LaSalle Bank National Association, as the Administrative Agent
4.12	Credit Agreement, dated as of March 14, 2006, among Russ Berrie and Company, Inc., as the Loan Party Representative and Russ Berrie U.S. Gift, Inc., Russ Berrie & Co. (West), Inc., Russ Berrie and Company Properties, Inc., RussPlus, Inc., and Russ Berrie and Company Investments, Inc. as the Borrowers, those financial institutions party thereto, as Lenders, LaSalle Business Credit, LLC, as Administrative Agent and Arranger, and LaSalle Bank National Association, as Issuing Bank
4.13	Guaranty and Collateral Agreement, dated as of March 14, 2006, among Russ Berrie U.S. Gift, Inc., Russ Berrie & Co. (West), Inc., Russ Berrie and Company Properties, Inc., RussPlus, Inc., and Russ Berrie and Company Investments, Inc. and LaSalle Business Credit, LLC, as Administrative Agent and Arranger
4.14	Limited Recourse Guaranty and Collateral Agreement, dated as of March 14, 2006, among Russ Berrie and Company, Inc. and LaSalle Business Credit, LLC
4.15	Guaranty Agreement, dated as of March 14, 2006, made by Russ Berrie U.S. Gift, Inc. in favor of LaSalle Business Credit, a division of ABN AMRO Bank N.V., Canada Branch, as agent, for itself and the Lenders
4.16	Letter Agreement, dated as of March 14, 2006, between California KL Holdings, Inc., on behalf of itself and the Deferred Payoff Sellers, Michael Levin, as Unitholders Representative, Century Park Advisors, LLC, as Unitholders Representative, Russ Berrie and Company, Inc., Kids Line, LLC and Sassy, Inc.
4.17	First Amendment to Credit Agreement, dated as of April 11, 2006, among Russ Berrie and Company, Inc., as the Loan Party Representative and Russ Berrie U.S. Gift, Inc., Russ Berrie & Co. (West), Inc., Russ Berrie and Company Properties, Inc., RussPlus, Inc., and Russ Berrie and Company Investments, Inc. as the Borrowers, those financial institutions party thereto, as Lenders, LaSalle Business Credit, LLC, as Administrative Agent and Arranger, and LaSalle Bank National Association, as Issuing Bank
10.1	Lease Agreement, dated April 1, 1981, between Tri-State Realty and Investment Company and Russ Berrie and Company, Inc.(2)
10.2	Lease, dated December 28, 1983, between Russell Berrie and Russ Berrie and Company, Inc.(2)
10.3	Guarantee dated as of December 1, 1983, from Russ Berrie and Company, Inc. to the New Jersey Economic Development Authority, Bankers Trust Company as Trustee and each Holder of a Bond.(2)
10.4	Loan Agreement, dated as of December 1, 1983, between the New Jersey Economic Development Authority and Russell Berrie.(2)
10.5	Mortgage, dated December 28, 1983, between Russell Berrie and Citibank, N.A.(2)
10.6	Form of New Jersey Economic Development Authority Variable/Fixed Rate Economic Development Bond (Russell Berrie—1983 Project).(2)

74

10.7		Grant Deed, dated June 28, 1982, from Russ Berrie and Company, Inc. to Russell Berrie.(1)
10.8		Lease Agreement, dated July 1, 1987, between Hunter Street, Inc. and Russ Berrie and Co (West), Inc.(4)
10.9		Lease Agreement dated November 7, 1988 between Russell Berrie and Russ Berrie and Company, Inc.(5)
10.10		Lease Agreement dated June 8, 1989 between Americana Development, Inc. and Russ Berrie and Company, Inc.(6)
10.11		Lease dated December 25, 1989 between Kestrel Properties, Ltd. and Russ Berrie (U.K.) Ltd.(6)
10.12		Agreement for sale and purchase of parts or shares of Sea View Estate between Sino Rank Company Limited and Tri Russ International (Hong Kong) Limited dated March 10, 1990.(7)
	(a)	Asset Purchase Agreement dated September 18, 1990 by and among Bright, Inc., Bright of America, Inc., Bright Crest, LTD. and William T. Bright.(7)
	(b)	Non-Compete Agreement dated September 18, 1990 by and between William T. Bright and Bright, Inc.(7)
	(c)	Deed of Trust dated September 18, 1990 by and among Bright, Inc., F.T. Graff Jr. and Louis S. Southworth, III, Trustees, and Bright of America, Inc.(7)
10.13		Transfer of Freehold land between British Telecommunications plc and BT Property Limited and Russ Berrie (UK) Ltd.(8)
10.14		Russ Berrie and Company, Inc. 1994 Stock Option Plan.*(8)
10.15		Russ Berrie and Company, Inc. 1994 Stock Option Plan for Outside Directors.*(8)
10.16		Russ Berrie and Company, Inc. 1994 Stock Option and Restricted Stock Plan.*(8)
10.17		Russ Berrie and Company, Inc. 1994 Employee Stock Purchase Plan.*(8)
10.18		Asset Purchase Agreement dated October 1, 1993 by and between RBTACQ, Inc. and Cap Toys, Inc.(9)
10.19		Asset Purchase Agreement I.C. September 30, 1994 by and among RBCACQ, Inc. and OddzOn Products, Inc., Scott Stillinger and Mark Button.(10)
10.20		Asset Purchase Agreement By and Among PF Acquisition Corp., Zebra Capital Corporation, Papel/Freelance, Inc. and Russ Berrie and Company, Inc. dated December 15, 1995.(11)
10.21		Agreement dated March 24, 1997, by and between Russ Berrie and Company, Inc. and Ricky Chan.*(12)
10.22		Asset Purchase Agreement dated as of May 2, 1997 among Russ Berrie and Company, Inc., OddzOn Products, Inc., Cap Toys, Inc., OddzOn/Cap Toys, Inc. and Hasbro, Inc., together with exhibits thereto.(13)
10.23		Agreement of Purchase and Sale between Amram’s Distributing Ltd. and Metrus Properties Ltd. dated November 25, 1997.(14)
10.24		Russ Berrie and Company, Inc. 1999 Stock Option Plan.*(15)
10.25		Russ Berrie and Company, Inc. 1999 Stock Option Plan for Outside Directors.*(15)
10.26		Russ Berrie and Company, Inc. 1999 Stock Option and Restricted Stock Plan.*(15)
10.27		Russ Berrie and Company, Inc. 1999 Employee Stock Purchase Plan.*(15)
10.28		Exercise of option to extend terms of leases dated December 28, 1983 and March 7, 1988 between Russell Berrie and Russ Berrie and Company, Inc.(16)
10.29		Executive Employment Agreement dated March 1, 2001 between Russ Berrie and Company, Inc. and Michael M. Saunders.*(17)
10.30		Russ Berrie and Company, Inc. Executive Deferred Compensation Plan.*(19)
10.31		Russ Berrie and Company, Inc. Change in Control Severance Plan.*(21)
10.32		Russ Berrie and Company, Inc. Severance Policy For Domestic Vice Presidents (And Above).*(21)
10.33		Agreement dated March 19, 2003 between Russ Berrie and Company, Inc. and A. Curts Cooke.*(21)
10.34		Agreement dated March 25, 2003 between Russ Berrie and Company, Inc. and Jeff Bialosky.*(22)
10.35		Letter dated July 2, 2003 between the Company and Arnold S. Bloom regarding retention bonus.*(23)
10.36		Letter dated July 2, 2003 between the Company and Chris Robinson regarding retention bonus.*(23)
10.37		Letter dated July 2, 2003 between the Company and A. Curts Cooke regarding retention bonus.*(23)
10.38		Letter dated July 2, 2003 between the Company and Dan Schlotterbeck regarding retention bonus.*(23)
10.39		Letter dated July 2, 2003 between the Company and Eva Goldenberg regarding retention bonus.*(23)
10.40		Letter dated July 2, 2003 between the Company and Jack Toolan regarding retention bonus.*(23)
10.41		Letter dated July 2, 2003 between the Company and Jeffrey A. Bialosky regarding retention bonus.*(23)
10.42		Letter dated July 2, 2003 between the Company and John Wille regarding retention bonus.*(23)
10.43		Letter dated July 2, 2003 between the Company and Michael Saunders regarding retention bonus*(23)
10.44		Letter dated July 2, 2003 between the Company and Ricky Chan regarding retention bonus.*(23)

75

10.45	Letter dated July 2, 2003 between the Company and Tom Higgerson regarding retention bonus*(23)
10.46	Executive Employment Agreement dated September 22, 2003 between Russ Berrie and Company, Inc. and John T. Toolan*(23)
10.47	Stock Option Agreement dated September 8, 2003 between Russ Berrie and Company, Inc. and Geff Lee*(23)
10.48	Stock Option Agreement dated September 5, 2003 between Russ Berrie and Company, Inc. and Dennis Nesta*(23)
10.49	Russ Berrie and Company, Inc. 2004 Stock Option Plan, Restricted and Non-Restricted Stock Plan*(18)
10.50	Russ Berrie and Company, Inc. 2004 Employee Stock Purchase Plan*(18)
10.51	Amendment to and extension of lease agreement dated May 7, 2003 by and between Russ Berrie and Company, Inc. and Tri-State Realty and Investment Company(25)
10.52	Second Amendment to lease dated November 18, 2003 by and between Russ Berrie and Company, Inc. and Estate of Russell Berrie. (25)
10.53	Amendment to Russ Berrie and Company, Inc. Change In Control Severance Plan * (25)
10.54	Letter dated January 5, 2004 between the Company and Arnold S. Bloom regarding retention bonus *(25)
10.55	Letter dated January 5, 2004 between the Company and Chris Robinson regarding retention bonus *(25)
10.56	Letter dated January 5, 2004 between the Company and A. Curts Cooke regarding retention bonus *(25)
10.57	Letter dated January 5, 2004 between the Company and Dan Schlotterbeck regarding retention bonus *(25)
10.58	Letter dated January 5, 2004 between the Company and Eva Goldenberg regarding retention bonus *(25)
10.59	Letter dated January 5, 2004 between the Company and Jack Toolan regarding retention bonus *(25)
10.60	Letter dated January 5, 2004 between the Company and Jeffrey A. Bialosky regarding retention bonus *(25)
10.61	Letter dated January 5, 2004 between the Company and John Wille regarding retention bonus *(25)
10.62	Letter dated January 5, 2004 between the Company and Michael Saunders regarding retention bonus *(25)
10.63	Letter dated January 5, 2004 between the Company and Ricky Chan regarding retention bonus *(25)
10.64	Letter dated January 5, 2004 between the Company and Tom Higgerson regarding retention bonus *(25)
10.65	Agreement dated as of April 9, 2004 between Russ Berrie and Company, Inc. and Andrew R. Gatto *(26)
10.66	Offer to Purchase Specific Options dated May 28, 2004, as amended, incorporated herein by reference to Amendment No. 4 to the Statement on Schedule TO, as filed with the Securities and Exchange Commission on June 30, 2004. *
10.67	Letter of Transmittal, incorporated herein by reference to Exhibit (a)(1)(iii) of the Statement on Schedule TO, as filed with the Securities and Exchange Commission on May 28, 2004. *
10.68	Stock Option Agreement, dated as of June 1, 2004, between Russ Berrie and Company, Inc. and Andrew R. Gatto pertaining to options to purchase 100,000 shares of Common Stock* (27)
10.69	Stock Option Agreement, dated as of June 1, 2004, between Russ Berrie and Company, Inc. and Andrew R. Gatto pertaining to options to purchase 150,000 shares of Common Stock* (27)
10.70	Executive Employment Agreement dated August 24, 2004 between Russ Berrie and Company, Inc. and Lynn Moran*(28)
10.71	Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and John T. Toolan*(28)
10.72	Option Purchase and Sale Agreement dated as of September 10, 2004, by and between Russ Berrie and Company, Inc. Christopher Robinson*(28)
10.73	Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and William Landman*(28)
10.74	Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Joseph Kling*(28)
10.75	Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Raphael Benaroya*(28)
10.76	Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Josh Weston*(28)
10.77	Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Carl Epstein*(28)
10.78	Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Ilan Kaufthal*(28)
10.79	Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and Charles Klatskin*(28)

76

10.80	Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and Sidney Slauson*(28)
10.81	Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Jeff Bialosky*(28)
10.82	Order of U.S. Bankruptcy Court Central District of California San Fernando Division, dated October 15, 2004, authorizing and approving sale of “Applause” trademark and certain related assets free and clear of all encumbrances and other interests pursuant to Section 363 of the Bankruptcy Code(28)
10.83	Amended and Restated Trademark Purchase Agreement, dated as of September 21, 2004, by and between Applause, LLC and the Company, as amended by the First Amendment thereto; (28)
10.84	Form of Stock Option Agreement with respect to 2004 Stock Option Restricted and Non-Restricted Stock Plan*(40)
10.85	Form of Stock Option Agreement for Non-Employee Directors with respect to 2004 Stock Option Restricted and Non-Restricted Stock Plan*(40)
10.86	Form of Restricted Stock Agreement with respect to 2004 Stock Option Restricted and Non-Restricted Stock Plan*(40)
10.87	Letter dated September 30, 2004 between the Company and John T. Toolan regarding severance arrangements *(40)
10.88	Letter dated December 30, 2004 between the Company and Ricky Chan regarding severance arrangements *(40)
10.89	Stock Option Agreement dated March 24, 2005 between Russ Berrie and Company, Inc. and Joanne Levin *(40)
10.90	Stock Option Agreement dated March 24, 2005 between Russ Berrie and Company, Inc. and Michael Levin *(40)
10.91	Trademark Purchase Agreement between Russ Berrie and Company, Inc. and Applause, LLC (28)
10.92	Commitment Letter between Russ Berrie and Company, Inc. and Ableco Finance LLC dated November 24, 2004 (40)
10.93	Incentive Compensation Program adopted on March 11, 2005 (31) *
10.94	Employment Agreement dated July 27, 2005, effective August 1, 2005, between Russ Berrie and Company, Inc. and Mr. Anthony Cappiello(34)
10.95	Employment Agreement dated September 26, 2005, between Russ Berrie and Company, Inc. and Marc S. Goldfarb.(35)
10.96	Severance Agreement dated September 28, 2005, between Russ Berrie and Company, Inc. and Arnold S. Bloom.(35)
10.97	Consulting Agreement dated September 28, 2005, between Russ Berrie and Company, Inc. and Arnold S. Bloom(35)
10.98	Employment arrangement, dated as of November 03, 2005, effective November 7, 2005, between Russ Berrie and Company, Inc. and Keith Schneider.(36)
10.99	Purchase and Sale Agreement, dated as of December 7, 2005, between Amram’s Distributing Ltd. and Bentall Investment Management LP.(37)
10.100	Agreement made as of December 23, 2005, between Amram’s Distributing Ltd. and Bentall Investment Management LP.(38)
10.101	Lease dated as of December 29, 2005 between Westpen Properties Ltd. and Amram’s Distributing Ltd.(38)
10.102	Amended and Restated 2004 Employee Stock Purchase Plan effective January 3, 2006.(38)
10.103	Framework Agreement, dated as of December 30, 2005, between Russ Berrie (UK) Limited and Barclays Bank PLC.(39)
21.1	List of Subsidiaries
23.1	Consent of Independent Registered Public Accounting Firm
31.1	Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002.
31.2	Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002.
32.1	Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002.
32.2	Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002.

*Represent management contracts or compensatory plan or arrangement.

(1) Incorporated by reference to Amendment No. 2 to Registration Statement No. 2-88797 on Form S-1, as filed on March 29, 1984.

77

(2)	Incorporated by reference to Registration Statement No. 2-88797on Form S-1, as filed on February 2, 1984.
(3)	Incorporated by reference to Amendment No. 1 to Registration Statement No. 33-10077 of Form S-1, as filed on December 16, 1986.
(4)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1987.
(5)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1988.
(6)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1989.
(7)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1990.
(8)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1992.
(9)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.
(10)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
(11)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1995.
(12)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1996.
(13)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(14)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1997.
(15)	Incorporated by reference to Form S-8 Registration Statement No. 333-70081 as filed on January 4, 1999.
(16)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1998.
(17)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 2000.
(18)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 2001.
(19)	Incorporated by reference to Form S-8 Registration Statement No. 333-76248 as filed on January 3, 2002.
(20)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
(21)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 2002.
(22)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
(23)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
(24)	Incorporated by reference to the Company’s definitive Proxy Statement dated March 21, 2003.
(25)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 2003.
(26)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.
(27)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
(28)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.
(29)	Incorporated by reference to Form 8-K filed on December 22, 2004.
(30)	Incorporated by reference to Form 8-K filed on February 15, 2005.
(31)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended March 31, 2005
(32)	Incorporated by reference to Current Report on Form 8-K filed July 5, 2005.
(33)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
(34)	Incorporated by reference to Current Report on Form 8-K filed August 2, 2005.
(35)	Incorporated by reference to Current Report on Form 8-K filed September 29, 2005.
(36)	Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.
(37)	Incorporated by reference to Current Report on Form 8-K filed December 15, 2005.
(38)	Incorporated by reference to Current Report on Form 8-K filed December 30, 2005.
(39)	Incorporated by reference to Current Report on Form 8-K filed January 4, 2006
(40)	Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 2004.

78

SIGNATURES

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

	RUSS BERRIE AND COMPANY, INC. (Registrant)
April 18, 2006	By:	/s/  JOHN D. WILLE
Date		John D. Wille
		Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Andrew Gatto	April 18, 2006
Andrew Gatto, Chief Executive Officer and Director (Principle Executive Officer)	Date
/s/ Angelica Berrie	April 18, 2006
Angelica Berrie, Vice Chairman and Director	Date
/s/ Raphael Benaroya	April 18, 2006
Raphael Benaroya, Director	Date
/s/ Carl Epstein	April 18, 2006
Carl Epstein, Director	Date
/s/ Ilan Kaufthal	April 18, 2006
Ilan Kaufthal, Director	Date
/s/ Charles Klatskin	April 18, 2006
Charles Klatskin, Director	Date
/s/ Joseph Kling	April 18, 2006
Joseph Kling, Director	Date
/s/ William A. Landman	April 18, 2006
William A. Landman, Director	Date
/s/ Josh Weston	April 18, 2006
Josh Weston, Chairman and Director	Date

79

Exhibit Index

Exhibit Numbers
4.10	Credit Agreement, dated as of March 14, 2006, among Kids Line, LLC and Sassy, Inc., as the Borrowers, and together with certain subsidiaries of the foregoing borrowers, as the Loan Parties, those financial institutions party thereto, as the Lenders, LaSalle Bank National Association, as Administrative Agent and Arranger, Sovereign Bank, as Syndication Agent, and Bank of America, N.A., as Documentation Agent
4.11	Guaranty and Collateral Agreement, dated as of March 14, 2006, among Kids Line, LLCand Sassy, Inc. and the other parties thereto as Grantors, and LaSalle Bank National Association, as the Administrative Agent
4.12	Credit Agreement, dated as of March 14, 2006, among Russ Berrie and Company, Inc., as the Loan Party Representative and Russ Berrie U.S. Gift, Inc., Russ Berrie & Co. (West), Inc., Russ Berrie and Company Properties, Inc., RussPlus, Inc., and Russ Berrie and Company Investments, Inc. as the Borrowers, those financial institutions party thereto, as Lenders, LaSalle Business Credit, LLC, as Administrative Agent and Arranger, and LaSalle Bank National Association, as Issuing Bank
4.13	Guaranty and Collateral Agreement, dated as of March 14, 2006, among Russ Berrie U.S. Gift, Inc., Russ Berrie & Co. (West), Inc., Russ Berrie and Company Properties, Inc., RussPlus, Inc., and Russ Berrie and Company Investments, Inc. and LaSalle Business Credit, LLC, as Administrative Agent and Arranger
4.14	Limited Recourse Guaranty and Collateral Agreement, dated as of March 14, 2006, among Russ Berrie and Company, Inc. and LaSalle Business Credit, LLC
4.15	Guaranty Agreement, dated as of March 14, 2006, made by Russ Berrie U.S. Gift, Inc. in favor of LaSalle Business Credit, a division of ABN AMRO Bank N.V., Canada Branch, as agent, for itself and the Lenders
4.16	Letter Agreement, dated as of March 14, 2006, between California KL Holdings, Inc., on behalf of itself and the Deferred Payoff Sellers, Michael Levin, as Unitholders Representative, Century Park Advisors, LLC, as Unitholders Representative, Russ Berrie and Company, Inc., Kids Line, LLC and Sassy, Inc.
4.17	First Amendment to Credit Agreement, dated as of April 11, 2006, among Russ Berrie and Company, Inc., as the Loan Party Representative and Russ Berrie U.S. Gift, Inc., Russ Berrie & Co. (West), Inc., Russ Berrie and Company Properties, Inc., RussPlus, Inc., and Russ Berrie and Company Investments, Inc. as the Borrowers, those financial institutions party thereto, as Lenders, LaSalle Business Credit, LLC, as Administrative Agent and Arranger, and LaSalle Bank National Association, as Issuing Bank
21.1	List of Subsidiaries
23.1	Consent of Independent Registered Public Accounting Firm
31.1	Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002
31.2	Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002
32.1	Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002
32.2	Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002

80

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)

Column A	Column B	Column C		Column D	Column E
Description	Balance at Beginning of Period	Charged to Expenses		Deductions*	Balance at End of Period
Allowance for accounts receivable:
Year ended December 31, 2003	3,395	1,730		1,284	3,841
Year ended December 31, 2004	3,841	1,225		2,253	2,950
Year ended December 31, 2005	2,950	(131	)	876	1,943
Allowance for inventory:
Year ended December 31, 2003	9,306	876		2,313	7,869
Year ended December 31, 2004	7,869	14,178		12,573	9,771
Year ended December 31, 2005	9,771	5,072		3,692	11,151

*Principally account write-offs, allowances and disposal of merchandise, respectively.

81

EX-4.10

Exhibit 4.10

Execution Version

CREDIT AGREEMENT

dated as of March 14, 2006

among

KIDS LINE, LLC

and

SASSY, INC.,

as the Borrowers,

AND TOGETHER WITH CERTAIN SUBSIDIARIES
OF THE FOREGOING BORROWERS,
as the Loan Parties

THOSE FINANCIAL INSTITUTIONS PARTY HERETO,
as the Lenders,

LASALLE BANK NATIONAL ASSOCIATION,
as the Administrative Agent and the Arranger,

SOVEREIGN BANK,

as Syndication Agent,

and

BANK OF AMERICA, N.A.,

as Documentation Agent

TABLE OF CONTENTS

		Page
SECTION 1	DEFINITIONS	1
1.1	Definitions	1
1.2	Other Interpretive Provisions	28
SECTION 2	COMMITMENTS OF THE LENDERS; BORROWING, CONVERSION AND LETTER OF CREDIT PROCEDURES	29
2.1	Commitments	29
2.2	Loan Procedures	30
2.3	Letter of Credit Procedures	33
2.4	Commitments Several	35
2.5	Certain Conditions	35
2.6	Loan Party Representative	35
SECTION 3	EVIDENCING OF LOANS	36
3.1	Notes	36
3.2	Recordkeeping	36
SECTION 4	INTEREST	37
4.1	Interest Rates	37
4.2	Interest Payment Dates	37
4.3	Setting and Notice of LIBOR Rates	37
4.4	Computation of Interest	37
SECTION 5	FEES	37
5.1	Non-Use Fee	37
5.2	Letter of Credit Fees.	38
5.3	Administrative Agent’s Fees	38
5.4	Termination Fee	38
SECTION 6	REDUCTION AND TERMINATION OF THE REVOLVING COMMITMENT LIMIT AND THE REVOLVING COMMITMENT; PREPAYMENTS	38
6.1	Reduction and Termination of the Revolving Commitment	38
6.2	Prepayments	39
6.3	Manner of Prepayments	40
6.4	Repayments	41

i

		Page
SECTION 7	MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES	41
7.1	Making of Payments	41
7.2	Application of Certain Payments	42
7.3	Due Date Extension	43
7.4	Setoff	43
7.5	Proration of Payments	43
7.6	Taxes	43
SECTION 8	INCREASED COSTS; SPECIAL PROVISIONS FOR LIBOR LOANS	45
8.1	Increased Costs	45
8.2	Basis for Determining Interest Rate Inadequate or Unfair	46
8.3	Changes in Law Rendering LIBOR Loans Unlawful	47
8.4	Funding Losses	47
8.5	Right of Lenders to Fund through Other Offices	47
8.6	Discretion of Lenders as to Manner of Funding	47
8.7	Mitigation of Circumstances; Replacement of Lenders	48
8.8	Conclusiveness of Statements; Survival of Provisions	48
SECTION 9	REPRESENTATIONS AND WARRANTIES	49
9.1	Organization	49
9.2	Authorization; No Conflict	49
9.3	Validity and Binding Nature	49
9.4	Financial Condition	49
9.5	No Material Adverse Change	50
9.6	Litigation and Contingent Liabilities	50
9.7	Ownership of Properties; Liens	50
9.8	Equity Ownership; Subsidiaries	50
9.9	Pension Plans	50
9.10	Investment Company Act	51
9.11	Public Utility Holding Company Act	52
9.12	Regulation U	52

ii

		Page
9.13	Taxes	52
9.14	Solvency, etc	52
9.15	Environmental Matters	53
9.16	Insurance	53
9.17	Real Property	54
9.18	Information	54
9.19	Intellectual Property	54
9.20	Burdensome Obligations	55
9.21	Labor Matters	55
9.22	No Default	55
9.23	Related Agreements, etc	55
9.24	Subordinated Debt	55
9.25	Eligible Accounts and Eligible Inventory	55
9.26	Other Debt	55
SECTION 10	AFFIRMATIVE COVENANTS	55
10.1	Reports, Certificates and Other Information	56
10.2	Books, Records and Inspections	60
10.3	Maintenance of Property; Insurance	61
10.4	Compliance with Laws; Payment of Taxes and Liabilities	62
10.5	Maintenance of Existence, etc	62
10.6	Reserved	62
10.7	Use of Proceeds	62
10.8	Employee Benefit Plans	63
10.9	Environmental Matters	63
10.10	New Subsidiaries	64
10.11	Deposit Accounts	65
10.12	Independent Directors	66
SECTION 11	NEGATIVE COVENANTS	66
11.1	Debt	66
11.2	Liens	67

iii

		Page
11.3	Restricted Payments	69
11.4	Mergers, Consolidations, Sales and Other Transactions Outside the Ordinary Course of Business	71
11.5	Modification of Organizational Documents	74
11.6	Transactions with Affiliates	74
11.7	Unconditional Purchase Obligations	74
11.8	Inconsistent Agreements	75
11.9	Business Activities	75
11.10	Investments	75
11.11	Restriction of Amendments to Certain Documents	77
11.12	Fiscal Year	77
11.13	Financial Covenants	77
11.14	Cancellation of Debt	78
11.15	Creation of Subsidiaries	78
11.16	Commingling of Funds	78
SECTION 12	EFFECTIVENESS; CONDITIONS OF LENDING, ETC	78
12.1	Initial Credit Extension	78
12.2	Conditions	81
SECTION 13	EVENTS OF DEFAULT AND THEIR EFFECT	82
13.1	Events of Default	82
13.2	Effect of Event of Default	84
SECTION 14	THE ADMINISTRATIVE AGENT	85
14.1	Appointment and Authorization	85
14.2	Issuing Lender	85
14.3	Delegation of Duties	85
14.4	Exculpation of Administrative Agent	85
14.5	Reliance by Administrative Agent	86
14.6	Notice of Default	86
14.7	Credit Decision	86
14.8	Indemnification	87

iv

		Page
14.9	Administrative Agent in Individual Capacity	87
14.10	Successor Administrative Agent	88
14.11	Collateral Matters	88
14.12	Administrative Agent May File Proofs of Claim	89
14.13	Other Agents; Arrangers and Managers	89
SECTION 15	GENERAL	90
15.1	Waiver; Amendments	90
15.2	Confirmations	90
15.3	Notices	90
15.4	Computations	91
15.5	Costs, Expenses and Taxes	91
15.6	Assignments; Participations	92
15.7	Register	93
15.8	GOVERNING LAW	94
15.9	Confidentiality	94
15.10	Severability	94
15.11	Nature of Remedies	95
15.12	Entire Agreement	95
15.13	Counterparts	95
15.14	Successors and Assigns	95
15.15	Captions	95
15.16	Patriot Act Notice	95
15.17	Indemnification by the Loan Parties	95
15.18	Nonliability of Lenders	96
15.19	FORUM SELECTION AND CONSENT TO JURISDICTION	97
15.20	WAIVER OF JURY TRIAL	97
15.21	Other Waivers	97
15.22	Joint and Several Liability	98
15.23	Revival and Reinstatement of Obligations	98

v

	ANNEXES
ANNEX A	Lenders and Pro Rata Shares
ANNEX B	Addresses for Notices
	SCHEDULES
SCHEDULE 9.6	Litigation and Contingent Liabilities
SCHEDULE 9.8	Subsidiaries
SCHEDULE 9.9	Pension Plans
SCHEDULE 9.15	Environmental Matters
SCHEDULE 9.16	Insurance
SCHEDULE 9.17	Real Property
SCHEDULE 9.19	Intellectual Property
SCHEDULE 9.21	Labor Matters
SCHEDULE 9.26	Other Debt
SCHEDULE 10.11	Specified Exempted Bank Accounts
SCHEDULE 11.2	Existing Liens
SCHEDULE 11.10	Investments
SCHEDULE 12.1	Debt to be Repaid
SCHEDULE 12.1.1	List of Closing Documents
SCHEDULE 12.1.18	Independent Director Provisions
	EXHIBITS
EXHIBIT A-1	Form of Revolving Loan Note (Section 3.1)
EXHIBIT A-2	Form of Term Loan Note (Section 3.1)
EXHIBIT B	Form of Compliance Certificate (Section 1.1)
EXHIBIT C	Form of Borrowing Base Certificate (Section 1.1)
EXHIBIT D	Form of Assignment Agreement (Section 15.6.1)
EXHIBIT E	Form of Notice of Borrowing (Section 2.2.2)
EXHIBIT F	Form of Notice of Conversion/Continuation (Section 2.2.3)
EXHIBIT G	Form of Joinder Agreement (Section 10.10)
EXHIBIT H	Form of Intercompany Note (Section 11.1)

vi

CREDIT AGREEMENT

THIS CREDIT AGREEMENT dated as of March 14, 2006 (this “Agreement”) is entered into by and among KIDS LINE, LLC, a Delaware limited liability company (“Kids Line”), SASSY, INC., an Illinois corporation (“Sassy”), those Domestic Wholly-Owned Subsidiaries (as defined below) that are or, in accordance with Section 10.10 of this Agreement, may hereafter become parties hereto as “Borrowers” (Kids Line, Sassy and such Domestic Wholly-Owned Subsidiaries are sometimes referred to herein collectively as the “Borrowers” and individually as a “Borrower”), those Domestic Subsidiaries that are or, in accordance with Section 10.10 of this Agreement, may hereafter become parties hereto as Guarantors (such Domestic Subsidiaries are sometimes referred to herein collectively as the “Guarantors” and individually as a “Guarantor”), the financial institutions that are or may from time to time become parties hereto (together with their respective successors and assigns, the “Lenders”), LASALLE BANK NATIONAL ASSOCIATION (in its individual capacity, “LaSalle”), as administrative agent (in such capacity, the “Administrative Agent”) for the Lenders, SOVEREIGN BANK, as syndication agent (in such capacity, the “Syndication Agent”), and BANK OF AMERICA, N.A., as documentation agent (in such capacity, the “Documentation Agent”).

The Lenders have agreed to make available to the Borrowers a certain term loan facility and a revolving credit facility (which includes letters of credit) upon the terms and conditions set forth herein.

In consideration of the mutual agreements herein contained, the parties hereto agree as follows:

SECTION 1DEFINITIONS.

1.1Definitions. When used herein the following terms shall have the following meanings:

Account or Accounts is defined in the UCC.

Account Control Agreement means a bank agency or other similar agreement with the Administrative Agent, the applicable Borrower and any financial institution at which such Borrower maintains a depositary or other account, in form and substance reasonably satisfactory to the Administrative Agent, in order to give the Administrative Agent “control” (as defined in the UCC) of such account.

Account Debtor is defined in the UCC.

Acquired Debt means mortgage Debt or Debt with respect to Capital Leases of a Person existing at the time such Person became a Subsidiary or assumed by any Borrower or a Domestic Wholly-Owned Subsidiary of a Borrower pursuant to a Permitted Acquisition (and not created or incurred in connection with or in anticipation of such Permitted Acquisition) which would be permitted pursuant to Section 11.4(d).

Acquisition means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a

Person, or of all or substantially all of any business or division of a Person, (b) the acquisition of all of the outstanding Capital Securities (including the acquisition or termination of any rights, warrants or options to acquire the Capital Securities) of any Person, or otherwise causing any Person to become a Wholly-Owned Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is already a Wholly-Owned Subsidiary).

Administrative Agent means LaSalle in its capacity as administrative agent for the Lenders and the Issuing Lender hereunder and any successor thereto in such capacity.

Affected Loan - - see Section 8.3.

Affiliate of any Person means (a) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person, (b) any officer or director of such Person and (c) with respect to any Lender, any entity administered or managed by such Lender or an Affiliate or investment advisor thereof and which is engaged in making, purchasing, holding or otherwise investing in commercial loans. A Person shall be deemed to be “controlled by” any other Person if such Person possesses, directly or indirectly, power to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managers or power to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. Unless expressly stated otherwise herein, neither the Administrative Agent, the Issuing Lender nor any Lender shall be deemed an Affiliate of any Loan Party or Subsidiary.

Affiliated Account Debtors means, with respect to any Account Debtor, any other Account Debtor who, to the best of the Chief Financial Officer’s knowledge (including after written notice thereof from the Administrative Agent), controls, is controlled by, or is under common control with, such Account Debtor. For purposes of this definition, the meaning of “control” (including, with correlative meanings, “controlled by” and “under common control with”) is limited to the direct or indirect legal or beneficial ownership of more than fifty percent (50%) of the voting control or equity interests of an Account Debtor or an Affiliated Account Debtor.

Agent Account has the meaning set forth in the Guaranty and Collateral Agreement.

Agent Fee Letter means the Fee letter dated as of the date hereof among the Borrowers and the Administrative Agent.

Agreement - - see the Preamble.

Applicable Margin means, for any day, the rate per annum set forth below opposite the level (the “Level”) then in effect, it being understood that the Applicable Margin for (i) LIBOR Loans shall be the percentage set forth under the column “LIBOR Margin”, (ii) Base Rate Loans shall be the percentage set forth under the column “Base Rate Margin”, (iii) the Non-Use Fee Rate shall be the percentage set forth under the column “Non-Use Fee Rate” and (iv) the L/C Fee shall be the percentage set forth under the column “L/C Fee Rate”:

2

Level	Total Debt to EBITDA Ratio	LIBOR Margin		Base Rate Margin		Non-Use Fee Rate		L/C Fee Rate
I	Greater than 2.50:1	2.50	%	1.00	%	0.50	%	2.50	%
II	Greater than 2.00:1 but less than or equal to 2.50:1	2.25	%	0.75	%	0.50	%	2.25	%
III	Greater than 1.50:1 but less or equal to 2.00:1	2.00	%	0.50	%	0.50	%	2.00	%
IV	Less than or equal to 1.50:1	1.75	%	0.25	%	0.50	%	1.75	%

The LIBOR Margin, the Base Rate Margin, the Non-Use Fee Rate and the L/C Fee Rate shall be determined and adjusted, to the extent applicable, on the first (1st) Business Day after the Loan Party Representative provides the Administrative Agent the annual and quarterly financial statements and other information pursuant to Sections 10.1.1 or 10.1.2(a), as applicable, and the related Compliance Certificate, pursuant to Section 10.1.3. Notwithstanding anything contained in this paragraph to the contrary, (a) if the Loan Party Representative fails to deliver such financial statements and Compliance Certificate in accordance with the provisions of Sections 10.1.1, 10.1.2(a) and 10.1.3, the LIBOR Margin, the Base Rate Margin, the Non-Use Fee Rate and the L/C Fee Rate shall be based upon Level I above beginning on the date such financial statements and Compliance Certificate were required to be delivered until the first (1st) Business Day after such financial statements and Compliance Certificate are actually delivered, whereupon the Applicable Margin shall be determined by the then applicable Level; and (b)  no reduction to any Applicable Margin shall become effective at any time when an Event of Default or Unmatured Event of Default has occurred and is continuing. Notwithstanding the foregoing, the Applicable Margin to be in effect on the Closing Date and thereafter, until delivery of the financial statements and Compliance Certificate required to be delivered with respect to the Borrowers and their Subsidiaries for both Fiscal Year 2005 and the Fiscal Quarter ending March 31, 2006, shall be based on Level II.

Asset Disposition means the sale, lease, assignment or other transfer for value by any Loan Party to any Person (other than a Loan Party) of any asset or right of such Loan Party (including, the loss, destruction or damage of any thereof or any actual condemnation, confiscation, requisition, seizure or taking thereof) (each, a “Disposition”), other than (a) the Disposition of any asset which is to be replaced, and is in fact replaced, within 180 days with another asset performing the same or a similar function, (b) the sale or lease of inventory in the ordinary course of business and (c) other Dispositions in any Fiscal Year the Net Cash Proceeds of which do not in the aggregate exceed $250,000.

Assignee - - see Section 15.6.1.

Assignment Agreement - - see Section 15.6.1.

Attorney Costs means, with respect to any Person, all reasonable fees and charges of any counsel to such Person, the reasonable allocable cost of internal legal services of such Person, all reasonable disbursements of such internal counsel and all court costs and similar legal expenses, in each case, without duplication.

3

Bank Product Agreements means those certain cash management service agreements entered into from time to time between any Loan Party and LaSalle, any Lender or any of their respective Affiliates in connection with any of the Bank Products.

Bank Product Obligations means all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by the Loan Parties to LaSalle, any Lender or its respective Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that a Loan Party is obligated to reimburse to the Administrative Agent or LaSalle, any Lender or any of their respective Affiliates as a result of the Administrative Agent or LaSalle any Lender or any of their respective Affiliates purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to the Loan Parties pursuant to the Bank Product Agreements.

Bank Products means any service or facility extended to any Loan Party by LaSalle, any Lender or any of their respective Affiliates including:  (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH transactions, or (f) cash management, including controlled disbursement, accounts or services.

Bankruptcy Code means the United States Bankruptcy Code, Title 11 of United States Code (11 U.S.C. § 101, et seq.), together with the rules promulgated thereunder, in each case, as amended.

Base Rate means at any time the greater of (a) the Federal Funds Rate plus 0.5% and (b) the Prime Rate.

Base Rate Loan means any Loan which bears interest at or by reference to the Base Rate.

Base Rate Margin - - see the definition of Applicable Margin.

Board of Directors means, with respect to the Company, the board of directors of the Company or any committee thereof duly authorized to act on behalf of the board of directors.

Borrower and Borrowers - - see the Preamble.

Borrowing Base means an amount equal to:

(A)means an amount equal to the total of (a) up to 85% of the unpaid amount of all Eligible Accounts plus (b) the least of (1) 50% of the Revolving Commitments of all Lenders as in effect from time to time, (2) up to 55% of the value of all Eligible Inventory valued at the lower of cost or market and (3) up to 80% of the value of all Eligible Inventory valued at the Net Orderly Liquidation Value thereof as determined by the Administrative Agent from time to time in its commercially reasonable credit judgment after consultation with the Loan Party Representative; and minus

(B)the Rent Reserve, if any, in effect at such time; and minus

4

(C)the estimated aggregate amount of the Specified Hedging Obligations as determined in good faith as between the Administrative Agent, the Loan Party Representative and the counterparty on such Specified Hedging Agreements; and minus

(D)such other reserves as the Administrative Agent elects, in its commercially reasonable credit judgment after consultation with the Loan Party Representative, to establish from time to time.

Borrowing Base Certificate means a certificate substantially in the form of Exhibit C.

BSA - see Section 10.4.

Business Day means any day on which commercial banks are open for commercial banking business in Chicago, Illinois and New York, New York and, in the case of a Business Day which relates to a LIBOR Loan, on which dealings are carried on in the London interbank eurodollar market.

Capital Expenditures means with respect to any Person all expenditures which, in accordance with GAAP, would be required to be capitalized and shown on the consolidated balance sheet of such Person, including expenditures in respect of Capital Leases; provided, that for purposes of this Agreement, including the calculation of Excess Cash Flow, the Fixed Charge Coverage Ratio or compliance with Section 11.13.4, the reinvestment of sale or insurance proceeds arising from a sale (permitted hereunder) or casualty loss of a capital asset in replacement capital assets having the same or substantially similar use as the affected capital asset shall not be included as a Capital Expenditure hereunder to the extent of such reinvestment.

Capital Lease means, with respect to any Person, any lease of (or other agreement conveying the right to use) any real, personal or mixed property by such Person that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of such Person.

Capital Securities means, with respect to any Person, all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person’s capital, whether now outstanding or issued or acquired after the Closing Date, including common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership, interests in a trust, interests in other unincorporated organizations or any other equivalent of such ownership interest.

Cash Collateralize means to deliver cash collateral to the Administrative Agent in the amount equal to 105% of the sum of (x) the Stated Amount plus (y) the amount of unpaid letter of credit fees then accrued and thereafter scheduled to accrue for the duration of the outstanding Letters of Credit pursuant to Section 5.2(a) and (b), to be held as cash collateral for outstanding Letters of Credit pursuant to documentation reasonably satisfactory to the Administrative Agent. Derivatives of such term have corresponding meanings.

Cash Equivalent Investment means, at any time, (a) any evidence of Debt, maturing not more than one year after such time, issued or guaranteed by the United States Government or any agency thereof, (b) commercial paper, maturing not more than one year from the date of issue, or corporate demand notes, in each case (unless issued by a Lender, its Affiliate or its holding

5

company) rated at least A-2 by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. or P-2 by Moody’s Investors Service, Inc., (c) any certificate of deposit, time deposit or banker’s acceptance, maturing not more than one year after such time, or any overnight Federal Funds transaction that is issued or sold by LaSalle or any Lender or its holding company (or by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $250,000,000), (d) any repurchase agreement entered into with any Lender (or commercial banking institution of the nature referred to in clause (c)) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) above and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such Lender (or other commercial banking institution) thereunder and (e) money market accounts or mutual funds in which 90% or more of the assets invested satisfy the foregoing requirements, and (f) other short term liquid investments approved in writing by the Administrative Agent.

Change of Control means each occurrence of any of the following:

(a)any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of 50.1% or more of the Capital Securities of the Company having the right to vote for the election of members of the Board of Directors,

(b)a majority of the members of the Board of Directors do not constitute Continuing Directors,

(c)the common stock of the Company ceases to be listed and traded on a national stock exchange;

(d)the Company ceases to own and control, directly, 100% of the shares of the Capital Securities of the Borrowers, unless otherwise permitted hereunder,

(e)any Borrower ceases to own and control, directly or indirectly, 100% of the shares of the Capital Securities of any Loan Party which is its Subsidiary, unless otherwise permitted hereunder, or

(f)(i) the Company consolidates with or merges with or into another entity (other than a Loan Party that is a Domestic Wholly-Owned Subsidiary) and is not the surviving entity or (ii) conveys, transfers or leases all or substantially all of its property and assets to any Person (other than a Loan Party that is a Domestic Wholly-Owned Subsidiary).

Chief Financial Officer means the chief financial officer of the Company.

Closing Date - - see Section 12.1.

Code means the Internal Revenue Code of 1986.

Collateral has the meaning set forth in the Guaranty and Collateral Agreement.

6

Collateral Access Agreement means an agreement in form and substance reasonably satisfactory to the Administrative Agent pursuant to which a mortgagee or lessor of real property on which Collateral is stored or otherwise located, or a warehouseman, processor or other bailee of Inventory or other property owned by any Loan Party, acknowledges the Liens of the Administrative Agent and waives or, in the reasonable discretion of the Administrative Agent, subordinates on terms reasonably acceptable to the Administrative Agent, any Liens held by such Person on such property, and, in the case of any such agreement with a mortgagee or lessor, permits the Administrative Agent reasonable access to and use of such real property following the occurrence and during the continuance of an Event of Default to assemble, complete and sell any Collateral stored or otherwise located thereon.

Collateral Documents means, collectively, the Guaranty and Collateral Agreement, the Pledge Agreement, each Mortgage, each Collateral Access Agreement, each Account Control Agreement and any other agreement or instrument pursuant to which any Loan Party, any Subsidiary or any other Person grants or purports to grant Collateral to the Administrative Agent for the benefit of the Lenders or otherwise relates to such Collateral.

Commitment means, as to any Lender, such Lender’s commitment to make Revolving Loans, a Term Loan and/or to issue or participate in Letters of Credit, in each case as applicable under this Agreement and “Commitments” means the Revolving Commitments and the Term Loan Commitments of all Lenders. The initial amount of each Lender’s Commitment to make Loans is set forth on Annex A.

Company means Russ Berrie and Company, Inc., a New Jersey corporation.

Compliance Certificate means a Compliance Certificate in substantially the form of Exhibit B.

Computation Period means each period of four consecutive Fiscal Quarters ending on the last day of a Fiscal Quarter.

Consolidated Net Income means, with respect to the Borrowers and their consolidated Subsidiaries, on a consolidated basis, for any period, the net income (or loss) of the Borrowers and their consolidated Subsidiaries for such period, in each case, determined in accordance with GAAP, but excluding any extraordinary after-tax gains and losses, any non-recurring gains or losses, or any non-cash gains or losses from Asset Dispositions, any non-cash restructuring charges, any tax refunds, net operating losses or other net tax benefits and any after-tax gains and losses from discontinued operations.

Contingent Liability means, with respect to any Person, each obligation and liability of such Person and all such obligations and liabilities of such Person incurred pursuant to any agreement, undertaking or arrangement by which such Person:  (a) guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, dividend, obligation or other liability of any other Person in any manner (other than by endorsement of instruments in the course of collection), including any indebtedness, dividend or other obligation which may be

7

issued or incurred at some future time; (b) guarantees the payment of dividends or other distributions upon the Capital Securities of any other Person; (c) undertakes or agrees (whether contingently or otherwise):  (i) to purchase, repurchase, or otherwise acquire any indebtedness, obligation or liability of any other Person or any property or assets constituting security therefor, (ii) to advance or provide funds for the payment or discharge of any indebtedness, obligation or liability of any other Person (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, working capital or other financial condition of any other Person, or (iii) to make payment to any other Person other than for value received; (d) agrees to lease property or to purchase securities, property or services from such other Person with the purpose or intent of assuring the owner of such indebtedness or obligation of the ability of such other Person to make payment of the indebtedness or obligation; (e) to induce the issuance of, or in connection with the issuance of, any letter of credit for the benefit of such other Person; or (f) undertakes or agrees otherwise to assure a creditor against loss. The amount of any Contingent Liability shall (subject to any limitation set forth herein) be deemed to be the outstanding principal amount (or maximum permitted principal amount, if larger) of the indebtedness, obligation or other liability guaranteed or supported thereby. The term “Contingent Liability” shall exclude endorsements of instruments for deposit or collection in the ordinary course of business and product warranties extended in the ordinary course of business.

Continuing Director means (a) any member of the Board of Directors who was a director of the Company on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors.

Contractual Redemption - - see the definition of “Excess Cash Flow.”

Controlled Group means all members of a controlled group of corporations, all members of a controlled group of trades or businesses (whether or not incorporated) under common control and all members of an affiliated service group which, together with the Company or any of its Subsidiaries, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

Debt - of any Person means, without duplication, (a) all indebtedness of such Person, (b) all borrowed money of such Person, whether or not evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person as lessee under Capital Leases which have been or should be recorded as liabilities on a balance sheet of such Person in accordance with GAAP, (d) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable or other accounts payable incurred in the ordinary course of such Person’s business), (e) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person; provided that if such Person has not assumed or otherwise become liable for such indebtedness, such indebtedness shall be measured at the fair market value of such property securing such indebtedness at the time of determination, (f) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn), bankers’ acceptances and similar obligations issued for the account of such Person (including the Letters of Credit), (g) all Hedging Obligations of such Person, (h) all Contingent Liabilities of such Person, (i) all Debt

8

of any partnership of which such Person is a general partner, (j) all monetary obligations of such Person under (i) so called synthetic, off-balance sheet or tax retention leases (solely for purposes of calculating compliance with the financial covenants set forth in Section 11.13 or the Total Debt to EBITDA Ratio for purposes of determining the Applicable Margin, discounted to present value at a reasonable capitalization rate fixed reasonably acceptable to the Administrative Agent), or (ii) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment), (k) any Capital Securities or other equity instrument, whether or not mandatorily redeemable, that under GAAP is characterized as debt, whether pursuant to Financial Accounting Standards Board Issuance No. 150 or otherwise, and (l) the Subordinated Debt.

Debt to be Repaid means Debt listed on Schedule 12.1.

Defaulting Lender – see Section 2.1.1(c).

Designated Proceeds - - see Section 6.2.2.

Disposition – see the definition of “Asset Disposition.”

Disproportionate Advance – see Section 2.2.2(i).

Dollar and the sign “$” mean lawful money of the United States of America.

Domestic Wholly-Owned Subsidiary means any wholly-owned direct or indirect Subsidiary of a Loan Party which is organized under the laws of any state in the United States of America. Unless the context otherwise requires, each reference to a Domestic Wholly-Owned Subsidiary herein shall be a reference to a Domestic Wholly-Owned Subsidiary of a Borrower.

Earnout Consideration means the “Earnout Consideration” as defined in the Kids Line Purchase Agreement as in effect on the date hereof (without giving effect to any amendment or other modification thereof after the Closing Date, except to the extent expressly permitted hereunder). As used herein, the term “Earnout Consideration” shall also include any payments in respect of any guaranty of the Earnout Consideration.

Earnout Security Documents means, collectively, that certain Guaranty, dated as of December 15, 2004, executed by the Company and each of its subsidiaries party thereto in favor of the Earnout Sellers Agent (as amended as of the Closing Date to, among other things, release the Company therefrom), that certain Subordinated Security Agreement, dated as of December 15, 2004 (as amended as of the Closing Date), executed by the Company and certain of its subsidiaries party thereto in favor of the Earnout Sellers Agent for the benefit of the Earnout Sellers as security for the such Person’s obligations with respect to payment (or guaranty of payment) of the Earnout Consideration, that certain Subordinated Mortgage by and from Sassy to the Earnout Sellers Agent, dated as of January 28, 2005, and any other agreement, instrument, and other document executed and delivered pursuant thereto or related to such security interests, in each case as in effect on the date hereof (without giving effect to any amendment or other modification thereof after the Closing Date except to the extent expressly permitted hereunder).

9

Earnout Sellers means, collectively, the “Deferred Payout Sellers” as defined in the Kids Line Purchase Agreement as in effect on the date hereof (without giving effect to any amendment or other modification thereof after the Closing Date, except to the extent expressly permitted hereunder).

Earnout Sellers Agent means California KL Holdings, Inc., a California corporation, as agent for the Earnout Sellers.

Earnout Sellers Lien means the Lien in favor of the Earnout Sellers under the Earnout Security Documents, which Lien shall at all times be junior in priority to the Liens in favor of the Administrative Agent securing the Obligations.

Earnout Subordination Agreement means that certain Subordination Agreement dated as of the Closing Date (as amended, restated, supplemented or otherwise defined from time to time in accordance with the terms hereof) among the Administrative Agent, the Earnout Sellers and the Earnout Seller’s Agent.

EBITDA means, for any period, with respect to the Borrowers and their consolidated Subsidiaries on a consolidated basis, Consolidated Net Income for such period plus (minus), to the extent deducted (added) in determining such Consolidated Net Income, (i) Interest Expense, (ii) income tax expense, (iii) depreciation, (iv) amortization, (v) other non-cash charges (gains), (vi) to the extent not prohibited by the terms hereof, payments made with respect to the Earnout Consideration, (vii) if expensed, reasonable costs, expenses and fees incurred in connection with the negotiation, execution and delivery of the Loan Documents and the financings contemplated thereby, (viii) if expensed, the reasonable fees and expenses paid to any Independent Director and incremental auditor’s fees and expenses relating to the preparation of separate audited financial statements of the Borrowers (distinct from those of the Company) as required pursuant to Section 10.1.1(a) and (ix) non-cash transaction losses (gains) due solely to fluctuations in currency values, in each case, during such period. For purposes of calculating the financial covenants set forth in Sections 11.13.1, 11.13.2 and 11.13.3 and the Applicable Margin, EBITDA for Fiscal Quarters ended on June 30, 2005, September 30, 2005 and December 31, 2005 shall be deemed to be $8,792,000, $9,316,000 and $9,165,000, respectively.

Eligible Account means an Account (other than any portion of which is owing in respect of sales, excise or similar taxes) owing to a Borrower which is acceptable for lending purposes to the Administrative Agent in its commercially reasonable credit judgment. Without limiting the Administrative Agent’s aforementioned credit judgment, the Administrative Agent shall, in general, consider an Account to be an Eligible Account if it meets, and so long as if continues to meet, the following requirements:

(a)it arises from the final, bona fide sale or lease of goods or the rendering of services which have been fully performed by such Borrower; and if it arises from the sale or lease of goods, (i) such goods comply with the relevant Account Debtor’s specifications (if any) and have been delivered to such Account Debtor and (ii) such Borrower has possession of delivery receipts evidencing such delivery;

10

(b)it (i) is owned by such Borrower, (ii) is subject to a perfected, first priority Lien in favor of the Administrative Agent and (iii) is not subject to any other assignment, claim or Lien, other than the Earnout Sellers Lien to the extent such Lien remains subordinated to the Liens of the Administrative Agent hereunder pursuant to the Earnout Subordination Agreement; provided that, if subject to any such other assignment, claim or Lien (other than the Earnout Sellers Lien as aforesaid), such Account shall be deemed ineligible pursuant to this clause (b) only to the extent of the amount of such assignment, claim or Lien;

(c)it (i) is a valid, legally and enforceable obligation of the Account Debtor with respect thereto, (ii) is not subject to (x) the fulfillment of any condition whatsoever or any counterclaim, offset, credit, allowance, discount, rebate, or adjustment by the Account Debtor with respect thereto, or (y) any claim by such Account Debtor denying liability thereunder in whole or in part; provided that only such portion of such Account subject to such counterclaim, offset, credit, allowance, discount, rebate, adjustment or liability shall be deemed ineligible pursuant to this clause (c)(ii), and (iii) the Account Debtor has not refused to accept and/or has not returned or offered to return any of the goods or services which are the subject of such Account;

(d)there is no bankruptcy, insolvency or liquidation proceeding pending by or against the Account Debtor or any Affiliated Account Debtor with respect thereto;

(e)the Account Debtor with respect thereto is a resident or citizen of, and is located within, the United States (including Puerto Rico, the U.S. Virgin Islands and Guam) or Canada (excluding Newfoundland, the Northwest Territories or Nunavut), unless the sale of goods or rendering of services giving rise to such Account is on letter of credit, bankers’ acceptance or other credit support terms reasonably acceptable to the Administrative Agent (any such Account in respect of which the Account Debtor thereon is a resident of Canada, being a “Canadian Account”), and such Account is denominated in United States dollars, or in the case of a Canadian Account, Canadian dollars;

(f)it is not (i) an Account arising from a “sale on approval,” “sale or return,” “consignment” or “bill and hold” or subject to any other repurchase or return agreement, or (ii) subject to a reserve or contra-account established by such Borrower for potential returns or refunds (without duplication of any other reserve or deductions regarding such returns or refunds); provided that only such portion of such Account in the amount of such reserve or contra-account shall be deemed ineligible pursuant to this clause (f)(ii);

(g)it is not an Account with respect to which possession and/or control of the goods sold giving rise thereto is held, maintained or retained by such Borrower (or by any agent or custodian of such Borrower) for the account of or subject to further and/or future direction from the Account Debtor with respect thereto;

(h)it arises in the ordinary course of business of such Borrower;

(i)if the Account Debtor is the United States or any state or local government, or any department, agency or instrumentality thereof, such Borrower has assigned its right to payment of such Account to the Administrative Agent pursuant to the Assignment of Claims Act of 1940

11

or any comparable state or local law, as applicable, and evidence (reasonably satisfactory to the Administrative Agent) of such assignment has been delivered to the Administrative Agent;

(j)if such Borrower maintains a credit limit for an Account Debtor, the aggregate dollar amount of Accounts due from such Account Debtor and its Affiliated Account Debtors, including such Account, does not exceed such credit limit; provided that only such portion of such Account that exceeds such credit limit shall be deemed ineligible pursuant to this clause (j);

(k)it is not an Account evidenced by chattel paper or an instrument;

(l)such Account is evidenced by an invoice delivered to the related Account Debtor and is not more than (i) 60 days past the due date thereof or (ii) 90 days past the original invoice date thereof, in each case according to the original terms of sale; provided that up to $5,000,000 of Accounts evidenced by invoices not more than (x) 60 days past the due date thereof or (y) 180 days past the original invoice date thereof but which otherwise meet all other eligibility criteria hereunder shall not be deemed ineligible pursuant to this clause (l);

(m)it is not owing by an Account Debtor in respect of which 35% or more of the aggregate dollar amount of all Accounts owing by such Account Debtor and its Affiliated Account Debtors are ineligible pursuant to clause (l) immediately above;

(n)it is not an Account with respect to an Account Debtor that is located in any jurisdiction which has adopted a statute or other requirement with respect to which any Person that obtains business from within such jurisdiction must file a notice of business activities report or make any other required filings in a timely manner in order to enforce its claims in such jurisdiction’s courts unless (i) such notice of business activities report has been duly and timely filed or such Borrower is exempt from filing such report and has provided the Administrative Agent with reasonably satisfactory evidence of such exemption or (ii) the failure to make such filings may be cured retroactively by such Borrower for a nominal fee;

(o)the Account Debtor or Affiliated Account Debtor with respect thereto is not (i) a Loan Party or an Affiliate of a Loan Party or (ii) a director, officer, employee or agent of a Loan Party or an Affiliate of a Loan Party;

(p)if the aggregate amount of all Accounts owed by the Account Debtor and its Affiliated Account Debtors thereon exceeds 25% of the aggregate amount of all Eligible Accounts at such time, then all Accounts owed by such Account Debtor or Affiliated Account Debtors in excess of such amount shall be deemed ineligible; provided, however that (i) with respect to Toys ‘R’ Us and Babies ‘R’ Us, collectively, if the aggregate amount of all Accounts owed by the such entities (including those owned by its Affiliated Account Debtors) thereon exceeds, collectively, 55% of the aggregate amount of all Eligible Accounts at such time, or (ii) with respect to any other Account Debtor and its Affiliated Account Debtors that have a long-term unsecured debt rating of BBB or better by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. or the equivalent rating from Moody’s Investor Services, Inc., if the aggregate amount of all Accounts owed by such entity (including those owned by its Affiliated Account Debtors) thereon exceeds, collectively, 35% of the aggregate amount of all Eligible Accounts at such time, then, in any such case, all Accounts owed by the applicable

12

Account Debtor(s) and its Affiliated Account Debtors in excess of the amounts determined above shall be deemed ineligible;

(q)it is not an Account (i) with respect to which any representation or warranty contained in this Agreement or any other Loan Document is untrue in any material respect (or, if such representation or warranty is qualified by materiality or Material Adverse Effect, in any respect), (ii) which violates any of the covenants contained in this Agreement, any other Loan Document or the agreement or contract under which it arises in any material respect (or, if such covenant is qualified by materiality or Material Adverse Effect, in any respect), or (iii) which arises out of a contract or order which fails in any material respect to comply with the requirements of applicable law;

(r)it is not an Account for which such Borrower has received any prepayment or a deposit in respect of such Account; provided, that the amount of such Account in excess of the amount of any such prepayment and/or deposit shall not be deemed ineligible pursuant to this clause (r); and

(s)it does not arise from the sale of goods covered under any license agreement, distribution agreement or other similar agreement that prohibits the granting of Liens in the proceeds of such goods in favor of the Administrative Agent to secure the Obligations (and such prohibition has not been waived).

An Account which is at any time an Eligible Account, but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be an Eligible Account. Further, with respect to any Account, if the Administrative Agent or the Required Lenders at any time hereafter determine in its or their reasonable credit judgment that the prospect of payment or performance by the Account Debtor with respect thereto is materially impaired for any reason whatsoever, such Account shall cease to be an Eligible Account after consultation with, and notice of such determination is given to, the Loan Party Representative.

Eligible Assignee means (i) commercial banks organized under the laws of the United States, or any State thereof, and having combined capital and surplus of at least $500,000,000; (ii) commercial banks organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to borrow, or a political subdivision of any such country, and having combined capital and surplus of at least $500,000,000, so long as any such bank is acting through a branch or agency located in the United States; (iii) finance companies, insurance companies or other financial institutions or funds (whether corporations, partnerships, trusts or other entities) that are regularly engaged in the United States in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having combined capital and surplus of at least $500,000,000 or with respect to any funds with total assets under its management in excess of $250,000,000; (iv) any Affiliate of a Person of the type set forth in clause (i), (ii) or (iii), and (iv) any other Person other than an Affiliate of a Loan Party approved by the Administrative Agent and the Loan Party Representative, such approval not to be unreasonably withheld or delayed.

13

Eligible Inventory means Inventory of a Borrower which is acceptable for lending purposes to the Administrative Agent in its commercially reasonable credit judgment. Without limiting the Administrative Agent’s aforesaid credit judgment, the Administrative Agent shall, in general, consider Inventory to be Eligible Inventory if it meets, and for so long as it continues to meet, each of the following requirements:

(a)it (i) is owned by such Borrower, (ii) is subject to a perfected, first priority Lien in favor of the Administrative Agent and (iii) is not subject to any other assignment, claim or Lien, other than the Earnout Sellers Lien, to the extent such Lien remains subordinated to the Liens of the Administrative Agent hereunder pursuant to the Earnout Subordination Agreement; provided that, if subject to any such other assignment, claim or lien (other than the Earnout Sellers’ Lien as aforesaid), such Inventory shall be deemed ineligible pursuant to this clause (a) only to the extent of the amount of such assignment, claim or Lien;

(b)it is salable and not slow-moving, obsolete or discontinued;

(c)it is in the possession and control of a Loan Party and it is stored and held in facilities owned by a Loan Party (and not subject to a mortgage other than a mortgage in favor of the Administrative Agent or the Earnout Sellers Agent) or, if such facilities are not so owned, the Administrative Agent is in possession of a Collateral Access Agreement from any lessor or mortgagee thereof with respect thereto or a Rent Reserve is then in effect with respect to such location;

(d)it is not Inventory produced in violation of the Fair Labor Standards Act and subject to the “hot goods” provisions contained in Title 29 U.S.C. §215;

(e)it is not subject to any agreement or license which would restrict the Administrative Agent’s ability to sell or otherwise dispose of such Inventory or which contains any prohibition on the Administrative Agent’s Lien therein to secure the Obligations (unless such prohibition shall have been waived);

(f)it is located at one of the owned or leased locations of such Borrower identified on Schedule 4 of the Guaranty and Collateral Agreement or otherwise identified to the Administrative Agent pursuant to Section 5.3 thereof in the United States or in any territory or possession of the United States that has adopted Article 9 of the Uniform Commercial Code;

(g)it is not “in transit” to such Borrower or held by such Borrower on consignment; provided that up to $3,000,000 of Inventory which is “in transit” (the “In-Transit Inventory”) shall be deemed eligible hereunder so long as such In-Transit Inventory (i) otherwise meets all other criteria for eligibility hereunder, (ii) the In-Transit Inventory is subject to bills of lading, air bills or other similar documentation (collectively, the “Shipping Documents”) which are adequate as determined by the Administrative Agent in its commercially reasonable credit judgment; (iii) the In-Transit Inventory is fully-insured under an insurance policy naming the Administrative Agent as loss payee, (iv) the applicable Borrower has title to such an In-Transit Inventory, (v) such In-Transit Inventory shall be listed as such on the report required pursuant to Section 10.1.6 for the months in which such In-Transit Inventory is in transit, and (vi) the Borrowers have, if and to the extent requested by the Administrative Agent at any time during

14

the continuation of an Unmatured Event of Default or Event of Default, delivered such Shipping Documents to the Administrative Agent, appropriately endorsed, together with a power of attorney to allow the Administrative Agent to list itself as “consignee” thereunder;

(h)it is finished goods and is not work-in-progress, display inventory, supply items, packaging, tooling, samples or literature;

(i)it is not identified to any purchase order or contract to the extent progress or advance payments are received with respect to such Inventory; and

(j)it does not breach any of the representations, warranties or covenants pertaining to Inventory set forth in the Loan Documents in any material respect (or, if such representation or warranty is qualified by materiality or Material Adverse Effect, in any respect).

Inventory which is at any time Eligible Inventory but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be Eligible Inventory.

Environmental Claims means all claims, however asserted, by any governmental, regulatory or judicial authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment.

Environmental Laws means all present or future federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative or judicial orders, consent agreements, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authority, in each case relating to any matter arising out of or relating to public health and safety, or pollution or protection of the environment or workplace, including any of the foregoing relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, emission, release, threatened release, control or cleanup of any Hazardous Substance.

ERISA means the Employee Retirement Income Security Act of 1974.

Event of Default means any of the events described in Section 13.1.

Excess Cash Flow means, for any period, (a) EBITDA for such period, minus (b) the sum, without duplication, of (i) scheduled repayments of principal of the Term Loan made during such period, plus (ii) voluntary prepayments of the Term Loan pursuant to Section 6.2.1 during such period (including any other fees or expenses resulting from such prepayment paid during such period in connection with such prepayment), plus (iii) cash payments made in such period with respect to unfinanced Capital Expenditures, plus (iv) all cash payments made or cash dividends or distributions to the Company by the Borrowers to make restricted payments pursuant to, and to the extent permitted by, Sections 11.3(iii), 11.3(v), 11.3(vii) (to the extent that any such redemption or repurchase as described in such clause is required pursuant to a contractual requirement to make such redemption or repurchase which is either in effect as of the Closing Date or which is entered into thereafter in accordance with the ordinary course of the Company’s business, a “Contractual Redemption”) and 11.3(viii), plus (v) cash Interest Expense of the Loan Parties during such period, plus (vi) other scheduled payments of principal on Debt permitted under Section 11.1 made during such period (but only to the extent such payment was

15

permitted pursuant to the terms hereof), plus (or minus) (vii) any increases in working capital (or decreases in working capital) during such period, plus (viii) the reasonable fees and expenses paid to the Independent Directors during such period, plus (ix) fees required to be paid by the Borrowers to the Administrative Agent, the Lenders or the Issuing Lender pursuant to the Loan Documents during such period, plus (x) fees and expenses relating to the initial effectuation of the Spin-Off and allocable to the Borrowers during such period, plus (xi) incremental auditor’s fees and expenses relating to the preparation of separate audited financial statements of the Borrowers (distinct from those of the Company) as required pursuant to Section 10.1.1(a).

Excess Revolving Loan Availability means at any time the difference between Revolving Loan Availability and the Revolving Outstandings at such time.

Exchange Act means the Securities Exchange Act of 1934, as amended.

Excluded Taxes means taxes (i) based upon, or measured by, the Lender’s or Administrative Agent’s (or a branch of the Lender’s or Administrative Agent’s) overall net income, overall net receipts, or overall net profits (including franchise taxes imposed in lieu of such taxes), but only to the extent such taxes are imposed by a taxing authority (a) in the United States or a jurisdiction (or political subdivision thereof) under the laws of which such Lender or Administrative Agent is organized, (b) in a jurisdiction which the Lender’s or Administrative Agent’s principal office is located, or (c) in a jurisdiction in which such Lender or Administrative Agent maintains a lending office (or branch), including the lending office in respect of which payments under this Agreement are made is located, or in which such Lender or Administrative Agent is a resident for income tax purposes and (ii) branch profits taxes.

Federal Funds Rate means, for any day, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. The Administrative Agent’s determination of such rate shall be binding and conclusive absent manifest error.

First-Tier Foreign Subsidiary means, any direct Foreign Subsidiary of a Loan Party or Subsidiary organized under the laws of the United States of America.

Fiscal Quarter means a fiscal quarter of a Fiscal Year.

Fiscal Year means the fiscal year of the Borrowers and their consolidated Subsidiaries, which period shall be the 12-month period ending on December 31st of each calendar year. References to a Fiscal Year with a number corresponding to any calendar year (e.g., “Fiscal Year 2005”) refer to the Fiscal Year ending on December 31st of such calendar year.

Fixed Charge Coverage Ratio means, as of the last day of any Fiscal Quarter for any period ending thereon for the Borrowers and their consolidated Subsidiaries on a consolidated basis, the ratio of (a) the total for such period of EBITDA (calculated, where applicable, using

16

the EBITDA values set forth in the definition thereof) minus the sum of (i) all unfinanced Capital Expenditures of such Persons incurred during such period, and (ii) all cash dividends or distributions paid during such period (including all cash dividends or distributions to the Company by the Borrowers during such period for the sole purpose of permitting the Company to pay income taxes as permitted pursuant to Section 11.3(iii)) to (b) the sum for such period for the Borrowers and their consolidated Subsidiaries on a consolidated basis of all scheduled interest and principal payments of Debt (other than the Earnout Consideration), including the principal component of any Capital Lease (in each case, whether or not in fact paid during such period), paid (or which should have been paid) in cash.

Foreign Subsidiary means a Subsidiary organized in a jurisdiction outside of the United States of America.

Fraudulent Conveyance – see Section 15.22.2.

FRB means the Board of Governors of the Federal Reserve System or any successor thereto.

GAAP means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination.

Group - see Section 2.2.1.

Guarantor - - see the Preamble. A Guarantor is a Person that is both a “Grantor” and a “Guarantor” under and as defined in the Guaranty and Collateral Agreement.

Guaranty and Collateral Agreement means the Guaranty and Collateral Agreement dated as of the date hereof executed and delivered by the Loan Parties, and such other parties as may from time to time become parties thereto in accordance with the terms hereof and/or thereof, and any other guaranty and collateral agreement executed by a Loan Party, in each case in form and substance reasonably satisfactory to the Administrative Agent, in each case, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Hazardous Substances means (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, dielectric fluid containing levels of polychlorinated biphenyls, radon gas and mold; (b) any chemicals, materials, pollutant or substances defined as or included in the definition of “hazardous substances”, “hazardous waste”, “hazardous materials”, “extremely hazardous substances”, “restricted hazardous waste”, “toxic substances”, “toxic pollutants”, “contaminants”, “pollutants” or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the exposure to, or release of which is prohibited, limited or regulated by any governmental authority or for which any duty or standard of care is imposed pursuant to, any Environmental Law.

17

Hedging Agreement means any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices.

Hedging Obligation means, with respect to any Person, the amount of the obligations of such Person under any Hedging Agreement calculated by reference to the marked-to-market termination value of such Hedging Agreement.

Indemnified Liabilities - - see Section 15.17.

Independent Director - - means, any person who (i) is not a stockholder (whether direct, indirect or beneficial), customer or supplier of the Company, any Loan Party or any of the foregoing’s Affiliates; (ii) other than in their capacity as an Independent Director, is not a director, officer, employee, Affiliate or associate (as such term is defined in Rule 14a-1(a) promulgated under the Exchange Act) of the Company, any Loan Party or any of the foregoing’s Affiliates; (iii) is not a trustee, conservator or receiver for the Company, any Loan Party or any of the foregoing’s Affiliates and (iv) is not a person related to any person referred to in clauses (i), (ii) or (iii); and (v) has at least three years of prior experience as an independent director for a corporation or other business entity whose charter documents require an independent director’s consent to certain actions, including, without limitation, the institution of bankruptcy or insolvency proceedings against it; provided that a person may be an Independent Director of more than one Borrower.

Interest Expense means for any period the consolidated interest expense of the Borrowers and their consolidated Subsidiaries, on a consolidated basis, for such period (including all imputed interest on Capital Leases).

Interest Period means, as to any LIBOR Loan, the period commencing on the date such Loan is borrowed or continued as, or converted into, a LIBOR Loan and ending on the date one, two, three or six months thereafter as selected by the Loan Party Representative pursuant to Section 2.2.2 or 2.2.3, as the case may be; provided that:

(a)if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day;

(b)any Interest Period that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period;

(c)the Loan Party Representative may not select any Interest Period which would extend beyond the Scheduled Termination Date, in the case of any Interest Period relating to any Revolving Loan or the Term Loan; and

18

(d)there may be no more than six (6) Interest Periods outstanding at any time.

Inventory is defined in the Guaranty and Collateral Agreement.

Investment means, with respect to any Person, any investment in another Person, whether by acquisition of any debt or Capital Security, by making any loan or advance, by assuming, becoming obligated with respect to a liability, Debt or Contingent Liability in respect of obligations of such other Person (other than travel, relocation and similar advances to employees in the ordinary course of business).

Issuing Lender means LaSalle, in its capacity as the issuer of Letters of Credit hereunder, or any Affiliate of LaSalle that may from time to time issue Letters of Credit, and in each case, any successor and assign thereof acting in such capacity.

Kids Line - - see the Preamble.

Kids Line Purchase Agreement means that certain Membership Interest Purchase Agreement, dated as of December 15, 2004, among Kids Line, the Company and the various seller parties thereto, as the same has been modified by that certain letter agreement dated on or about the date hereof among the Company, the Borrowers, the Earnout Sellers (through their authorized representatives) and the Earnout Sellers Agent.

LaSalle - - see the Preamble.

L/C Application means, with respect to any request for the issuance of a Letter of Credit, a letter of credit application in the form being used by the Issuing Lender at the time of such request for the type of letter of credit requested.

L/C Fee Rate - - see the definition of Applicable Margin.

Lender - see the Preamble. In addition (a) Lender shall include the Issuing Lender and the Administrative Agent to the extent it makes any loans or advances any financial accommodations under this Agreement or any other Loan Document and (b) for the purpose of identifying a Person entitled to share in the Collateral and the proceeds thereof under, and in accordance with the provisions of, this Agreement and the Collateral Documents and the Person entitled to indemnification and exculpation as a Lender or a Lender party under this Agreement or any other Loan Document, the term Lender and Lender Party shall include Affiliates of a Lender providing a Bank Product pursuant to this Agreement or any other Loan Document and the transactions contemplated hereby or thereby.

Lenders means, collectively, each and every Lender.

Lender Party - - see Section 15.17 and the definition of Lender above.

Letter of Credit - - see Section 2.1.3.

19

LIBOR Loan means any Loan which bears interest at a rate determined by reference to the LIBOR Rate.

LIBOR Margin - - see the definition of Applicable Margin.

LIBOR Office means with respect to any Lender the office or offices of such Lender which shall be making or maintaining the LIBOR Loans of such Lender hereunder. A LIBOR Office of any Lender may be, at the option of such Lender, either a domestic or foreign office.

LIBOR Rate means a rate of interest equal to (a) the per annum rate of interest at which United States dollar deposits in an amount comparable to the amount of the relevant LIBOR Loan and for a period equal to the relevant Interest Period are offered in the London Interbank Eurodollar market at 11:00 A.M. (London time) two (2) Business Days prior to the commencement of such Interest Period (or three (3) Business Days prior to the commencement of such Interest Period if banks in London, England were not open and dealing in offshore United States dollars on such second preceding Business Day), as displayed in the Bloomberg Financial Markets system (or other authoritative source selected by the Administrative Agent in its sole discretion) or, if the Bloomberg Financial Markets system or another authoritative source is not available, as the LIBOR Rate is otherwise determined by the Administrative Agent in its sole and absolute discretion, divided by (b) a number determined by subtracting from 1.00 the then stated maximum reserve percentage for determining reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D), such rate to remain fixed for such Interest Period. The Administrative Agent’s determination of the LIBOR Rate shall be conclusive, absent manifest error.

Lien means, with respect to any Person, any interest granted by such Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person (including an interest in respect of a Capital Lease) which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, title retention lien, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise.

Loan Documents means this Agreement, the Notes, the Letters of Credit, the Master Letter of Credit Agreement, the L/C Applications, the Agent Fee Letter, the Collateral Documents, the subordination agreements, if any, relating to any Subordinated Debt (including the Earnout Subordination Agreement) and all other documents, instruments and agreements delivered in connection with the foregoing.

Loan Party means, collectively, each other Borrower and each Guarantor, and Loan Parties means all such Persons, collectively.

Loan Party Representative means the Company in its capacity as Loan Party Representative pursuant to the provisions of Section 2.6.

Loans means, collectively, the Revolving Loans and, the Term Loan and Loan means any of the foregoing.

20

Mandatory Prepayment Event - see Section 6.2.2(a).

Margin Stock means any “margin stock” as defined in Regulation U.

Master Letter of Credit Agreement means, at any time, with respect to the issuance of Letters of Credit, a master letter of credit agreement or reimbursement agreement in the form, if any, being used by the Issuing Lender at such time, together with any amendments, restatements, supplements or modifications thereto.

Material Adverse Effect means (a) a material adverse change in, or a material adverse effect upon, the condition (financial or otherwise), operations, assets, liabilities, business, or properties of the Loan Parties taken as a whole, (b) a material impairment of the ability of the Loan Parties taken as a whole to perform their obligations under the Loan Documents or (c) a material adverse effect upon any material portion of the Collateral or the validity, perfection or priority of any Lien in favor of the Administrative Agent for the benefit of the Lenders under the Collateral Documents against any material portion of the Collateral or upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document, or the rights and remedies, taken as a whole, of the Administrative Agent or the Lenders under any Loan Document.

Maximum Revolving Commitment means, the lesser of (x) $35,000,000, as such amount may be decreased from time to time in accordance with Sections 6.1.1 or 6.1.2 (the “Revolving Commitment Limit”) and (y) the sum of the Revolving Commitments of all Lenders as in effect at such time.

Mortgage means a mortgage, deed of trust, leasehold mortgage or similar instrument granting the Administrative Agent a Lien on real property of any Loan Party, in each case, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Multiemployer Pension Plan means a multiemployer plan, as defined in Section 3(37)(A) of ERISA, to which any Loan Party or any other member of the Controlled Group maintains, contributes to, or has an obligation to contribute to (or, within the immediately preceding six (6) years, maintained, contributed to or had an obligation to contribute to) on behalf of participants who were employed by any of them.

Net Cash Proceeds means:

(a)with respect to any Asset Disposition relating to any property of any Loan Party, the aggregate cash proceeds (including cash proceeds received pursuant to policies of insurance or by way of deferred payment of principal pursuant to a note, installment receivable or otherwise, but only as and when received) received by any Loan Party pursuant to such Asset Disposition, net of (i) the direct reasonable costs, expenses and fees relating to such Asset Disposition (including reasonable and customary sales commissions and reasonable legal, accounting, investment banking and other professional and transactional fees), (ii) taxes paid or reasonably estimated by such Loan Party to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), (iii) amounts required to be applied to the repayment of any Debt secured by a Permitted Lien having priority over the Liens of the Administrative Agent under the Loan Documents on the asset subject to

21

such transaction (other than the Loans), and (iv) amounts reserved in accordance with GAAP for any indemnification obligations associated with such sale so long as such reserves are required to be maintained; it being agreed that the amount of such reserves shall be deemed Net Cash Proceeds of such transaction received by such Loan Party upon (and in the amount of) the release or reduction of any such reserve;

(b)with respect to any issuance of Capital Securities, the aggregate cash proceeds received by any Loan Party pursuant to such issuance, net of the direct reasonable and customary costs, expenses and fees (including legal, accounting and other professional fees, costs and expenses) relating to such issuance (including reasonable and customary sales and underwriters’ commissions); and

(c)with respect to any issuance of Debt, the aggregate cash proceeds received by any Loan Party pursuant to such issuance, net of the direct reasonable and customary costs, expenses and fees (including legal, accounting and other professional fees, costs and expenses) relating to such issuance (including reasonable and customary up-front, underwriters’ and placement fees).

Net Orderly Liquidation Value means, when used in respect of the Borrowing Base as it relates to the Eligible Inventory (and without limiting the Administrative Agent’s ability to assign any lower value thereto or apply reserves in accordance with the definition of Borrowing Base), the orderly liquidation value thereof, net of costs, fees and expenses arising in connection with such orderly liquidation thereof, determined in accordance with the methodologies and conclusions set forth in the appraisal of such Inventory prepared for the Administrative Agent by Hilco Appraisal Services, LLC on or about May, 2005 or, if elected by the Administrative Agent, any subsequent field audit or appraisal of such assets conducted for the Administrative Agent after the Closing Date in accordance with the terms hereof.

Non-U.S. Participant - - see Section 7.6(d)(i).

Non-Use Fee Rate - - see the definition of Applicable Margin.

Notes means, collectively, the Revolving Loan Notes and, the Term Loan Notes.

Notice of Borrowing - - see Section 2.2.2.

Notice of Control – see Section 10.11.

Notice of Conversion/Continuation - see Section 2.2.3.

Obligations means all obligations, liabilities and indebtedness (monetary or otherwise, including post-petition and default interest, allowed or not) of any Loan Party under this Agreement and any other Loan Document owing to any Lender, the Administrative Agent, the Issuing Lender, any Lender Party or any other party to or beneficiary of this Agreement or any other Loan Document (and any successor or assign of any of the foregoing), including, without limitation, for principal, interest (including post-petition interest, allowed or not), fees, costs, expenses, indemnification, Attorney Costs, any reimbursement obligations of each Loan Party in respect of Letters of Credit and surety bonds, all Specified Hedging Obligations permitted hereunder and incurred in connection herewith which are owed to the Administrative Agent,

22

LaSalle or any Lender and each of their respective Affiliates, and all Bank Products Obligations permitted hereunder and incurred in connection herewith which are owed to the Administrative Agent, LaSalle or any Lender and each of their respective Affiliates, in each case, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due; provided, that (i) obligations of any Loan Party under any Specified Hedging Agreement shall be secured and guaranteed pursuant to the provisions of this Agreement and the Loan Documents only to the extent that, and for so long as, the other Obligations are so secured and guaranteed and (ii) any release of Collateral or guarantors effected in the manner permitted by this Agreement shall not require the consent of any counterparty on any Specified Hedging Agreement or the holder of any Specified Hedging Obligations.

OFAC - see Section 10.4.

PBGC means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.

Participant - - see Section 15.6.2.

Pension Plan means a “pension plan”, as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA or the minimum funding standards of ERISA (other than a Multiemployer Pension Plan), which any Loan Party or any member of the Controlled Group maintains, contributes to, or has an obligation to contribute to (or, within the immediately preceding six (6) years, maintained, contributed to or had an obligation to contribute to) on behalf of participants who were employed by any of them. The term Pension Plan shall also include any other plan providing retirement income that is not governed by the laws of the United States.

Permitted Acquisition – see Section 11.4.

Permitted Holder means (i) Angelica Berrie; (ii) any lineal descendant of Russell Berrie; (iii) the Estate of Russell Berrie; (iv) The Russell Berrie 2002A Trust; (v) The Russell Berrie Foundation, a New Jersey Nonprofit Corporation; (vi) any trust created pursuant to the terms of the instruments governing or creating any of the Persons referred to in clause (iii), (iv), or (v); (vii) any fiduciary of any of the Persons referred to in clause (iii) (iv), (v) or (vi); or (viii) (1) any institutional Person or entity described in Rule 13d-1(b)(1)(ii) under the Exchange Act, (2) any “qualified institutional buyer” as defined in Rule 144(a)(1) promulgated under the Securities Act of 1933, as amended (the “Act”), (3) any institutional Person or entity described in clauses (1), (2), (3), (7) or, to the extent comprised of institutional Persons or entities described in clauses (1), (2), (3) and/or (7), clause (8) of the definition of “accredited investor” as defined in Rule 501(a) promulgated under the Act, or (4) any similar institutional equity investor.

Permitted Lien means a Lien expressly permitted hereunder pursuant to Section 11.2.

Person means any natural person, corporation, partnership, trust, limited liability company, association, governmental authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity.

23

Pledge Agreement means the Pledge Agreement dated as of the Closing Date (as the same may be amended, restated, supplemented or otherwise modified from time to time) executed and delivered by the Company in favor of Administrative Agent for the benefit of the Lenders.

Pre-Settlement Determination Date – see Section 7.1.3.

Prime Rate means, for any day, the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent as its prime rate (whether or not such rate is actually charged by the Administrative Agent), which is not intended to be the Administrative Agent’s lowest or most favorable rate of interest at any one time. Any change in the Prime Rate announced by the Administrative Agent shall take effect at the opening of business on the day specified in the public announcement of such change; provided that the Administrative Agent shall not be obligated to give notice of any change in the Prime Rate.

Pro Rata Share means:

(a)with respect to a Lender’s obligation to make Revolving Loans, participate in Letters of Credit, reimburse the Issuing Lender, and/or receive payments of principal, interest, fees, costs, and expenses with respect thereto, (x) prior to the Revolving Commitment being terminated or reduced to zero, the percentage obtained by dividing (i) such Lender’s Revolving Commitment at such time, by (ii) the aggregate Revolving Commitment of Lenders at such time and (y) from and after the time the Revolving Commitment has been terminated or reduced to zero, the percentage obtained by dividing (i) the aggregate unpaid principal amount of such Lender’s Revolving Outstandings at such time by (ii) the aggregate unpaid principal amount of all Revolving Outstandings at such time;

(b)with respect to a Lender’s obligation to make a Term Loan and receive payments of interest, fees, and principal with respect thereto, (x) prior to the making of such Term Loan, the percentage obtained by dividing (i) such Lender’s Term Loan  Commitment at such time, by (ii) the aggregate amount of all Lenders’ Term Loan Commitments at such time, and (y) from and after the making of any Term Loan, the percentage obtained by dividing (i) the unpaid principal amount of such Lender’s Term Loan by (ii) the unpaid aggregate principal amount of each Term Loan of all Lenders; and

(c)with respect to all other matters as to any Lender, in aggregate, the percentage obtained by dividing (i) the aggregate amount of all such Lender’s Commitments hereunder by (ii) the aggregate amount of the Commitments of all Lenders at such time; provided that in the event any such Commitments have been terminated or reduced to zero, Pro Rata Share in such case shall be the percentage obtained by dividing (A) the principal amount of such Lender’s outstanding Loans at such time by (B) the aggregate principal amount of all Loans owing to all Lenders at such time.

Regulation D means Regulation D of the FRB.

Regulation U means Regulation U of the FRB.

24

Related Agreements means, collectively, that certain Assignment and Assumption Agreement and Bill of Sale, that certain Omnibus Amendment of Intellectual Property and the related individual assignments of specified intellectual property, in each case, dated on or prior to the date hereof between the Company and Russ Berrie U.S. Gift, Inc., the incorporation documents for Russ Berrie U.S. Gift, Inc., together with any other instruments, documents and agreements entered into in connection therewith, in each case, as the same may be amended, restated, supplemented or otherwise modified in accordance with Section 11.11.

Related Transactions means the Spin-Off and the other transactions contemplated by the Related Agreements.

Rent Reserve means a dollar amount equal to three times the monthly lease or mortgage payments of each leased or owned and mortgaged facility of the Borrowers where any Inventory intended to be classified as Eligible Inventory is maintained and in respect of which the Administrative Agent has not received a Collateral Access Agreement with respect to such facility.

Replacement Lender - - see Section 8.7(b).

Reportable Event means a reportable event as defined in Section 4043 of ERISA and the regulations issued thereunder as to which the PBGC has not waived the notification requirement  of Section 4043(a), or the failure of a Pension Plan to meet the minimum funding standards of Section 412 of the Code (without regard to whether the Pension Plan is a plan described in Section 4021(a)(2) of ERISA) or under Section 302 of ERISA.

Required Lenders means, at any time, those Lenders whose Pro Rata Shares (as determined in accordance with clause (c) of the definition thereof) exceed 50.1%.

Restricted Debt Agreements means, collectively, the Kids Line Purchase Agreement, the Earnout Security Documents and any other security agreement, pledge agreement, collateral assignments, account control agreements, if any, or other security documents, and employment agreements entered into in connection therewith, in each case, as the same may be amended, restated, supplemented or otherwise modified in accordance with Section 11.11.

Revolving Commitment means with respect to each Lender, such Lender’s Revolving Commitment set forth on Annex A hereto or in the most recent Assignment Agreement relating hereto to which such Lender is a party, and Revolving Commitments means the sum of all such Commitments of all such Lenders, in each case, as the same may be reduced from time to time pursuant to Sections 6.1.1 and 6.1.2.

Revolving Commitment Limit - see the definition of Maximum Revolving Commitment.

Revolving Loan - - see Section 2.1.1(a).

Revolving Loan Availability means, at any time, the lesser of (i) the Maximum Revolving Commitment in effect at such time and (ii) the Borrowing Base at such time.

Revolving Loan Notes – see Section 3.1.

25

Revolving Outstandings means, at any time, the sum of (a) the aggregate principal amount of all outstanding Revolving Loans, plus (b) the Stated Amount of all Letters of Credit.

Russ Berrie B Entities means, collectively, Russ Berrie U.S. Gift, Inc., a Delaware corporation and wholly-owned Subsidiary of the Company, Russ Berrie & Co. (West), Inc., a California corporation, Russ Berrie and Company Properties, Inc., a New Jersey corporation, Russplus, Inc., a New Jersey corporation, and Russ Berrie and Company Investments, Inc., a New Jersey corporation.

Sassy - see the Preamble.

Scheduled Termination Date means March 14, 2011.

SEC means the Securities and Exchange Commission or any other governmental authority succeeding to any of the principal functions thereof.

Second-Tier Foreign Subsidiary means any direct or indirect Subsidiary of any First-Tier Foreign Subsidiary.

Senior Officer means, with respect to any Loan Party, any of the chief executive officer, the chief financial officer, the chief operating officer or the treasurer or controller or vice president of finance, of such Loan Party.

Settlement Date – see Section 7.1.3.

Specified Hedging Agreement means any Hedging Agreement (a) entered into by (i) a Borrower and (ii) any Lender (as determined as of the date such Hedging Agreement is entered into) or any affiliate thereof, as counterparty and (b)(i) the covered transactions thereunder are the Loans or Obligations hereunder or (ii) that has otherwise been designated by the Administrative Agent, such Lender or such affiliate, as the case may be, and the Loan Party Representative, on behalf of such Borrower, by notice to the Administrative Agent, as a Specified Hedging Agreement. The designation of any Hedging Agreement as a Specified Hedging Agreement shall not create in favor of the Administrative Agent, any Lender or affiliate thereof that is a party thereto any rights in connection with the management or release of any Collateral or of the obligations of any guarantor under this Agreement or the Loan Documents.

Specified Hedging Obligation means any Hedging Obligations of any of the Borrowers under any Specified Hedging Agreement and Specified Hedging Obligations means all such obligations and liabilities collectively.

Spin-Off means the transfer to Russ Berrie U.S. Gift, Inc. of substantially all of the assets and operations of the Company in accordance with the Related Agreements.

Stated Amount means, with respect to any Letter of Credit at any date of determination, (a) the maximum aggregate amount available for drawing thereunder under any and all circumstances plus (b) the aggregate amount of all unreimbursed payments and disbursements under such Letter of Credit which have not been converted to Revolving Loans pursuant to Section 2.3.2.

26

Subordinated Debt means (a) the obligations under the Kids Line Purchase Agreement  and the Earnout Security Documents with respect to payment of the Earnout Consideration, and (b) any Debt of any Loan Party or any Subsidiary that is unsecured and is expressly subordinated to the prior payment in full, in cash, of the Obligations pursuant to an agreement in form and substance reasonably satisfactory to the Administrative Agent.

Subsidiary means, with respect to any Person, a corporation, partnership, limited liability company or other entity of which such Person owns, directly or indirectly, such number of outstanding Capital Securities as have more than 50% of the ordinary voting power for the election of directors or other managers of such corporation, partnership, limited liability company or other entity. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of a Borrower.

Taxes means any and all present and future taxes, duties, levies, imposts, deductions, assessments, charges or withholdings imposed by the United States, any state or locality or any political subdivision thereof, and any and all liabilities (including interest and penalties and other additions to taxes) with respect to the foregoing, but excluding Excluded Taxes.

Termination Date means the earliest to occur of (i) the Scheduled Termination Date, (ii) the termination of the Revolving Commitment (either automatically or at the Required Lenders’ election) pursuant to Section 13.2, and (iii) the termination or reduction to zero of the Revolving Commitment by the Borrowers pursuant to Section 6.1.1.

Termination Fee - - see Section 5.4.

Term Loan - - see Section 2.1.2.

Term Loan Commitment means, with respect to each Lender, that amount set forth opposite such Lender’s name on Annex A or in the most recent Assignment Agreement, if any, to which such Lender is a party, and with respect to all Lenders, $60,000,000. The Term Loan Commitment of each Lender shall be deemed satisfied upon the making of the Term Loan to the Borrowers on the Closing Date in the amount of such Lender’s Term Loan Commitment.

Term Loan Notes - - see Section 3.1.

Termination Event means, with respect to a Pension Plan, (a) a Reportable Event, (b) the withdrawal of any member of the Controlled Group from such Pension Plan during a plan year in which any member of the Controlled Group was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA, (c) the termination of such Pension Plan, the filing of a notice of intent to terminate the Pension Plan or the treatment of an amendment of such Pension Plan as a termination under Section 4041 of ERISA, (d) the institution by the PBGC of proceedings to terminate such Pension Plan or (e) any event or condition that might constitute grounds under Section 4042 of ERISA for the termination of, or appointment of a trustee to administer, such Pension Plan.

Total Debt means the outstanding principal amount of all Debt (including Debt of Capital Leases plus undrawn face amount of all Letters of Credit, but excluding the amount of the

27

Earnout Consideration) of the Borrowers and their consolidated Subsidiaries on a consolidated basis.

Total Debt to EBITDA Ratio means, as of the last day of any Fiscal Quarter, the ratio of (a) Total Debt as of such day to (b) EBITDA for the Computation Period ending on such day (calculated, where applicable, using the EBITDA values set forth in the definition thereof).

type - see Section 2.2.1.

UCC is defined in the Guaranty and Collateral Agreement.

Unfunded Liability means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Pension Plans of the Loan Parties and each other member of the Controlled Group exceeds the fair market value of all assets allocable to those benefits, all determined as of the then most recent valuation date for each Pension Plan, using the actuarial assumptions used by the Pension Plans for purposes of determining the minimum funding contributions under Section 412 of the Code to the extent applicable.

Unmatured Event of Default means any event that, if it continues uncured, will, with lapse of time, giving of notice or both, constitute an Event of Default.

Voidable Transfer – see Section 15.23.

Wholly-Owned Subsidiary means, as to any Person, a Subsidiary all of the Capital Securities of which (except directors’ qualifying Capital Securities) are at the time directly or indirectly owned by such Person and/or another Wholly-Owned Subsidiary of such Person. Unless the context otherwise requires, each reference to a Wholly-Owned Subsidiary herein shall be a reference to a Wholly-Owned Subsidiary of a Borrower.

1.2Other Interpretive Provisions.

(a)The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b)Section, Annex, Schedule and Exhibit references are to this Agreement unless otherwise specified.

(c)The term “including” is not limiting and means “including without limitation.”

(d)In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”, and the word “through” means “to and including.”

(e)Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement and the other Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, supplements and other modifications thereto, but only to the extent such amendments, restatements, supplements and

28

other modifications are not prohibited by the terms of any Loan Documents, and (ii) references to any statute or regulation shall be construed as including all statutory and regulatory provisions amending, replacing, supplementing or interpreting such statute or regulation and the regulations promulgated thereunder.

(f)This Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and each shall be performed in accordance with its terms. In the event of any inconsistency between the terms of the Master Letter of Credit Agreement and the terms of this Agreement, the terms of this Agreement shall control for the purposes of calculating compliance with any condition or covenant, and the occurrence of any Event of Default or Unmatured Event of Default, under the terms of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, the occurrence of a default, Unmatured Event of Default or Event of Default under, and as defined in the Master Letter of Credit Agreement shall not result in a default, Unmatured Event of Default or Event of Default under this Agreement if the event that created such default, Unmatured Event of Default or Event of Default would not, if the Master Letter of Credit Agreement was not a Loan Document, have independently created a default, Unmatured Event of Default or Event of Default under this Agreement.

(g)This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Administrative Agent, the Loan Parties, the Lenders and the other parties hereto and thereto and are the products of all parties. Accordingly, they shall not be construed against the Administrative Agent or the Lenders merely because of the Administrative Agent’s or the Lenders’ involvement in their preparation.

SECTION 2COMMITMENTS OF THE LENDERS; BORROWING, CONVERSION AND LETTER OF CREDIT PROCEDURES.

2.1Commitments. On and subject to the terms and conditions of this Agreement, each of the Lenders, in the case of Sections 2.1.1, 2.1.2 and 2.1.3, severally and for itself alone, agrees to make loans to, and to issue or participate in letters of credit for the account of, the Borrowers as follows:

2.1.1Revolving Loan Commitment.

(a)Revolving Loans. Subject to the terms and conditions of this Agreement, each Lender with a Revolving Commitment agrees to make loans on a revolving basis (“Revolving Loans”) from time to time until the Termination Date in such Lender’s Pro Rata Share (as determined pursuant to clause (a) of the definition thereof) of such aggregate amounts as the Loan Party Representative may request from the Administrative Agent in accordance with Section 2.2.2; provided that, except as and to the extent set forth in clause (b) below, the Revolving Outstandings will not at any time exceed Revolving Loan Availability.

(b)Reserved.

(c)Defaulting Lender. If and to the extent that a Lender does not settle with the Administrative Agent as required under this Agreement (a “Defaulting Lender”), the Borrowers

29

and such Defaulting Lender severally agree to repay to the Administrative Agent forthwith on demand such amount required to be paid by such Defaulting Lender to the Administrative Agent, together with interest thereon, for each day from the date such amount is made available to the Borrowers until the date such amount is repaid to the Administrative Agent (x) in the case of a Defaulting Lender at the Federal Funds Rate, and (y) in the case of the Borrowers, at the interest rate applicable at such time for such Loans; provided, that the Borrowers’ obligation to repay such advance to the Administrative Agent shall not relieve such Defaulting Lender of its liability to the Administrative Agent for failure to settle as provided in this Agreement.

2.1.2Term Loan Commitment. Subject to the terms and conditions of this Agreement, each Lender with a Term Loan Commitment agrees to make a loan to the Borrowers (each such loan, a “Term Loan”) on the Closing Date in such Lender’s Pro Rata Share of the Term Loan Commitment. The Commitments of the Lenders to make the Term Loan shall be satisfied fully upon the making of the Term Loan on the Closing Date. Amounts repaid with respect to any Term Loan may not be reborrowed.

2.1.3L/C Commitment. Subject to Section 2.3.1 and the other terms and conditions of this Agreement, the Issuing Lender agrees to issue letters of credit, in each case containing such terms and conditions as are permitted by this Agreement and are reasonably satisfactory to the Issuing Lender (each, a “Letter of Credit”), at the request of the Loan Party Representative and for the account of the Borrowers from time to time before the Termination Date and, as more fully set forth in Section 2.3.2, each Lender agrees to purchase a participation in each such Letter of Credit; provided that (a) the aggregate Stated Amount of all Letters of Credit (after giving effect to the Stated Amount of any Letter of Credit so requested) shall not at any time exceed $5,000,000, and (b) the Revolving Outstandings (after giving effect to the Stated Amount of any Letter of Credit so requested) shall not at any time exceed Revolving Loan Availability.

2.2Loan Procedures.

2.2.1Various Types of Loans. Each Revolving Loan and Term Loan shall be divided into tranches which are, either a Base Rate Loan or a LIBOR Loan (each a “type” of Loan), as the Loan Party Representative shall specify in the related notice of borrowing or conversion pursuant to Section 2.2.2 or 2.2.3. LIBOR Loans having the same Interest Period which expire on the same day are sometimes called a “Group” or collectively “Groups”. Base Rate Loans and LIBOR Loans may be outstanding at the same time, provided that not more than six (6) different Groups of LIBOR Loans, in aggregate, shall be outstanding at any one time. All borrowings, conversions and repayments of Revolving Loans shall be effected so that each Lender will have a ratable share (according to its Pro Rata Share as determined in accordance with clause (a) of the definition thereof) of all types and Groups of Revolving Loans.

2.2.2Borrowing Procedures. The Loan Party Representative shall give written notice (each such written notice, a “Notice of Borrowing”) substantially in the form of Exhibit E or telephonic notice (followed immediately by a Notice of Borrowing) to the Administrative Agent of each proposed borrowing not later than (a) in the case of a Base Rate borrowing, 11:00 A.M., Chicago time, on the proposed date of such borrowing, and (b) in the case of a LIBOR borrowing, 11:00 A.M., Chicago time, at least three (3) Business Days prior to

30

the proposed date of such borrowing. Each such notice shall be effective upon receipt by the Administrative Agent, shall be irrevocable, and shall specify the date, amount and type of borrowing and, in the case of a LIBOR borrowing, the initial Interest Period therefor. Upon its receipt of any such notice, the Administrative Agent, at its option and in its sole discretion, shall do either of the following:

(i)advance the amount of the proposed Revolving Loan to the Loan Party Representative on behalf of the applicable Borrower disproportionately (a “Disproportionate Advance”) out of the Administrative Agent’s own funds on behalf of the Lenders, which advance shall be made (x) in the case of a Base Rate Loan, on the same day as the Loan Party Representative’s request therefor if the Loan Party Representative notifies the Administrative Agent of such request by 11:00 A.M. (Chicago time) on such day or (y) in the case of a LIBOR Rate Loan, on the third Business Day following such request therefor if the Loan Party Representative notifies the Administrative Agent of such request by 11:00 A.M. (Chicago time) on such third Business Day preceding such day, and, in either case, thereafter request settlement in accordance with Section 7.1.3 such that upon such settlement each Lender’s share of the outstanding Revolving Loans (including, without limitation, the amount of any Disproportionate Advance) equals its Pro Rata Share (as determined in accordance with clause (a) of the definition thereof); or

(ii)Notify each Lender by telecopy, electronic mail or other similar form of teletransmission of the proposed advance on the same day the Administrative Agent is notified or deemed notified by the Loan Party Representative of the Loan Party Representative’s request for an advance pursuant to this Section 2.2.2. Each Lender shall remit, to the demand deposit account designated by the Loan Party Representative (x) with respect to Base Rate Loans, at or prior to 1:00 P.M., Chicago time, on the date of the proposed borrowing, if such notification is made before 11:00 A.M., Chicago time, or (y) with respect to LIBOR Rate Loans, at or prior to 10:30 A.M., Chicago time, on the date such LIBOR Rate Loans are to be advanced, immediately available funds in an amount equal to such Lender’s Pro Rata Share of such proposed advance.

Each borrowing shall be on a Business Day. Each Base Rate borrowing shall be in an aggregate amount of at least $100,000 and integral multiples of $100,000 in excess thereof, and each LIBOR borrowing shall be in an aggregate amount of at least $500,000 and integral multiples of at least $100,000 in excess thereof. Delivery of any Notice of Borrowing, any request for a Letter of Credit, and the acceptance of any Loan or any Letter of Credit, shall be deemed a representation and warranty by the Loan Parties that all conditions precedent to the making of any Loans or other financial accommodations set forth in Sections 12.1 (in the case of the initial Loans to be made or Letter of Credit to be issued hereunder) and 12.2 have been satisfied as of the date of such request, notice or borrowing hereunder.

2.2.3Conversion and Continuation Procedures.

(a)Subject to Section 2.2.1, the Borrowers may, upon irrevocable written notice to the Administrative Agent in accordance with clause (b) below:

31

(i)elect, as of any Business Day, to convert any Loans of one type or any part thereof into Loans of the other type (provided, in the case of any conversion to a LIBOR Loan, such part thereof is in an aggregate amount not less than $500,000 or a higher integral multiple of $100,000); or

(ii)elect, as of the last day of the applicable Interest Period thereof, to continue any LIBOR Loans having Interest Periods expiring on such day (or any part thereof in an aggregate amount not less than $500,000 or a higher integral multiple of $100,000) for a new Interest Period or convert such LIBOR Loans to Base Rate Loans;

provided that after giving effect to any conversion or continuation, the aggregate principal amount of each Group of LIBOR Loans shall be at least $500,000 and an integral multiple of $100,000 in excess thereof.

(b)The Loan Party Representative shall give written notice (each such written notice, a “Notice of Conversion/Continuation”) substantially in the form of Exhibit F or telephonic notice (followed immediately by a Notice of Conversion/Continuation) to the Administrative Agent of each proposed conversion or continuation not later than (i) in the case of conversion into Base Rate Loans, 11:00 A.M., Chicago time, on the proposed date of such conversion and (ii) in the case of conversion into or continuation of LIBOR Loans, 11:00 A.M., Chicago time, at least three Business Days prior to the proposed date of such conversion or continuation, specifying in each case:

(i)the proposed date of conversion or continuation;

(ii)the aggregate amount of Loans to be converted or continued;

(iii)the type of Loans resulting from the proposed conversion or continuation; and

(iv)in the case of conversion into, or continuation of, LIBOR Loans, the duration of the requested Interest Period therefor.

(c)If upon the expiration of any Interest Period applicable to LIBOR Loans, the Loan Party Representative has failed to select timely a new Interest Period to be applicable to such LIBOR Loans, the Loan Party Representative shall be deemed to have elected to convert such LIBOR Loans into Base Rate Loans effective on the last day of such Interest Period.

(d)The Administrative Agent will promptly notify each Lender of its receipt of a notice of conversion or continuation pursuant to this Section 2.2.3 or, if no timely notice is provided by the Loan Party Representative, of the details of any automatic conversion.

(e)Any conversion of a LIBOR Loan on a day other than the last day of an Interest Period therefor shall be subject to Section 8.4.

2.2.4Borrowing Representations and Warranties. Each and every request or deemed request by the Borrowers (through the Loan Party Representative) for, and acceptance by the Borrowers of, a Revolving Loan shall, in each case, constitute the Borrowers’

32

representation and warranty that (and the Administrative Agents’ and the Lenders’ obligation to make any such Revolving Loan shall be subject to the conditions precedent that), both on the date of such request for such Revolving Loan and on the date any such Revolving Loan is made, (i) no Unmatured Event of Default or Event of Default has occurred and is continuing, and (ii) the Borrowers’ representations and warranties set forth in this Agreement, as supplemented from time to time, are true and correct in all material respects (or, if such representations and warranties are qualified by materiality or Material Adverse Effect, in all respects) except to the extent any such representation and warranty expressly speaks to an earlier date.

2.3Letter of Credit Procedures.

2.3.1L/C Applications. The Borrowers shall execute and deliver to the Issuing Lender the Master Letter of Credit Agreement on the Closing Date. The Loan Party Representative shall give notice to the Administrative Agent and the Issuing Lender of the requested issuance of each Letter of Credit on a Business Day which is at least three Business Days (or such lesser number of days as the Administrative Agent and the Issuing Lender shall agree in any particular instance in their sole discretion) prior to the proposed date of issuance of such Letter of Credit. Each such notice shall be accompanied by an L/C Application, duly executed by the Loan Party Representative and in all respects satisfactory to the Administrative Agent and the Issuing Lender, together with such other documentation as the Administrative Agent or the Issuing Lender may reasonably request in support thereof, it being understood that each L/C Application shall specify, among other things, the date on which the proposed Letter of Credit is to be issued, the expiration date of such Letter of Credit (which shall not be later than thirty (30) days prior to the Scheduled Termination Date (unless such Letter of Credit is Cash Collateralized) and shall in no event exceed more than one year from the date of issuance, provided such Letter of Credit may provide for annual renewals subject to Issuing Lender consent thereto) and whether such Letter of Credit is to be transferable in whole or in part. Any Letter of Credit outstanding after the scheduled Termination Date which is Cash Collateralized for the benefit of the Issuing Lender shall be the sole responsibility of the Issuing Lender and the Issuing Lender shall be solely entitled to the benefits of such Cash Collateral. The Issuing Lender shall promptly advise the Administrative Agent of the issuance of each Letter of Credit and of any amendment thereto, extension thereof or event or circumstance changing the amount available for drawing thereunder. In the event of any inconsistency between the terms of the Master Letter of Credit Agreement, any L/C Application and the terms of this Agreement, the terms of this Agreement shall control.

2.3.2Participations in Letters of Credit. Concurrently with the issuance of each Letter of Credit, the Issuing Lender shall be deemed to have sold and transferred to each Lender (which term shall not, for purposes of this Section 2.3.2, include the Issuing Lender) with a Revolving Commitment, and each such Lender shall be deemed irrevocably and unconditionally to have purchased and received from the Issuing Lender, without recourse or warranty, an undivided interest and participation, to the extent of such Lender’s Pro Rata Share, in such Letter of Credit and the Borrowers’ reimbursement obligations with respect thereto. If the Borrowers do not pay any reimbursement obligation when due under any Letter of Credit, the Borrowers shall be deemed to have immediately requested that the Lenders make a Revolving Loan which is a Base Rate Loan in a principal amount equal to such reimbursement obligations. The Administrative Agent shall promptly notify such Lenders of such deemed request and,

33

without the necessity of compliance with the requirements of Section 2.2.2, Section 12.2 or otherwise such Lender shall make available to the Administrative Agent its Pro Rata Share of such Loan. The proceeds of such Loan shall be paid over by the Administrative Agent to the Issuing Lender for the account of the Borrowers in satisfaction of such reimbursement obligations. For the purposes of this Agreement, the unparticipated portion of each Letter of Credit shall be deemed to be the Issuing Lender’s “participation” therein. The Issuing Lender hereby agrees, upon request of the Administrative Agent, to deliver to the Administrative Agent or Lender a list of all outstanding Letters of Credit issued by the Issuing Lender, together with such information related thereto as the Administrative Agent or any Lender may reasonably request.

2.3.3Reimbursement Obligations.

(a)Each of the Borrowers hereby jointly and severally unconditionally and irrevocably agrees to reimburse the Issuing Lender for each payment or disbursement made by the Issuing Lender under any Letter of Credit honoring any demand for payment made by the beneficiary thereunder, in each case on the date that such payment or disbursement is made. Any amount not reimbursed on the date of such payment or disbursement shall bear interest from the date of such payment or disbursement to the date that the Issuing Lender is reimbursed by any Borrower therefor, payable on demand, at a rate per annum equal to the Base Rate from time to time in effect plus the Base Rate Margin from time to time in effect plus, beginning on the third Business Day after receipt of notice from the Issuing Lender of such payment or disbursement, 2%. The Issuing Lender shall notify the Loan Party Representative and the Administrative Agent whenever any demand for payment is made under any Letter of Credit by the beneficiary thereunder; provided that the failure of the Issuing Lender to so notify the Loan Party Representative or the Administrative Agent shall not affect the rights of the Issuing Lender or the Lenders in any manner whatsoever.

(b)The Borrowers’ reimbursement obligations hereunder shall be irrevocable and unconditional under all circumstances, including (a) any lack of validity or enforceability of any Letter of Credit, this Agreement or any other Loan Document, (b) the existence of any claim, set-off, defense or other right which any Loan Party may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, the Issuing Lender, any Lender or any other Person, whether in connection with any Letter of Credit, this Agreement, any other Loan Document, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between any Loan Party and the beneficiary named in any Letter of Credit), (c) the validity, sufficiency or genuineness of any document which the Issuing Lender has determined complies on its face with the terms of the applicable Letter of Credit, even if such document should later prove to have been forged, fraudulent, invalid or insufficient in any respect or any statement therein shall have been untrue or inaccurate in any respect, or (d) the surrender or impairment of any security for the performance or observance of any of the terms hereof. Without limiting the foregoing, no action or omission whatsoever by the Administrative Agent or any Lender (excluding any Lender in its capacity as the Issuing Lender) under or in connection with any Letter of Credit or any related matters shall, absent gross negligence or willful misconduct, result in any liability of the Administrative Agent or any Lender to any Loan Party, or relieve any Loan Party of any of its obligations hereunder to any such Person.

34

2.3.4Funding by the Lenders to Issuing Lender. If the Issuing Lender makes any payment or disbursement under any Letter of Credit and (a) the Borrowers have not reimbursed the Issuing Lender in full for such payment or disbursement by 11:00 A.M., Chicago time on the date of such payment or disbursement, (b) a Revolving Loan may not be made in accordance with Section 2.3.2 or (c) any reimbursement received by the Issuing Lender from the Borrowers is or must be returned or rescinded upon or during any bankruptcy or reorganization of any Loan Party, such other Person or otherwise, each other Lender with a Revolving Commitment shall be obligated to pay to the Administrative Agent for the account of the Issuing Lender, in full or partial payment of the purchase price of its participation in such Letter of Credit, its Pro Rata Share of such payment or disbursement (but no such payment shall diminish the obligations of the Borrowers under Section 2.3.3), and, upon notice from the Issuing Lender, the Administrative Agent shall promptly notify each Lender thereof. Each Lender irrevocably and unconditionally agrees to so pay to the Administrative Agent in immediately available funds for the Issuing Lender’s account the amount of such Lender’s Pro Rata Share of such payment or disbursement. If and to the extent any Lender shall not have made such amount available to the Administrative Agent by 2:00 P.M., Chicago time, on the Business Day on which such Lender receives notice from the Administrative Agent of such payment or disbursement (it being understood that any such notice received after noon, Chicago time, on any Business Day shall be deemed to have been received on the next following Business Day), such Lender agrees to pay interest on such amount to the Administrative Agent for the Issuing Lender’s account forthwith on demand, for each day from the date such amount was to have been delivered to the Administrative Agent to the date such amount is paid, at a rate per annum equal to (a) for the first three days after demand, the Federal Funds Rate from time to time in effect and (b) thereafter, the Base Rate from time to time in effect. Any Lender’s failure to make available to the Administrative Agent its Pro Rata Share of any such payment or disbursement shall not relieve the Borrowers or any other Lender of its obligation hereunder to make available to the Administrative Agent, the Borrowers’ or such other Lender’s Pro Rata Share of such payment, but no Lender shall be responsible for the failure of any other Lender to make available to the Administrative Agent such other Lender’s Pro Rata Share of any such payment or disbursement.

2.4Commitments Several. The failure of any Lender to make a requested Loan on any date shall not relieve any other Lender of its obligation (if any) to make a Loan on such date, but no Lender shall be responsible for the failure of any other Lender to make any Loan to be made by such other Lender.

2.5Certain Conditions. Except with respect to the making of Loans in Sections 2.3.2 and 2.3.4 of this Agreement, no Lender shall have an obligation to make any Loan, or to permit the continuation of or any conversion into any LIBOR Loan, and the Issuing Lender shall not have any obligation to issue any Letter of Credit, if an Event of Default or Unmatured Event of Default exists or would result therefrom.

2.6Loan Party Representative. Each Loan Party hereby designates the Company as its representative and agent on its behalf (in such capacity, the “Loan Party Representative”) to act as specified herein. Each Loan Party hereby authorizes the Loan Party Representative to take such actions on its behalf under the terms of this Agreement and the other Loan Documents and to exercise such powers and perform such duties hereunder and thereunder as are specified in such agreements or are reasonably incidental thereto, including issuing Notices of Borrowing

35

and Notices of Conversion/Continuation, acceptance of amounts borrowed hereunder, giving instructions with respect to the disbursement of the proceeds of the Loans, selecting interest rate options, requesting Letters of Credit, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants), in each case, on behalf of the Borrowers and the Loan Parties under the Loan Documents. The Loan Party Representative hereby accepts such appointment. The Administrative Agent and the Lenders shall be entitled to rely on all notices, requests, consents, certifications and/or authorizations or other similar acts delivered or taken by the Loan Party Representative for or on behalf of any Borrower pursuant hereto or the other Loan Documents without inquiry and as if such notices, requests, consents, certifications and/or authorizations or other similar acts were delivered by such Borrower. Each warranty, covenant, agreement and undertaking made on its behalf by the Loan Party Representative shall be deemed for all purposes to have been made by all Borrowers and Loan Parties (or any of the them, as applicable) and shall be binding upon and enforceable against such Borrower or Loan Party to the same extent as it if the same had been made directly by such Borrower or Loan Party. The Company shall not be permitted to resign as the Loan Party Representative and the Borrowers shall not be permitted to remove the Company as Loan Party Representative without the consent of the Administrative Agent; provided that if the Company notifies the Administrative Agent in writing that it (or any successor Loan Party Representative) shall no longer be able to act as Loan Party Representative in accordance with the terms hereof, the Administrative Agent and the Borrowers shall appoint a successor to act as Loan Party Representative, which successor shall be a Borrower designated by the Administrative Agent therefor (and the Borrowers hereby agree that such Person thereafter shall be vested with all rights, powers, privileges and authority of the Loan Party Representative hereunder).

SECTION 3EVIDENCING OF LOANS.

3.1Notes. The Loans of each Lender shall be evidenced by a Note in the form set forth as Exhibit A-1, in the case of the Notes evidencing the Revolving Loans (the “Revolving Loan Notes”) and in the form set forth as Exhibit A-2, in the case of the Notes evidencing the Term Loan (the “Term Loan Notes”). Each such Note shall have appropriate insertions and shall be payable to the order of such Lender in a face principal amount equal to such Lender’s Revolving Commitment or Term Loan Commitment, as applicable. However, if such Loans are not so evidenced, such Loans may be evidenced solely by entries upon the books and records maintained by the Administrative Agent, which books and records shall be conclusively presumed correct absent manifest error.

3.2Recordkeeping. The Administrative Agent, on behalf of each Lender, shall record in its records, the date and amount of each Loan made by each Lender, each repayment or conversion thereof and, in the case of each LIBOR Loan, the dates on which each Interest Period for such Loan shall begin and end. The aggregate unpaid principal amount so recorded shall be rebuttably presumptive evidence of the principal amount of the Loans owing and unpaid. The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the Obligations of the Borrowers hereunder or under any Note to repay the principal amount of the Loans hereunder, together with all interest accruing thereon.

36

SECTION 4INTEREST.

4.1Interest Rates. The Borrowers hereby jointly and severally promise to pay interest on the unpaid principal amount of each Loan for the period commencing on the date of such Loan until such Loan is paid in full as follows:

(a)at all times while such Loan is a Base Rate Loan, at a rate per annum equal to the sum of the Base Rate from time to time in effect plus the Base Rate Margin from time to time in effect; and

(b)at all times while such Loan is a LIBOR Loan, at a rate per annum equal to the sum of the LIBOR Rate applicable to each Interest Period for such Loan plus the LIBOR Margin from time to time in effect;

provided that any time an Event of Default exists, at the Required Lenders’ election, the interest rate applicable to each such Loan shall be increased by 2%; and provided, further, that any such increase may thereafter be rescinded by the Required Lenders, in the case of the Revolving Loans and Term Loan, notwithstanding Section 15.1. Notwithstanding the foregoing, upon the occurrence of an Event of Default under Sections 13.1.1 or 13.1.4, such increase shall occur automatically.

4.2Interest Payment Dates. Accrued interest on each Base Rate Loan shall be payable in arrears on the last day of each calendar month and at maturity. Accrued interest on each LIBOR Loan shall be payable on the last day of each Interest Period relating to such Loan, upon a prepayment of such Loan (and, in the case of a LIBOR Loan with an Interest Period in excess of three (3) months, on the three-month anniversary of the first day of such Interest Period), and at maturity. After maturity, and at any time an Event of Default exists, accrued interest on all Loans shall be payable on demand.

4.3Setting and Notice of LIBOR Rates. The applicable LIBOR Rate for each Interest Period shall be determined by the Administrative Agent, and notice thereof shall be given by the Administrative Agent promptly to the Loan Party Representative and each applicable Lender. Each determination of the applicable LIBOR Rate by the Administrative Agent shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. The Administrative Agent shall, upon written request of the Loan Party Representative or any Lender, promptly deliver to the Loan Party Representative or such Lender a statement showing the computations used by the Administrative Agent in determining any applicable LIBOR Rate hereunder.

4.4Computation of Interest. Interest shall be computed for the actual number of days elapsed on the basis of a year of 360 days. The applicable interest rate for each Base Rate Loan shall change simultaneously with each change in the Base Rate.

SECTION 5FEES.

5.1Non-Use Fee. The Borrowers hereby jointly and severally agree to pay to the Administrative Agent, for the account of each Lender with a Revolving Commitment, a non-use fee, for the period from the Closing Date to the Termination Date, at the Non-Use Fee Rate in

37

effect from time to time of such Lender’s Pro Rata Share (as adjusted from time to time) of the daily average of the unused amount of the Maximum Revolving Commitment. For purposes of calculating usage under this Section, the Maximum Revolving Commitment shall be deemed used to the extent of Revolving Outstandings. Such non-use fee shall be payable in arrears on the last day of each calendar month and on the Termination Date for any period then ending for which such non-use fee shall not have previously been paid. The non-use fee shall be computed for the actual number of days elapsed on the basis of a year of 360 days.

5.2Letter of Credit Fees.

(a)The Borrowers hereby jointly and severally agree to pay to the Administrative Agent, for the account of each Lender with a Revolving Commitment, a letter of credit fee for each Letter of Credit equal to the L/C Fee Rate in effect from time to time of such Lender’s Pro Rata Share (as adjusted from time to time) of the undrawn amount of such Letter of Credit (computed for the actual number of days elapsed on the basis of a year of 360 days); provided that, upon the election of the Required  Lenders (or automatically upon the occurrence of an Event of Default under Section 13.1.1 or 13.1.4), the rate applicable to each Letter of Credit shall be increased by 2% at any time that an Event of Default exists. Such letter of credit fee shall be payable in arrears on the last day of each calendar month and on the Termination Date (or such later date on which such Letter of Credit expires or is terminated) for the period from the date of the issuance of each Letter of Credit (or the last day on which the letter of credit fee was paid with respect thereto) to the date such payment is due or, if earlier, the date on which such Letter of Credit expired or was terminated.

(b)In addition, with respect to each Letter of Credit, the Borrowers hereby jointly and severally agree to pay to the Issuing Lender, for its own account, (i) such fees and expenses as the Issuing Lender customarily requires in connection with the issuance, negotiation, processing and/or administration of letters of credit in similar situations, and (ii) letter of credit fronting fee in the amount and at the time agreed to by the Borrowers and the Issuing Lender.

5.3Administrative Agent’s Fees. The Borrowers hereby jointly and severally agree to pay to the Administrative Agent such agent’s fees as are set forth in the Agent Fee Letter.

5.4Termination Fee. In the event that the Termination Date shall occur at any time prior to the first year anniversary of the Closing Date for any reason whatsoever, the Borrowers hereby jointly and severally hereby agree to pay to the Administrative Agent, for the ratable benefit of each of the Lenders, a termination fee (the “Termination Fee”) equal to one percent (1.00%) of the sum of (i) the highest Maximum Revolving Commitment that had been in effect at any time prior to such termination, plus (ii) the original principal balance of Term Loan. For clarification purposes, it is hereby acknowledged that no Termination Fee shall be due as a result of the Revolving Outstandings being reduced to zero from time to time.

38

SECTION 6REDUCTION AND TERMINATION OF THE REVOLVING COMMITMENT LIMIT AND THE REVOLVING COMMITMENT; PREPAYMENTS.

6.1Reduction and Termination of the Revolving Commitment.

6.1.1Voluntary Reduction or Termination of the Revolving Commitment. The Loan Party Representative may from time to time on at least three Business Days’ prior written notice received by the Administrative Agent (which shall promptly advise each Lender thereof) permanently reduce the Revolving Commitment Limit to an amount not less than the Revolving Outstandings. Any such reduction shall be in an amount not less than $1,000,000 or a higher integral multiple of $1,000,000 and such reduction shall be applied Pro Rata as a reduction to each Lender’s Revolving Commitment such that the sum of such Revolving Commitments equal the Revolving Commitment Limit. Concurrently with any reduction of the Revolving Commitment Limit to zero, the Termination Date shall be deemed to have occurred, and the Borrowers shall be required to repay all Obligations and shall terminate or Cash Collateralize in full all outstanding Letters of Credit. Any such termination of the Revolving Commitment Limit occurring on or prior to the first year anniversary of the Closing Date shall be accompanied by the Termination Fee required pursuant to Section 5.4.

6.1.2All Reductions of the Revolving Commitment. All reductions of the Revolving Commitment shall reduce the Revolving Commitment Limit and shall reduce the Revolving Commitments ratably among the Lenders with a Revolving Commitment according to their respective Pro Rata Shares (as defined under clause (a) thereof).

6.2Prepayments.

6.2.1Voluntary Prepayments. The Borrowers may from time to time prepay the Loans in whole or in part without premium or penalty (but subject to payment of costs associated with breakfunding on LIBOR loans pursuant to Section 8.4). The Loan Party Representative shall give the Administrative Agent (which shall promptly advise each Lender) notice thereof not later than 11:00 A.M., Chicago time, on the day (which shall be a Business Day) of such prepayment specifying the Loans to be prepaid and the date and amount of prepayment. Any such voluntary partial prepayment shall be in a principal amount equal to $1,000,000 or a higher integral multiple of $100,000 and, with respect to prepayments of the Term Loan, shall be accompanied by payment of all accrued but unpaid interest on the amount Term Loan being prepaid and any breakfunding costs, if any, pursuant to Section 8.4. Revolving Loans may be prepaid at any time and from time to time and, subject to the terms hereof, reborrowed.

6.2.2Mandatory Prepayments.

(a)The Borrowers shall make a prepayment of the Term Loans until paid in full upon the occurrence of any of the following (each a “Mandatory Prepayment Event”) at the following times and in the following amounts (such applicable amounts being referred to as “Designated Proceeds”):

(i)Concurrently with the receipt by any Loan Party of any Net Cash Proceeds from any Asset Disposition, in an amount equal to 100% of such Net Cash Proceeds.

(ii)Concurrently with the receipt by any Loan Party of any Net Cash Proceeds from any issuance of Capital Securities of any Loan Party (excluding any

39

issuance of Capital Securities by any Loan Party to any Loan Party), in an amount equal to 100% of such Net Cash Proceeds.

(iii)Concurrently with the receipt by any Loan Party of any Net Cash Proceeds from any issuance of any Debt of any Loan Party (excluding Debt permitted by clauses (a) - (l) of Section 11.1), in an amount equal to 100% of such Net Cash Proceeds.

(iv)Within 120 days after the end of each Fiscal Year (commencing with Fiscal Year 2007), in an amount equal to 50% of Excess Cash Flow for such Fiscal Year; provided that no prepayment shall be required with respect to any Fiscal Year in the event that the Total Debt to EBITDA Ratio determined for such Fiscal Year is equal to or less than 2.00:1.00.

(v)Concurrently with the receipt by any Loan Party of any contribution by the Company funded from the Net Cash Proceeds of any issuance of Capital Securities by such Loan Party to the Company, in an amount equal to 100% of such contribution.

Nothing in this Section 6.2.2(a) shall be deemed to authorize any Asset Disposition or the sale or issuance of any Capital Securities or Debt not otherwise permitted hereunder.

(b)In addition to the payments required pursuant to clause (a) immediately above, from and after the giving of any Notice of Control directing collections of Accounts to the Agent Account (unless and until such Notice of Control is rescinded in accordance with the provisions of Section 10.11), the outstanding principal balance of the Revolving Loans shall be repaid daily from available funds in the Agent Account as determined in accordance with Section 7.1.1 and Section 10.11 hereof.

(c)Without limiting any of the other rights and remedies of the Administrative Agent and the Lenders in respect thereof, if on any day the Revolving Outstandings exceeds the Revolving Loan Availability on such day, the Borrowers shall immediately prepay the Revolving Loans and/or Cash Collateralize the outstanding Letters of Credit, or do a combination of the foregoing, in an amount sufficient to eliminate such excess.

(d)Nothing in this Section 6.2.2 shall be deemed to authorize the taking of any action by any Loan Party which is not otherwise permitted hereunder.

6.3Manner of Prepayments. Any partial prepayment of a Group of LIBOR Loans shall be subject to the proviso to Section 2.2.3(a). Any prepayment of a LIBOR Loan on a day other than the last day of an Interest Period therefor shall include interest on the principal amount being repaid and shall be subject to Section 8.4. Except as otherwise provided by this Agreement, all principal payments in respect of the Loans shall be applied first, to repay outstanding Base Rate Loans, if any, and then to repay outstanding LIBOR Rate Loans in direct order of Interest Period maturities. All prepayments of the Term Loans pursuant to Section 6.2.1 or 6.2.2 shall be applied pro rata among the Term Loans according to principal amounts thereof and, as to each Term Loan, pro rata to all remaining installments of principal. Term Loans that are prepaid may not be reborrowed.

40

6.4Repayments.

6.4.1All Obligations. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, (I) ALL OBLIGATIONS (OTHER THAN UNASSERTED CONTINGENT AND INDEMNIFICATION OBLIGATIONS AND SPECIFIED HEDGING OBLIGATIONS NOT OTHERWISE DUE OR REQUIRED TO BE PAID) SHALL BE AND BECOME IMMEDIATELY DUE AND PAYABLE AND (II) ALL LETTERS OF CREDIT SHALL IMMEDIATELY BE REQUIRED TO BE TERMINATED OR CASH COLLATERALIZED UPON THE OCCURRENCE OF THE TERMINATION DATE FOR ANY REASON WHATSOEVER.

6.4.2Revolving Loans. The Revolving Loans of each Lender shall be paid in full and the Revolving Commitment shall terminate on the Termination Date.

6.4.3Term Loan. The principal amount of the Term Loan shall be repaid in installments as follows:  (a) $750,000, on the last day of each calendar month for the period commencing March 31, 2006 through and including February, 2008, (b) $1,000,000, on the last day of each calendar month for the period commencing March 31, 2008 through and including February, 2009, (c) $1,250,000, on the last day of each calendar month for the period commencing March 31, 2009 through and including February, 2011 and (d) the aggregate amount of the unpaid principal balance of the Term Loan on the Scheduled Termination Date. Unless sooner paid in full, the outstanding principal balance of the Term Loan shall be paid in full on the Scheduled Termination Date.

SECTION 7MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.

7.1Making of Payments.

7.1.1Manner of Payment; Application of Payment. All payments of principal or interest on the Notes, and of all fees, shall be made by the Borrowers to the Administrative Agent in immediately available funds at the office specified by the Administrative Agent not later than 1:00 p.m., Chicago time, on the date due; and funds received after that hour shall be deemed to have been received by the Administrative Agent on the following Business Day. The Administrative Agent shall remit to each Lender its share of all such payments received in collected funds by the Administrative Agent for the account of such Lender entitled thereto in the manner and at the times set forth in Section 7.1.3 below. All payments shall be made by the Borrowers directly to the Administrative Agent without setoff, counterclaim, deduction, withholding or other defense.

7.1.2Payment Authorization. The Borrowers hereby authorize the Administrative Agent, in its sole discretion, to charge any of the Borrowers’ accounts or advance Revolving Loans to make any payments of principal, interest, fees, costs or expenses required to be made under this Agreement or the other Loan Documents.

7.1.3Settlement. On a weekly basis (or more frequently if requested by the Administrative Agent (a “Settlement Date”), the Administrative Agent shall provide each Lender with a statement of the outstanding balance of the Obligations as of the end of the Business Day immediately preceding the Settlement Date (the “Pre-Settlement Determination Date”) and the

41

current balance of the Loans funded by such Lender (whether made directly by such Lender to any Borrower or constituting a settlement by such Lender of a previous Disproportionate Advance made by the Administrative Agent on behalf of such Lender to any Borrower). If such statement discloses that such Lender’s current balance of the Loans as of the Pre-Settlement Determination Date exceeds such Lender’s Pro Rata Share of the applicable Obligations outstanding as of the Pre-Settlement Determination Date, then the Administrative Agent shall, on the Settlement Date, transfer, by wire transfer, the net amount due to such Lender in accordance with such Lender’s instructions, and if such statement discloses that such Lender’s current balance of the Loans as of the Pre-Settlement Determination Date is less than such Lender’s Pro Rata Share of the applicable Obligations outstanding as of the Pre-Settlement Determination Date, then such Lender shall, on the Settlement Date, transfer, by wire transfer the net amount due to the Administrative Agent in accordance with the Administrative Agent’s instructions. In addition, payments actually received by the Administrative Agent with respect to the following items shall be distributed by the Administrative Agent to the Lenders as follows:

(a)Within one (1) Business Day of receipt thereof by the Administrative Agent, payments to be applied to interest on the Loans shall be paid to each Lender in proportion to its Pro Rata Share of the Loans in respect of which such interest is being paid, subject to any adjustments for any Disproportionate Advances as provided in Section 2.2.2, so that the Administrative Agent shall receive interest on the Disproportion Advances and each Lender shall only receive interest on the amount of funds actually advanced by such Lender;

(b)Within one (1) Business Day of receipt thereof by the Administrative Agent, payments to be applied to the Non-Use Fee as provided in Section 5.1 shall be paid to each Lender in proportion to its Pro Rata Share of the daily average of the unused amount of the Revolving Commitment; and

(c)Within one (1) Business Day of receipt thereof by the Administrative Agent, payments to be applied to the letter of credit fee for each Letter of Credit as provided in Section 5.2 shall be paid to each Lender in proportion to its Pro Rata Share of the undrawn amount of such Letter of Credit.

Notwithstanding the foregoing, the Administrative Agent shall not be obligated to transfer to any Defaulting Lender any payment made by any Borrower to the Administrative Agent, nor shall such Defaulting Lender be entitled to share any interest, fees or other payment hereunder, until payment is made by such Defaulting Lender to the Administrative Agent as required in this Agreement.

7.2Application of Certain Payments. So long as no Event of Default has occurred and is continuing, (a) payments matching specific scheduled payments then due shall be applied to those scheduled payments and (b) voluntary and mandatory prepayments shall be applied as set forth in Sections 6.2 and 6.3. After the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender as proceeds from the sale of, or other realization upon, all or any part of the Collateral shall be applied as the Administrative Agent shall determine in its reasonable discretion or, in the absence of a specific determination by the Administrative Agent, as set forth in the Guaranty and Collateral Agreement. Concurrently with each remittance to any Lender of its share of any such

42

payment, the Administrative Agent shall advise such Lender as to the application of such payment.

7.3Due Date Extension. If any payment of principal or interest with respect to any of the Loans, or of any fees, falls due on a day which is not a Business Day, then such due date shall be extended to the immediately following Business Day (unless, in the case of a LIBOR Loan, such immediately following Business Day is the first Business Day of a calendar month, in which case such due date shall be the immediately preceding Business Day) and, in the case of principal, additional interest shall accrue and be payable for the period of any such extension.

7.4Setoff. The Borrowers and the other Loan Parties each agree that the Administrative Agent and each Lender have all rights of set-off and bankers’ lien provided by applicable law, and in addition thereto, the Borrowers and each other Loan Party agrees that at any time any Event of Default exists and is continuing, the Administrative Agent and each Lender may apply to the payment of any Obligations of the Borrowers and each other Loan Party hereunder, whether or not then due, any and all balances, credits, deposits, accounts or moneys of the Borrowers and each other Loan Party then or thereafter with the Administrative Agent or such Lender.

7.5Proration of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise, on account of (a) principal of or interest on any Loan (but excluding (i) any payment pursuant to Sections 8.7 or 15.6 and (ii) payments of interest on any Affected Loan) or (b) its participation in any Letter of Credit) in excess of its applicable Pro Rata Share of those payments and other recoveries obtained by all other applicable Lenders on account of principal of and interest on the respective Loans (or such participation) then held by them, then such Lender shall purchase from the other applicable Lenders such participations in the respective affected Loans (or sub-participations in Letters of Credit) held by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and the purchase price restored to the extent of such recovery.

7.6Taxes.

(a)Except as expressly otherwise provided in this Section 7.6, all payments made by each Loan Party hereunder or under any Loan Documents (including any payment of principal, interest, or fees) to, or for the benefit, of any person (i) shall be made without setoff, counterclaim, or other defense and (ii) shall be made by each Loan Party free and clear of and without deduction or withholding for, or account of, any Taxes now or hereinafter imposed by any taxing authority.

(b)If any Borrower makes any payment hereunder or under any Loan Document in respect of which it is required by applicable law to deduct or withhold any Taxes, such Loan Party shall increase the payment hereunder or under any such Loan Document such that after the reduction for the amount of Taxes withheld (and any Taxes withheld or imposed

43

with respect to the additional payments required under this Section 7.6(b)), the amount paid to the Lenders or the Administrative Agent equals the amount that was payable hereunder or under any such Loan Document without regard to this Section 7.6(b). To the extent any Loan Party withholds any Taxes on payments hereunder or under any Loan Document, such Loan Party shall pay the full amount deducted to the relevant taxing authority within the time allowed for payment under applicable law and shall deliver to the Administrative Agent within 30 days after it has made payment to such authority a receipt issued by such authority (or other evidence satisfactory to the Administrative Agent) evidencing the payment of all amounts so required to be deducted or withheld from such payment.

(c)If any Lender or the Administrative Agent is required by law to make any payments of any Taxes on or in relation to any amounts received or receivable hereunder or under any other Loan Document, or any Tax is assessed against a Lender or the Administrative Agent with respect to amounts received or receivable hereunder or under any other Loan Document, each Borrower hereby jointly and severally agrees to indemnify such person against (i) such Tax (and any reasonable counsel fees and expenses associated with such Tax) and (ii) any Taxes imposed as a result of the receipt of the payment under this Section 7.6(c). A certificate prepared in good faith as to the amount of such payment by such Lender or the Administrative Agent shall, absent manifest error, be final, conclusive, and binding on all parties.

(d)(i)Each Lender that is not a United States person within the meaning of Code Section 7701(a)(30) (a “Non-U.S. Participant”) shall deliver to the Loan Party Representative and the Administrative Agent on or prior to the Closing Date (or in the case of a change in the funding office or a Lender that is an Assignee, on the date of such change in funding office or assignment to such Lender) two accurate and complete original signed copies of Internal Revenue Service (“IRS”) Form W-8BEN, W-8ECI, or W-8IMY (or any successor or other applicable form prescribed by the IRS) certifying to such Lender’s entitlement to a complete exemption from United States withholding tax on interest payments to be made hereunder or any Loan. If a Lender that is a Non-U.S. Participant is claiming a complete exemption from withholding on interest pursuant to Code Sections 871(h) or 881(c), such Lender shall deliver (along with two accurate and complete original signed copies of IRS Form W-8BEN) a certificate in form and substance reasonably acceptable to Administrative Agent (any such certificate, a “Withholding Certificate”). In addition, each Lender that is a Non-U.S. Participant agrees that, from time to time after the Closing Date (or in the case of a Lender that is an Assignee, after the date of the assignment to such Lender), when a lapse in time (or change in circumstances or in any applicable law, rule or regulation by any governmental authority, or compliance by any Lender with any request or directive (whether or not having force of law) of any such authority occurs) renders the prior certificates hereunder obsolete or inaccurate in any material respect, such Lender shall promptly, to the extent permitted under applicable law, deliver to the Loan Party Representative and the Administrative Agent two new and accurate and complete original signed copies of an IRS Form W-8BEN, W-8ECI, or W-8IMY (or any successor or other applicable forms prescribed by the IRS) and, if applicable, a new Withholding Certificate, to confirm or establish the entitlement of such Lender or the Administrative Agent to an exemption from, or reduction in, United States withholding tax on interest payments to be made hereunder or any Loan.

44

(ii)Each Lender that is not a Non-U.S. Participant (other than any such Lender which is taxed as a corporation for U.S. Federal income tax purposes) shall provide two properly completed and duly executed copies of IRS Form W-9 (or any successor or other applicable form) to the Loan Party Representative and the Administrative Agent certifying that such Lender is exempt from United States backup withholding tax. Thereafter, from time to time, to the extent that a form provided pursuant to this Section 7.6(d)(ii) is rendered obsolete or inaccurate in any material respects as result of change in circumstances with respect to the status of a Lender, such Lender shall promptly deliver to the Loan Party Representative and the Administrative Agent revised forms necessary to confirm or establish the entitlement to such Lender’s or Administrative Agent’s exemption from United States backup withholding tax.

(iii)No Borrower shall be required to pay additional amounts to a Lender (or under Section 7.6(b)), or indemnify any Lender, under this Section 7.6 to the extent that such obligations would not have arisen but for the failure of such Lender to comply with Section 7.6(d).

(e)Each Lender agrees to indemnify the Administrative Agent and hold the Administrative Agent harmless for the full amount of any and all present or future Taxes and related liabilities (including penalties, interest, additions to tax and expenses, and any Taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this Section 7.6) which are imposed on or with respect to principal, interest or fees payable to such Lender hereunder and which are not paid by the Borrower pursuant to this Section 7.6, whether or not such Taxes or related liabilities were correctly or legally asserted. This indemnification shall be made within 30 days from the date the Administrative Agent makes written demand therefor.

SECTION 8INCREASED COSTS; SPECIAL PROVISIONS FOR LIBOR LOANS.

8.1Increased Costs.

(a)If, after the date hereof, the adoption of, or any change in, any applicable law, rule or regulation, or any change in the interpretation or administration of any applicable law, rule or regulation by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:  (i) shall impose, modify or deem applicable any reserve (including any reserve imposed by the FRB, but excluding any reserve included in the determination of the LIBOR Rate pursuant to the definition thereof or Section 4), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by any Lender; or (ii) shall impose on any Lender any other condition affecting its LIBOR Loans, its Notes or its obligation to make LIBOR Loans; and the result of anything described in clauses (i) and (ii) above is to increase the cost to (or to impose a cost on) such Lender (or any LIBOR Office of such Lender) of making or maintaining any LIBOR Loan, or to reduce the amount of any sum received or receivable by such Lender (or its LIBOR Office) under this Agreement or under its Notes with respect thereto (other than any such increased cost or reduction on account of taxes of any kind, including Excluded Taxes and Taxes, as to which Section 7.6 shall govern),

45

then upon demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to the Administrative Agent), the Borrowers hereby jointly and severally agree to pay directly to such Lender such additional amount as will compensate such Lender for such increased cost or such reduction, so long as such amounts have accrued on or after the day which is 180 days prior to the date on which such Lender first made demand therefor.

(b)If any Lender shall reasonably determine that any change in, or the adoption or phase-in of, any applicable law, rule or regulation regarding capital adequacy, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or the compliance by any Lender or any Person controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender’s or such controlling Person’s capital as a consequence of such Person’s obligations hereunder or under any Letter of Credit to a level below that which such Lender or such controlling Person could have achieved but for such change, adoption, phase-in or compliance (taking into consideration such Lender’s or such controlling Person’s policies with respect to capital adequacy) by an amount deemed by such Lender or such controlling Person to be material, then from time to time, upon demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to the Administrative Agent), the Borrowers hereby jointly and severally agree to pay to such Lender such additional amount as will compensate such Lender or such controlling Person for such reduction so long as such amounts have accrued on or after the day which is 180 days prior to the date on which such Lender first made demand therefor.

8.2Basis for Determining Interest Rate Inadequate or Unfair. If:

(a)the Administrative Agent reasonably determines (which determination shall be binding and conclusive on each Borrower) absent manifest error that by reason of circumstances affecting the interbank LIBOR market, adequate and reasonable means do not exist for ascertaining the applicable LIBOR Rate; or

(b)the Required Lenders advise the Administrative Agent that the LIBOR Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Lenders of maintaining or funding LIBOR Loans for the relevant Interest Period (taking into account any amount to which such Lenders may be entitled under Section 8.1) or that the making or funding of LIBOR Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Lenders materially affects such Loans; then the Administrative Agent shall promptly notify the other parties thereof and, so long as such circumstances shall continue, (i) in the case of the  Lenders, no such Lender shall be under any obligation to make or convert any Base Rate Loans into LIBOR Loans and (ii) on the last day of the current Interest Period for each LIBOR Loan, such Loan shall, unless then repaid in full, in the case of the Revolving Loans and Term Loan, automatically convert to a Base Rate Loan.

46

8.3Changes in Law Rendering LIBOR Loans Unlawful. If any change in, or the adoption of any new, law or regulation, or any change in the interpretation of any applicable law or regulation by any governmental or other regulatory body charged with the administration thereof, should make it (or in the good faith judgment of any Lender cause a substantial question as to whether it is) unlawful for any Lender to make, maintain or fund LIBOR Loans, then such Lender shall promptly notify each of the other parties hereto and, so long as such circumstances shall continue, (a) in the case of the Lenders, no such Lender shall have any obligation to make or convert any Base Rate Loan into a LIBOR Loan (but shall make Base Rate Loans concurrently with the making of or conversion of Base Rate Loans into LIBOR Loans by such Lenders which are not so affected, in each case in an amount equal to the amount of LIBOR Loans which would be made or converted into by such Lender at such time in the absence of such circumstances) and (b) on the last day of the current Interest Period for each LIBOR Loan of such Lender (or, in any event, on such earlier date as may be required by the relevant law, regulation or interpretation), such LIBOR Loan shall, automatically convert to a Base Rate Loan. Each Base Rate Loan made by a Lender which, but for the circumstances described in the foregoing sentence, would be a LIBOR Loan (an “Affected Loan”) shall remain outstanding for the period corresponding to the Group of LIBOR Loans of which such Affected Loan would be a part absent such circumstances.

8.4Funding Losses. The Borrowers hereby jointly and severally agrees that upon written demand by any Lender (which demand shall be accompanied by a statement setting forth in reasonable detail the basis for the amount being claimed, a copy of which shall be furnished to the Administrative Agent), each Borrower will indemnify such Lender against any net loss or expense which such Lender may sustain or incur (including any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain any LIBOR Loan), as reasonably determined by such Lender, as a result of (a) any payment, prepayment or conversion of any LIBOR Loan of such Lender on a date other than the last day of an Interest Period for such Loan (including any conversion pursuant to Section 8.3) or (b) any failure of any Borrower to borrow, convert or continue any Loan on a date specified therefor in a notice of borrowing, conversion or continuation pursuant to this Agreement. For this purpose, all such notices to the Administrative Agent pursuant to this Agreement shall be deemed irrevocable.

8.5Right of Lenders to Fund through Other Offices. Each Lender may, if it so elects, fulfill its commitment as to any LIBOR Loan by causing a foreign branch or Affiliate of such Lender to make such Loan; provided that in such event for the purposes of this Agreement such Loan shall be deemed to have been made by such Lender and the obligation of the Borrowers to repay such Loan shall nevertheless be to such Lender and shall be deemed held by it, to the extent of such Loan, for the account of such branch or Affiliate.

8.6Discretion of Lenders as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of its Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Lender had actually funded and maintained each LIBOR Loan during each Interest Period for such Loan through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the LIBOR Rate for such Interest Period.

47

8.7Mitigation of Circumstances; Replacement of Lenders.

(a)Each Lender shall promptly notify the Loan Party Representative and the Administrative Agent of any event of which it has knowledge which will or is likely to result in, and will use reasonable commercial efforts available to it (other than the taking of any such action which, in such Lender’s sole judgment, imposes any expense upon or is otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation by the Borrowers to pay any amount pursuant to Section 7.6 or 8.1 or (ii) the occurrence of any circumstances described in Section 8.2 or 8.3 (and, if any Lender has given notice of any such event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender shall promptly so notify the Loan Party Representative and the Administrative Agent); provided that the failure by any Lender to provide pay prospective notice of any such possible event shall not reduce or diminish such Lender’s remedies or the Loan Parties’ obligations hereunder. Without limiting the foregoing, each Lender will designate a different funding office if such designation will avoid (or reduce the cost to the Borrowers of) any event described in clause (i) or (ii) above and such designation will not, in such Lender’s sole judgment, impose aggregate expenses in excess of $1,000 on such Lender or be otherwise disadvantageous to such Lender.

(b)If any Borrower becomes obligated to pay additional amounts to any Lender pursuant to Section 7.6 or 8.1, any Lender gives notice of the occurrence of any circumstances described in Section 8.2 or 8.3, or any Defaulting Lender pursuant to Section 2.1.1(c) does not make payment to the Administrative Agent of such amounts giving rise to its becoming a Defaulting Lender within 15 days of the date such payment is required under this Agreement, the Loan Party Representative may designate another bank which is acceptable to the Administrative Agent and the Issuing Lender in their reasonable discretion (such other bank being called a “Replacement Lender”) to purchase the Loans of such Lender and such Lender’s rights hereunder, without recourse to or warranty by, or expense to, such Lender, for a purchase price equal to the outstanding principal amount of the Loans payable to such Lender plus any accrued but unpaid interest on such Loans and all accrued but unpaid fees owed to such Lender and any other amounts payable to such Lender under this Agreement, and to assume all the obligations of such Lender hereunder, and, upon such purchase and assumption (pursuant to an Assignment Agreement), such Lender shall no longer be a party hereto or have any rights hereunder (other than rights with respect to indemnities and similar rights applicable to such Lender prior to the date of such purchase and assumption) and shall be relieved from all obligations to the Borrowers hereunder, and the Replacement Lender shall succeed to the rights and obligations of such Lender hereunder.

8.8Conclusiveness of Statements; Survival of Provisions. Determinations and statements of any Lender pursuant to Section 7.6, 8.1, 8.2, 8.3 or 8.4 shall be conclusive absent demonstrable error. Lenders may use reasonable averaging and attribution methods in determining compensation under Sections 7.6, 8.1 and 8.4, and the provisions of such Sections shall survive repayment of the Obligations (other than unasserted contingent indemnification obligations), cancellation of any Notes, expiration or termination of the Letters of Credit and termination of this Agreement.

48

SECTION 9REPRESENTATIONS AND WARRANTIES.

To induce the Administrative Agent and the Lenders to enter into this Agreement and to induce the Lenders to make Loans and issue and participate in Letters of Credit hereunder, the Loan Parties hereby jointly and severally represent and warrant to the Administrative Agent and the Lenders that:

9.1Organization. The Company and each Loan Party is validly existing and in good standing under the laws of its jurisdiction of organization and each is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except for such jurisdictions where the failure to so qualify would not have or could not reasonably be expected to have a Material Adverse Effect.

9.2Authorization; No Conflict. The Company and each Loan Party is duly authorized to execute and deliver each Loan Document to which it is a party, each Borrower is duly authorized to borrow monies hereunder and the Company and each Loan Party is duly authorized to perform its obligations under each Loan Document to which it is a party. The execution, delivery and performance by the Company and each Loan Party of each Loan Document to which it is a party, and the borrowings by each Borrower hereunder, do not and will not (a) require any consent or approval of any governmental agency or authority (other than any consent or approval which has been obtained and is in full force and effect, except such as would not have and reasonably could not be expected to have a Material Adverse Effect), (b) conflict with (i) any provision of law, (ii) the charter, by-laws or other organizational documents of the Company or any Loan Party or (iii) any material agreement, indenture, instrument or other material document, or any judgment, order or decree, which is binding upon the Company, any Loan Party or any of their respective properties or (c) require, or result in, the creation or imposition of any Lien on any asset of any Loan Party (other than Permitted Liens and Liens in favor of the Administrative Agent created pursuant to the Collateral Documents).

9.3Validity and Binding Nature. Each of this Agreement and each other Loan Document to which the Company or any Loan Party is a party is the legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors’ rights generally and to general principles of equity regardless of whether considered in a proceeding in equity or law.

9.4Financial Condition. The audited consolidated financial statements of the Company and its Subsidiaries for Fiscal Years 2002, 2003 and 2004, the unaudited consolidating financial statements of the Borrowers and their Subsidiaries for Fiscal Years 2002, 2003 and 2004, and the unaudited consolidating financial statements of the Borrowers and their Subsidiaries as at the fiscal months and Fiscal Quarters ended after Fiscal Year 2004, copies of each of which have been delivered to the Administrative Agent, were prepared in accordance with GAAP (subject to the absence of footnotes and to normal year-end adjustments, solely with respect to unaudited financial statements) and present fairly in all material respects the consolidated financial condition of the Borrowers and their Subsidiaries or the Company and its Subsidiaries, as applicable, as at such dates and the results of their operations for the periods then ended.

49

9.5No Material Adverse Change. Since December 31, 2004, no event or circumstance exists and/or has occurred that has had or could reasonably be expected to have, either alone or in conjunction with any other circumstances, events or occurrences, a Material Adverse Effect on the Loan Parties taken as a whole; it being agreed, however, that the consolidated results of operations of the Company and its Subsidiaries for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005, as reported on the 10-Q’s of the Company filed with the SEC on or about May 10, 2005, August 9, 2005 and November 9, 2005 shall not, in and of themselves, be deemed a Material Adverse Effect.

9.6Litigation and Contingent Liabilities. No litigation (including derivative actions), arbitration proceeding or governmental investigation or proceeding is pending or, to such Loan Party’s knowledge, threatened against, the Company, any other Loan Party or any of the foregoing’s Subsidiaries which has had, or could reasonably be expected to have, a Material Adverse Effect. Other than any liability incident to such litigation or proceedings, no Loan Party has any material Contingent Liabilities not listed on Schedule 9.6 or permitted by Section 11.1.

9.7Ownership of Properties; Liens. Each Loan Party owns good and, in the case of real property, marketable title to all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights) material to its business free and clear of all Liens, charges and claims (including infringement claims with respect to patents, trademarks, service marks, copyrights and the like) other than Permitted Liens. The Company owns good title to the Capital Securities of the Borrowers, free and clear of all Liens (other than Liens permitted pursuant to Section 11.2(h)), charges and claims other than Liens in favor of the Administrative Agent pursuant to the Pledge Agreement.

9.8Equity Ownership; Subsidiaries. All issued and outstanding Capital Securities of each Loan Party and each Subsidiary are duly authorized and validly issued, fully paid, non-assessable, and free and clear of all Liens other than Permitted Liens, and such securities were issued in compliance with all applicable state and federal laws concerning the issuance of securities. Schedule 9.8 sets forth the authorized Capital Securities of each Loan Party and each Subsidiary as of the Closing Date. All of the issued and outstanding Capital Securities of each Loan Party and each Subsidiary are owned as set forth on Schedule 9.8 as of the Closing Date, and all of the issued and outstanding Capital Securities of each Wholly-Owned Subsidiary is, directly or indirectly, owned by such Loan Party. As of the Closing Date, except as set forth on Schedule 9.8, there are no pre-emptive or other outstanding rights, options, warrants, conversion rights or other similar agreements or understandings for the purchase or acquisition of any Capital Securities of any Loan Party or any Subsidiary.

9.9Pension Plans.

(a)There is no Unfunded Liability which would have or could reasonably be expected to have a Material Adverse Effect. Each Pension Plan complies in all material respects with its terms and all applicable requirements of law and regulations. No contribution failure under Section 412 of the Code, Section 302 of ERISA, any other applicable law or the terms of any Pension Plan has occurred with respect to any Pension Plan, sufficient to give rise to a Lien under Section 302(f) of ERISA, or otherwise would have or could reasonably be expected to

50

have a Material Adverse Effect. There are no pending or, to the knowledge of any Loan Party, threatened, claims, actions, investigations or lawsuits against any Pension Plan, any fiduciary of any Pension Plan, or Loan Party or any other member of the Controlled Group with respect to a Pension Plan or a Multiemployer Pension Plan which would have or could reasonably be expected to have a Material Adverse Effect. No Loan Party nor any other member of the Controlled Group has engaged in any prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Pension Plan or any Multiemployer Pension Plan which would subject any Loan Party or any other member of the Controlled Group to any material liability. Within the past five years, no Loan Party nor any other member of the Controlled Group has engaged in a transaction which resulted in a Pension Plan with an Unfunded Liability being transferred out of the Controlled Group which would have or could reasonably be expected to have a Material Adverse Effect. No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan which would have or could reasonably be expected to have a Material Adverse Effect.

(b)All contributions (if any) have been made to any Multiemployer Pension Plan that are required to be made by the Loan Parties or any other member of the Controlled Group under the terms of the plan or of any collective bargaining agreement or by applicable law; no Loan Party nor any other member of the Controlled Group has withdrawn or partially withdrawn from any Multiemployer Pension Plan, incurred any material withdrawal liability with respect to any such plan or received notice of any claim or demand for withdrawal liability or partial withdrawal liability from any such plan, and no condition has occurred which, if continued, could result in a withdrawal or partial withdrawal from any such plan; and no Loan Party nor any other member of the Controlled Group has received any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent.

(c)All Other Plans. All other “pension plans,” as such term is defined in Section 3(2) of ERISA, maintained by any Loan Party or any member of the Controlled Group that are not Pension Plans and all other non-qualified deferred compensation plans comply in all respects with their terms and with all applicable requirements of law and regulations, except to the extent that any failure to comply could not be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect.

(d)Disclosure. Except as set forth on Schedule 9.9 (as the same may be updated from time to time to reflect changes occurring after the Closing Date), no Loan Party maintains or contributes to a Pension Plan that is a defined benefit plan or Multiemployer Pension Plan that is governed by United States law.

9.10Investment Company Act. No Loan Party, Subsidiary of a Loan Party or, to the best knowledge of such Loan Party, the Company, is an “investment company” or a company “controlled” by an “investment company” or a “subsidiary” of an “investment company,” within the meaning of the Investment Company Act of 1940.

51

9.11Public Utility Holding Company Act. No Loan Party, Subsidiary of a Loan Party or, to the best knowledge of such Loan Party, the Company, is a “holding company”, or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of 1935.

9.12Regulation U. No Loan Party or Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock.

9.13Taxes. The Company, each Loan Party and each Subsidiary of each of the foregoing has timely filed all federal and state income and all other material tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges due and payable with respect to such return, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books and in respect of which no Lien has been filed against the assets of the Company, any Loan Party or any of the foregoing’s Subsidiaries. The Company has, for all periods, and commencing with the financial statements of the Borrowers for the Fiscal Quarter ending March 31, 2006 and continuing thereafter, the Loan Parties and each Subsidiary of each of the foregoing have, in each case, made adequate reserves on their books and records in accordance with GAAP for all federal and state income and all other material taxes that have accrued but which are not yet due and payable. Neither the Company nor any Loan Party or any of the foregoing’s Subsidiaries has participated in any transaction that relates to a year of the taxpayer (which is still open under the applicable statute of limitations) which is a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2) (irrespective of the date when the transaction was entered into).

9.14Solvency, etc. (a)  On the Closing Date, both immediately before and after giving effect to the Spin-Off and the other Related Transactions contemplated hereby and by the other Loan Documents and the Related Agreements, the fair value of the assets of the Company and its Subsidiaries on a consolidated basis, at a fair valuation on a going concern basis, will exceed the debts and liabilities, as determined in accordance with GAAP, of the Company and its Subsidiaries on a consolidated basis; the present fair saleable value of the assets of the Company and its Subsidiaries on a consolidated basis, determined on a going concern basis, will be greater than the amount that will be required to pay the probable liability of the Company and its Subsidiaries on a consolidated basis on their debts and other liabilities, as determined in accordance with GAAP, as such debts and other liabilities become absolute and matured; the Company and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, as determined in accordance with GAAP, as such debts and liabilities become absolute and matured; and the Company and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof.

(b)On the Closing Date, both immediately before and after giving effect to the Spin-Off and the other Related Transactions contemplated hereby and by the other Loan Documents and the Related Agreements, and thereafter immediately prior to and after giving effect to the issuance of each Letter of Credit and each borrowing hereunder and the use of the

52

proceeds thereof, the fair value of the assets of the Loan Parties and their Subsidiaries on a consolidated basis, at a fair valuation on a going concern basis, will exceed the debts and liabilities, as determined in accordance with GAAP, of the Loan Parties and their Subsidiaries on a consolidated basis; the present fair saleable value of the assets of the Loan Parties and their Subsidiaries on a consolidated basis, determined on a going concern basis, will be greater than the amount that will be required to pay the probable liability of the Loan Parties and their Subsidiaries on a consolidated basis on their debts and other liabilities, as determined in accordance with GAAP, as such debts and other liabilities become absolute and matured; the Loan Parties and their Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, as determined in accordance with GAAP, as such debts and liabilities become absolute and matured; and the Loan Parties and their Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof.

9.15Environmental Matters. The on-going operations of each Loan Party and each Subsidiary comply in all respects with all Environmental Laws, except such non-compliance which has not had, and could not (if enforced in accordance with applicable law) reasonably be expected to result in, either individually or in the aggregate, a Material Adverse Effect. Each Loan Party and each Subsidiary has obtained, and maintained in good standing, all licenses, permits, authorizations, registrations and other approvals required under any Environmental Law for their respective ordinary course operations, and for their reasonably anticipated future operations, and each Loan Party and each Subsidiary is in compliance with all terms and conditions thereof, except where the failure to do so has not had and could not reasonably be expected to result in material liability to any Loan Party or Subsidiary and has not had, and could not reasonably be expected to result in, either individually or in the aggregate, a Material Adverse Effect. Except as set forth on Schedule 9.15, no Loan Party or any Subsidiary or any of their properties or operations is subject to, or reasonably anticipates the issuance of, any written order from or agreement with any Federal, state or local governmental authority, nor subject to any judicial or docketed administrative or other proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Substance any of which has had, or could reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect. There are no Hazardous Substances or other conditions or circumstances existing with respect to any property, arising from operations prior to the Closing Date, or relating to any waste disposal, of any Loan Party or any Subsidiary that has had, or could reasonably be expected to result in, either individually or in the aggregate, a Material Adverse Effect. No Loan Party or Subsidiary has any underground storage tanks that are not properly registered or permitted under applicable Environmental Laws or that at any time have released, leaked, disposed of or otherwise discharged Hazardous Substances any of which has had, or could reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect.

9.16Insurance. Set forth on Schedule 9.16 is a complete and accurate summary of the property and casualty insurance program of the Loan Parties as of the Closing Date (including the names of all insurers, policy numbers, expiration dates, amounts and types of coverage, annual premiums, exclusions, deductibles, self-insured retention, and a description in reasonable detail of any self-insurance program, retrospective rating plan, fronting arrangement or other risk assumption arrangement involving any Loan Party or Subsidiary). Each Loan Party and each Subsidiary and their respective properties are insured with financially sound and

53

reputable insurance companies which are not Affiliates of the Loan Parties, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where any such Loan Party and/or Subsidiary operates.

9.17Real Property. Set forth on Schedule 9.17 is a complete and accurate list, as of the Closing Date, of the address of all real property owned or leased by any Loan Party, together with, in the case of leased property, the name and mailing address of the lessor of such property.

9.18Information. None of the representations or warranties made by the Company or any Loan Party in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in each exhibit, report, statement or certificate furnished by or on behalf of the Company or any Loan Party in connection with the Loan Documents (including the offering and disclosure materials, if any, delivered by the Company or such Loan Party to the Administrative Agent prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. It being recognized by the Administrative Agent and the Lenders that any projections and forecasts provided by the Borrowers, any other Loan Party or the Company (relating to the Borrowers or the Loan Parties) are subject to uncertainties and contingencies, are based on good faith estimates and assumptions believed by the Borrowers and the other Loan Parties or the Company to be reasonable as of the date of the applicable projections or forecasts and upon the best information then reasonably available to the Borrowers and the other Loan Parties or the Company and that actual results during the period or periods covered by any such projections and forecasts may differ materially from projected or forecasted results; provided however that if, during the period or periods covered by any such projections and forecasts, management of the Borrowers, any other Loan Party or the Company (relating to the Borrowers or the Loan Parties) determines that the projections and forecasts no longer accurately reflect in any material respect the projected financial results for such period or periods, as the case may be the Chief Financial Officer shall, as soon as is reasonably practicable, provide to the Administrative Agent revised projections and forecasts for such period or periods).

9.19Intellectual Property. Each Loan Party and each Subsidiary owns and possesses or has a license or other right to use all patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights and copyrights as are necessary for the conduct of the businesses of such Loan Party or Subsidiary as currently conducted except for the failure to so own or license which would not have or could not reasonably be expected to have a Material Adverse Effect, as applicable, without any infringement upon rights of others which would have or could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 9.19, or with respect to any such licensing or distribution agreements entered into after the date hereof, as otherwise disclosed to the Administrative Agent promptly after its written request (including by way of updating and replacing such Schedule), no Loan Party is party to any licensing agreement or distribution agreement relating to any Inventory which contains any restrictions or prohibitions on the Administrative Agent (or its agents) from selling or disposing such Inventory on substantially the

54

same terms as the Loan Party to such license agreement or distribution agreement or which contains a right in favor of the licensor or distributor to repurchase such Inventory (other than for non-payment of invoices related to the purchase by the Loan Party thereof).

9.20Burdensome Obligations. No Loan Party or Subsidiary is a party or bound by to any agreement or contract or subject to any restriction contained in its organizational documents which could reasonably be expected to have a Material Adverse Effect.

9.21Labor Matters. Except as set forth on Schedule 9.21, no Loan Party or Subsidiary is subject to any labor or collective bargaining agreement. Except as set forth on Schedule 9.21, there are no existing or, to the knowledge of any Loan Party or Subsidiary, threatened strikes, lockouts or other labor disputes involving any Loan Party or Subsidiary. Hours worked by and payment made to employees of the Loan Parties or the Subsidiaries are not in violation in any material respect of the Fair Labor Standards Act or any other applicable law, rule or regulation dealing with such matters, except such violations which would not have, and which could not reasonably be expected to have, a Material Adverse Effect.

9.22No Default. No Event of Default or Unmatured Event of Default exists or would result from the execution, delivery or performance hereof or of the other Loan Documents, including as a result of the Related Transactions and/or the incurrence by the Company, any Loan Party or any Subsidiary of any Debt hereunder or under any other Loan Document.

9.23Related Agreements, etc. The Loan Party Representative has heretofore furnished the Administrative Agent a true and correct copy of each of the Related Agreements and the Restricted Debt Agreements, in each case, as in effect as of the date of this Agreement.

9.24Subordinated Debt. All Obligations constitute senior Debt entitled to the priority and benefits of the subordination provisions contained in the Earnout Subordination Agreement. The Borrowers each acknowledge that the Administrative Agent and each Lender are entering into this Agreement and are extending the Commitments and making the Loans in reliance upon the subordination provisions of the Earnout Subordination Agreement and this Section 9.24.

9.25Eligible Accounts and Eligible Inventory. All Accounts and Inventory represented by the Borrowers or the Loan Party Representative at any time as being eligible for lending purposes hereunder including, upon each borrowing hereunder, shall constitute Eligible Accounts and Eligible Inventory, respectively.

9.26Other Debt. Except as otherwise set forth on Schedule 9.26 or permitted pursuant to Section 11.1, no Loan Party is now obligated for any Debt other than the Obligations.

SECTION 10AFFIRMATIVE COVENANTS.

Until the expiration or termination of the Commitments and thereafter until all Obligations (other than unasserted contingent and indemnification obligations) hereunder and under the other Loan Documents are paid in full in cash and all Letters of Credit have been

55

terminated (or Cash Collateralized), each of the Loan Parties agree that, unless at any time the Required Lenders shall otherwise expressly consent in writing, it will:

10.1Reports, Certificates and Other Information. Deliver to the Administrative Agent (whereupon, in the cases of Sections 10.1.1, 10.1.2, 10.1.3, 10.1.5(a), 10.1.6, 10.1.8 and 10.1.9, the Administrative Agent shall deliver copies thereof to the Lenders):

10.1.1Annual Report. Promptly when available and in any event within 90 days after the close of each Fiscal Year (or such earlier or later date as Form 10-Ks of the Company are required to be filed by with the SEC taking into account any extension granted by the SEC, provided the Loan Party Representative gives the Administrative Agent prompt written notice of such extension), (1) with respect to Fiscal Year 2005, (a) a copy of the annual audit report of the Company and its Subsidiaries for such Fiscal Year, including therein consolidated balance sheets and statements of earnings and cash flows of the Company and its Subsidiaries as at the end of such Fiscal Year, certified without adverse reference to going concern value and without qualification by independent auditors of recognized standing selected by the Company and reasonably acceptable to the Administrative Agent, together with (i) a written statement from such accountants to the effect that in making the examination necessary for the signing of such annual audit report by such accountants, nothing came to their attention that caused them to believe that the Loan Parties were not in compliance with any provision of Section 11.13 of this Agreement insofar as such provision relates to accounting matters or, if something has come to their attention that caused them to believe that the Loan Parties were not in compliance with such provision, describing such non-compliance in reasonable detail and (ii) a comparison with the budget for such Fiscal Year and a comparison with the previous Fiscal Year; and (b)  consolidating balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Year and consolidating statement of earnings and cash flows for the Company and its Subsidiaries for such Fiscal Year, in each case, prepared in accordance with GAAP (other than with respect to the absence of footnotes) certified by the Chief Financial Officer as fairly and accurately presenting in all material respects the financial condition and results of such entities as at the date and (2) commencing with Fiscal Year 2006: (a) a copy of the annual audit report of the Borrowers and their Subsidiaries for such Fiscal Year, including therein consolidated balance sheets and statements of earnings and cash flows of the Borrowers and their Subsidiaries as at the end of such Fiscal Year, certified without adverse reference to going concern value and without qualification by independent auditors of recognized standing selected by the Borrowers and reasonably acceptable to the Administrative Agent, together with (i) a written statement from such accountants to the effect that in making the examination necessary for the signing of such annual audit report by such accountants, nothing came to their attention that caused them to believe that the Loan Parties were not in compliance with any provision of Section 11.13 of this Agreement insofar as such provision relates to accounting matters or, if something has come to their attention that caused them to believe that the Loan Parties were not in compliance with such provision, describing such non-compliance in reasonable detail and (ii) a comparison with the budget for such Fiscal Year and a comparison with the previous Fiscal Year; and (b)  consolidating balance sheets of the Borrowers and their Subsidiaries as of the end of such Fiscal Year and consolidating statements of earnings and cash flows for the Borrowers and their Subsidiaries for such Fiscal Year, in each case, prepared in accordance with GAAP (other than with respect to the absence of footnotes) certified by the Chief Financial Officer as fairly and accurately presenting in all material respects the financial condition and results of such entities as

56

at the date and for the period covered; provided that with respect to the foregoing relating to Fiscal Year ended 2005, to the extent the Company’s annual report on Form 10-K shall satisfy the requirements of this Section 10.1.1(a), the Administrative Agent will accept such Form 10-K in lieu of such item.

10.1.2Interim Reports. (a) Promptly when available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year (or such earlier or later date as Form 10-Qs of the Company are required to be filed by the SEC taking into account any extension granted by the SEC, provided the Loan Party Representative gives the Administrative Agent prompt written notice of such extension), unaudited consolidated financial statements of the Borrowers and their Subsidiaries for such Fiscal Quarter, including therein consolidated balance sheets and statements of earnings and cash flows as of the end of such Fiscal Quarter and for the period beginning with the first day of such Fiscal Year and ending on the last day of such Fiscal Quarter, in each case, prepared in accordance with GAAP, consistently applied and certified by the Chief Financial Officer as fairly presenting in all material respects the financial condition of the Borrowers and their Subsidiaries as at the date thereof, together with (i) a comparison with the corresponding period of the previous Fiscal Year and a comparison with the budget for such period of the current Fiscal Year and (ii) and (ii) a consolidating balance sheet of the Borrowers and their Subsidiaries as of the end of such Fiscal Quarter and consolidating statement of earnings and cash flows for the Borrowers and their Subsidiaries for such Fiscal Quarter, in each case, prepared in accordance with GAAP (other than with respect to the absence of footnotes and normal year end audit adjustments) certified by the Chief Financial Officer as fairly presenting in all material respects the financial condition of such entities as at the date and for the period covered; and (b) promptly when available and in any event within 30 days after the end of each fiscal month of the Borrowers (other than the end of a fiscal month which is also a Fiscal Quarter or Fiscal Year end), unaudited consolidated financial statements of the Borrowers and their Subsidiaries for such fiscal month, including therein consolidated balance sheets and statements of earnings and cash flows as of the end of such fiscal month and for the period beginning with the first day of such Fiscal Year and ending on the last day of such fiscal month, in each case, prepared in accordance with GAAP, consistently applied and certified by the Chief Financial Officer as fairly presenting in all material respects the financial condition of the Borrowers and their Subsidiaries as at the date thereof, together with (i) a comparison with the corresponding period of the previous Fiscal Year and a comparison with the budget for such period of the current Fiscal Year and (ii) and (ii) a consolidating balance sheet of the Borrowers and their Subsidiaries as of the end of such month and consolidating statement of earnings and cash flows for the Borrowers and their Subsidiaries for such month, in each case, prepared in accordance with GAAP (other than with respect to the absence of footnotes and normal year-end audit adjustments) certified by the Chief Financial Officer as fairly presenting in all material respects the financial condition of such entities as at the date and for the period covered; provided that with respect to the foregoing relating to any Fiscal Quarter ending prior to the Closing Date, to the extent the Company’s quarterly report on Form 10-Q for such quarter shall satisfy the requirements of this Section 10.1.1(b), the Administrative Agent will accept such Form 10-Q in lieu of such item.

10.1.3Compliance Certificates. Contemporaneously with the furnishing of a copy of each annual audit report pursuant to Section 10.1.1 and each set of quarterly statements pursuant to Section 10.1.2(a), a duly completed compliance certificate in the form of Exhibit B,

57

with appropriate insertions, dated the date of such annual report or such quarterly statements and signed by a Senior Officer of the Loan Party Representative, containing (i) if required pursuant to the terms hereof, a computation of each of the financial ratios and restrictions set forth in Section 11.13 and to the effect that such officer has not become aware of any Event of Default or Unmatured Event of Default that has occurred and is continuing or, if there is any such event, describing it and the steps, if any, taken or being taken to cure it and (ii) a written statement of the Borrowers’ management setting forth a discussion of the financial condition of the Borrowers and their Subsidiaries and any material changes in their financial condition and/or results of operations.

10.1.4Reports to the SEC and to Shareholders. Promptly upon the filing or sending thereof, without duplication, copies of all regular, periodic or special reports, if any, of any Loan Party filed with the SEC; copies of all registration statements of any Loan Party or Subsidiary filed with the SEC (other than on Form S-8), if any; and copies of all proxy statements or other communications made to security holders generally.

10.1.5Notice of Default, Litigation and ERISA Matters. Promptly upon becoming aware of any of the following, written notice describing the same and the steps being taken by the Loan Party or Subsidiary affected thereby with respect thereto:

(a)the occurrence of an Event of Default or an Unmatured Event of Default;

(b)any litigation, arbitration or governmental investigation or proceeding not previously disclosed by any Loan Party or Subsidiary to the Administrative Agent which has been instituted or, to the knowledge of any Loan Party or Subsidiary, is threatened against the Company, any Loan Party, any Subsidiary of any of the foregoing or to which any of the properties of any thereof is subject which would have or could reasonably be expected to have a Material Adverse Effect;

(c)the institution of any steps by any member of the Controlled Group or any other Person to terminate any Pension Plan, or the failure of any member of the Controlled Group to make a required contribution to any Pension Plan (if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the taking of any action with respect to a Pension Plan which could result in the requirement that the any Loan Party or any other member of the Controlled Group furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan or Multiemployer Pension Plan which could result in the incurrence by any member of the Controlled Group of any material liability, fine or penalty (including any claim or demand for withdrawal liability or partial withdrawal from any Multiemployer Pension Plan), or any material increase in the contingent liability of any Loan Party or any other member of the Controlled Group with respect to any post-retirement welfare benefit plan or other employee benefit plan of any Loan Party or any other member of the Controlled Group which would have or could reasonably be expected to have a Material Adverse Effect, or any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of an excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent;

58

(d)any other event (including (i) any violation of any Environmental Law or the assertion of any Environmental Claim or (ii) the enactment or effectiveness of any law, rule or regulation) which would have or could reasonably be expected to have a Material Adverse Effect;

(e)any Asset Disposition; or

(f)any cancellation, any material change or any increase (which increase is as a result of deterioration in the risk profile of any Loan Party or Subsidiary) in the deductible in any insurance policy or coverage maintained by any Loan Party or Subsidiary.

10.1.6Borrowing Base Certificates. By the thirteenth Business Day of each fiscal month for the immediately preceding month, a Borrowing Base Certificate executed by a Senior Officer of the Loan Party Representative on behalf of the Borrowers (provided that (i) the Loan Party Representative may deliver a Borrowing Base Certificate more frequently if it chooses, and (ii) after the occurrence and during the continuance of an Event of Default, the Administrative Agent may require the Loan Party Representative to deliver Borrowing Base Certificates more frequently upon its request). Upon the request by the Administrative Agent, the Loan Parties (at their sole expense) shall provide the Administrative Agent with full access to copies of the Borrowers’ sales journals, cash receipts journals and credit memo journals for the relevant period and shall provide the Administrative Agent with such other additional information concerning Accounts and Inventory as may be reasonably requested by the Administrative Agent from time to time. Each Borrowing Base Certificate shall reflect the actual, aggregate Account balance and book Inventory balance as of such date.

10.1.7Management Reports. Promptly upon receipt thereof, copies of all detailed financial and management reports submitted to any Loan Party by its independent auditors in connection with each annual or interim audit made by such auditors of the books of the Borrowers and their Subsidiaries.

10.1.8Projections. As soon as practicable, and in any event not later than 45 days after the commencement of each Fiscal Year (commencing with Fiscal Year 2007), financial projections for the Borrowers and their Subsidiaries for such Fiscal Year (including monthly operating and cash flow budgets) prepared in a manner consistent with the projections delivered by the Borrowers to the Administrative Agent prior to the Closing Date or otherwise in a manner reasonably satisfactory to the Administrative Agent, accompanied by a certificate of the Chief Financial Officer on behalf of the Borrowers and their Subsidiaries to the effect that (a) such projections were prepared by the Borrowers and their Subsidiaries in good faith, (b) the Borrowers and their Subsidiaries had a reasonable basis for the assumptions contained in such projections and (c) such projections have been prepared in accordance with such assumptions (it being recognized that any projections provided hereunder by the Company, the Borrowers or any other Loan Party are subject to uncertainties and contingencies, are based on good faith estimates and assumptions believed by the Company, the Borrowers or such Loan Party to be reasonable as of the date of the applicable projections and upon the best information then reasonably available to the Company, the Borrowers and the other Loan Parties and that actual results during the period or periods covered by any such projections may differ materially from projected results; provided however that if, during the period or periods covered by any such projections,

59

management of the Borrowers or any other Loan Party determines that the projections no longer accurately reflect in any material respect the projected financial results for such period or periods, as the case may be, the Chief Financial Officer shall, as soon as practicable, provide to the Administrative Agent revised projections for such period or periods).

10.1.9Material Notices. Promptly following receipt, copies of any notices of default, termination or acceleration or any other material notices received from any holder or trustee of, under or with respect to any Subordinated Debt, the Kids Line Purchase Agreement, the Earnout Subordination Agreement, the Earnout Security Documents, the other Restricted Debt Agreements, the Related Agreements or any other material agreement.

10.1.10Other Information. Promptly from time to time, such other information concerning the Loan Parties (or any of them), any Subsidiary or, to the extent obtainable by the Loan Parties, the Company and its Subsidiaries (other than the Loan Parties and their Subsidiaries) as any Lender or the Administrative Agent may reasonably request.

10.2Books, Records and Inspections. Keep, and cause each other Loan Party and Subsidiary to keep, its books and records in accordance with sound business practices sufficient to allow the preparation of financial statements in accordance with GAAP; permit, and cause each other Loan Party and Subsidiary to permit, the Administrative Agent, any Lender or any representative thereof to inspect the properties and operations of the Loan Parties and the Subsidiaries during regular business hours and with reasonable prior notice (or any time without notice if an Event of Default exists); provided that any Lender’s inspection must be coordinated with an inspection by the Administrative Agent or one of its representatives; and permit, and cause each other Loan Party and Subsidiary to permit, during regular business hours and with reasonable prior notice (or at any time without notice if an Event of Default exists), the Administrative Agent or any representative thereof to visit any or all of its offices, to discuss its financial matters with its officers and its independent auditors (and the Loan Parties each hereby authorizes such independent auditors to discuss such financial matters with any Lender or the Administrative Agent or any representative thereof), and to examine (and, at the expense of the Loan Parties) photocopy extracts from any of its books or other records; and permit, and cause each other Loan Party to permit, during regular business hours and with reasonable prior notice (or at any time without notice if an Event of Default exists), the Administrative Agent and its representatives to inspect the Collateral and other tangible assets of the Loan Parties, to perform appraisals of the Collateral and real property of the Loan Parties, and to inspect, audit, check and make copies of and extracts from the books, records, computer data, computer programs, journals, orders, receipts, correspondence and other data relating to Inventory, Accounts and any other Collateral. The Loan Parties shall be jointly and severally liable for all reasonable expenses of the Administrative Agent incurred in connection with such inspections or audits, including the reasonable fees and expenses of its representatives and/or agents (it being agreed that any Lender may accompany the Administrative Agent at its own expense); provided, however, that other than with respect to audits, inspections and appraisals conducted at any time that an Event of Default exists, the Loan Parties shall not be required to reimburse the Administrative Agent for more than two inspections and/or audits and more than two appraisals in any Fiscal Year; it being acknowledged that a single inspection, audit and/or appraisal may entail visits to the multiple locations of books, records and assets of the Loan Parties; and it being further agreed that the costs for each inspection/audit shall not exceed $35,000, in

60

aggregate, and the costs for each appraisal shall not exceed $20,000, in aggregate, in each case, plus reasonable out of pocket expenses and disbursements.

10.3Maintenance of Property; Insurance.

10.3.1Obligation to Maintain Properties. Keep, and cause each other Loan Party and Subsidiary to keep, all Collateral and all other property useful and necessary in the business of the Loan Parties and Subsidiaries in good working order and condition, ordinary wear and tear excepted and shall make all necessary replacements of, and repairs to, the equipment so that the operating efficiency and the value thereof shall at all times be preserved and maintained.

10.3.2Obligation to Maintain Insurance. Maintain, and cause each other Loan Party and Subsidiary to maintain, with responsible insurance companies, such insurance coverage as may be required by any law or governmental regulation or court decree or order applicable to it and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated, but which shall insure against all risks and liabilities of the type identified on Schedule 9.16; and, upon request of the Administrative Agent or any Lender, furnish to the Administrative Agent a certificate setting forth in reasonable detail the nature and extent of all insurance maintained by the Loan Parties and Subsidiaries. The Loan Party Representative shall cause each issuer of an insurance policy to provide the Administrative Agent with an endorsement (i) showing the Administrative Agent as loss payee with respect to each policy of property or casualty insurance and naming the Administrative Agent as an additional insured with respect to each policy of liability insurance, (ii) providing that 30 days’ notice will be given to the Administrative Agent prior to any cancellation of (or 10 days’ notice in the event of non-payment of premiums), material reduction or change in coverage provided by or other material modification to such policy and (iii) reasonably acceptable in all other respects to the Administrative Agent. The Loan Parties shall execute and deliver to the Administrative Agent a collateral assignment, in form and substance reasonably satisfactory to the Administrative Agent, of the proceeds of each business interruption insurance policy maintained by the Loan Parties.

10.3.3Forced Place Coverage. UNLESS THE LOAN PARTIES PROVIDE THE ADMINISTRATIVE AGENT WITH EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY THIS AGREEMENT AND AFTER THE ADMINISTRATIVE AGENT’S WRITTEN DEMAND THEREFOR, THE ADMINISTRATIVE AGENT MAY (BUT SHALL HAVE NO OBLIGATION TO) PURCHASE INSURANCE AT THE BORROWERS’ EXPENSE TO PROTECT THE ADMINISTRATIVE AGENT’S AND THE LENDERS’ INTERESTS IN THE COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT ANY LOAN PARTY’S INTERESTS. THE COVERAGE THAT THE ADMINISTRATIVE AGENT PURCHASES MAY NOT PAY ANY CLAIM THAT IS MADE AGAINST ANY LOAN PARTY IN CONNECTION WITH THE COLLATERAL. THE LOAN PARTIES MAY LATER CANCEL ANY INSURANCE PURCHASED BY THE ADMINISTRATIVE AGENT, BUT ONLY AFTER PROVIDING THE ADMINISTRATIVE AGENT WITH EVIDENCE THAT THE BORROWERS HAVE OBTAINED INSURANCE AS REQUIRED BY THIS AGREEMENT. IF THE ADMINISTRATIVE AGENT PURCHASES INSURANCE FOR THE COLLATERAL, THE BORROWERS WILL BE JOINTLY AND

61

SEVERALLY RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING INTEREST AND ANY OTHER CHARGES THAT MAY BE IMPOSED WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO THE PRINCIPAL AMOUNT OF THE LOANS OWING HEREUNDER. THE COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF THE INSURANCE THE LOAN PARTIES MAY BE ABLE TO OBTAIN ON THEIR OWN.

10.4Compliance with Laws; Payment of Taxes and Liabilities. (a) Comply, and cause the Company and each other Loan Party and Subsidiary to comply, in all material respects with all applicable laws, rules, regulations, decrees, orders, judgments, licenses and permits, except where failure to comply would not have or could not reasonably be expected to have a Material Adverse Effect; (b) without limiting clause (a) above, ensure, and cause the Company and each other Loan Party and Subsidiary to ensure, that no person who owns a controlling interest in or otherwise controls the Company, a Loan Party or Subsidiary is or shall be (i) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (ii) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders, (c) without limiting clause (a) above, comply, and cause each other Loan Party and Subsidiary to comply in all material respects, with all applicable Bank Secrecy Act (“BSA”) and anti-money laundering laws and regulations and (d) pay, and cause the Company and each other Loan Party to pay, prior to delinquency, all federal and state income taxes and all other material taxes and other governmental charges against it or any Collateral, as well as claims of any kind which, if unpaid, could become a Lien (other than a Permitted Lien) on any of its property; provided that the foregoing clause (d) shall not require the Company, any Loan Party or Subsidiary to pay any such tax or charge so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto in accordance with GAAP and, in the case of a claim which could become a Lien on any Collateral, such contest proceedings shall stay the foreclosure of such Lien or the sale of any portion of the Collateral to satisfy such claim.

10.5Maintenance of Existence, etc. Maintain and preserve, and (subject to Section 11.4) cause the Company, each other Loan Party and Subsidiary to maintain and preserve, (a) its existence and good standing in the jurisdiction of its organization and (b) its qualification to do business and good standing in each jurisdiction where the nature of its business makes such qualification necessary (other than such jurisdictions in which the failure to be qualified or in good standing would not have or could not reasonably be expected to have a Material Adverse Effect).

10.6Reserved.

10.7Use of Proceeds. In the case of Revolving Loans and the Term Loan, use the proceeds of such Loans, and the Letters of Credit, solely to refinance the Debt to be Repaid, for working capital purposes, and for other general business purposes. In no event shall any of the

62

Loans or the Letters of Credit be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of “purchasing or carrying” any Margin Stock.

10.8Employee Benefit Plans. Maintain, and cause each other member of the Controlled Group to maintain, each Pension Plan in substantial compliance with all applicable requirements of law and regulations.

(a)Make, and cause each other member of the Controlled Group to make, on a timely basis, all required contributions to any Multiemployer Pension Plan.

(b)Not, and not permit any other member of the Controlled Group to (i) seek a waiver of the minimum funding standards of ERISA, (ii) terminate or withdraw from any Pension Plan or Multiemployer Pension Plan or (iii) take any other action with respect to any Pension Plan that would, or could reasonably be expected to, entitle the PBGC to terminate, impose liability in respect of, or cause a trustee to be appointed to administer, any Pension Plan, unless the actions or events described in clauses (i), (ii) and (iii) above individually or in the aggregate would not have or could not reasonably be expected to have a Material Adverse Effect.

10.9Environmental Matters. (a) If any release or threatened release or other disposal of Hazardous Substances shall occur or shall have occurred on any real property or any other assets of any Loan Party or Subsidiary, each Loan Party and Subsidiary shall, or shall cause the applicable Loan Party or Subsidiary to, cause the prompt containment and removal of such Hazardous Substances and the remediation of such real property or other assets as necessary to comply with all Environmental Laws and to preserve the material value of such real property or other assets. Without limiting the generality of the foregoing, each Loan Party shall, and shall cause each other Loan Party and Subsidiary to, comply with any Federal or state judicial or administrative order requiring the performance at any real property of any Loan Party of activities in response to the release or threatened release of a Hazardous Substance. To the extent that the transportation of Hazardous Substances is permitted by this Agreement, each Loan Party shall, and shall cause each of its Subsidiaries to, dispose of such Hazardous Substances, or of any other wastes, only at licensed disposal facilities operating to its knowledge in compliance with Environmental Laws.

(b)The Loan Parties shall promptly notify the Administrative Agent in writing upon learning there is or are, in each case, which are reasonably likely to result in material liability to a Loan Party under any applicable Environmental Law (i) any Hazardous Substances other than those used by the Loan Parties or tenants under leases at any real property of any Loan Party or Subsidiary in the ordinary course of their businesses and in compliance with all Environmental Laws, present on such real property; (ii) any Release of Hazardous Substances in, on, under, from or migrating towards such real property; (iii) any material non-compliance with Environmental Laws related in any way to such real property; (iv) any actual or reasonably likely liens and other encumbrances imposed pursuant to any Environmental Law; (v) any investigation or action or claim, whether threatened or pending, by any governmental agency or third party pertaining to the release of Hazardous Substances in, on, under, from, or migrating towards such real property; and (vi) any installation of wells, piping, or other equipment at such real property to investigate, remediate or otherwise address any release of Hazardous Substances at, on, in or in the vicinity of such real property.

63

10.10New Subsidiaries. If, after the Closing Date, any Loan Party creates or acquires, either directly or indirectly, any Subsidiary in accordance with Section 11.4 or 11.15, it will upon such creation or acquisition thereof:

(a)if such Subsidiary is a Domestic Subsidiary (x) cause such Subsidiary to become either a Borrower or a Guarantor; provided, that such Subsidiary may become a Borrower hereunder only if such Subsidiary is a Wholly-Owned Subsidiary and the Administrative Agent has provided its prior written approval of such Subsidiary becoming a Borrower (upon its review of such Subsidiary including, without limitation, its review of such field examinations, audits, appraisals and other due diligence as the Administrative Agent shall reasonably require) and, if such Subsidiary is not a Wholly-Owned Subsidiary or in the event such approval is not provided for a Wholly-Owned Subsidiary, such Subsidiary shall become a Guarantor, and (y) cause such Subsidiary to execute and deliver to the Administrative Agent (1) a Joinder Agreement in the form of Exhibit G hereto, in its capacity as a Borrower or a Guarantor, as applicable, and (2) any further documents, instruments or agreements as the Administrative Agent may reasonably require in order to grant the Administrative Agent a perfected first priority security interest (subject only to Permitted Liens) in substantially all of the assets of such Subsidiary; or

(b)if such Subsidiary is organized in the United States of America or is a First-Tier Foreign Subsidiary, cause to be pledged to the Administrative Agent (pursuant to the Guaranty and Collateral Agreement) a security interest in the Capital Securities of such Subsidiary owned by such Loan Party (provided, that with respect to any such First-Tier Foreign Subsidiary, such Loan Party shall only be required to grant to the Administrative Agent a first-priority security interest in the Capital Securities thereof to the extent owned by any such Loan Party and not exceeding sixty-five percent (65%), in the aggregate, of the issued and outstanding Capital Securities of such Subsidiary; and

(c)in either of the cases in (a) or (b) above, (i) deliver to the Administrative Agent (1) revised schedules to the Loan Documents reflecting such Loan Party’s ownership interest in such Subsidiary and (2) the certificates, if any, representing the Capital Securities of such Subsidiary required to be pledged hereunder, together with undated stock powers and an irrevocable proxy (or equivalent instruments, as applicable), or if such interest is uncertificated, evidence of the registration of the Administrative Agent’s lien on and security interest in such interest on the books and records of such entity and (ii) execute and deliver all such other instruments, documents and agreements and take such other actions, and cause all Subsidiaries to execute and deliver all such other instruments, documents and agreements and to take such other actions, as in either case, the Administrative Agent may reasonably request or require to fully evidence and consummate the transactions contemplated in clauses (a) and (b) above and to ensure the enforceability, perfection and first-priority (subject only to Permitted Liens) of the interests and undertakings thereunder, including, without limitation, (i) the execution and delivery of guaranties, security agreements, pledge agreements, mortgages, deeds of trust, financing statements and other documents, and the filing or recording of any of the foregoing, (ii) the delivery of certificated securities and other Collateral with respect to which perfection is obtained by possession and (iii) legal opinions in form and substance and from such counsel reasonably satisfactory to the Administrative Agent to be addressed to (or permit reliance upon by) the Administrative Agent and the Lenders.

64

Without limiting the foregoing, the Loan Parties shall have no obligations pursuant to this Section 10.10 with respect to any Second-Tier Foreign Subsidiary.

10.11Deposit Accounts. With regard to all lock-boxes, collection accounts, deposit accounts, securities accounts, operating accounts, checking accounts, disbursement accounts and other accounts (other than payroll accounts and accounts maintained by the Loan Parties for the sole benefit of their employees as listed on Schedule 10.11 attached hereto) (collectively, the “Subject Accounts”), each Loan Party hereby authorizes the financial institutions at which any such Subject Accounts are maintained to provide the Administrative Agent with a copy of such financial institution’s regular statements and such other more frequent statements or advices as the Administrative Agent may reasonably request, in each case, covering the remittances, deposits, and withdrawals from and balances of such account, and each Loan Party hereby consents to such information being provided to the Administrative Agent. Each Loan Party shall cause each financial institution at which such Loan Party maintains a Subject Account (other than LaSalle) to enter into an Account Control Agreement in order to give the Administrative Agent “control” thereof (as defined in the UCC) for perfection purposes; provided that (i) with respect to any such account existing on the Closing Date, a fully-executed Account Control Agreement must be delivered to the Administrative Agent on or prior to the Closing Date, (ii) with respect to any Subject Account opened after the Closing Date, such Loan Party must provide the Administrative Agent with 10 days’ prior written notice of its intention to open such account and must deliver to the Administrative Agent a fully-executed Account Control Agreement with respect to such account, and (iii) it is hereby acknowledged and agreed that the Borrowers may maintain and operate Subject Accounts (other than any such Subject Account to which Accounts are deposited or remitted) not having at any time deposits in excess of $1,000,000, in aggregate among all such Subject Accounts, in respect of which no Account Control Agreements are in effect. Notwithstanding anything contained herein or in any other Loan Document to the contrary, the Loan Parties hereby acknowledge and agree that, with respect to any Subject Accounts, upon the occurrence and continuance of an Event of Default, the Administrative Agent may instruct any or all of the financial institutions at which any such accounts are maintained (A) to cease honoring the Loan Parties’ directions as to the handling, disposition and disbursement of funds or remittance to or on deposit in any such accounts and (B) to remit or apply all amounts on deposit in or remittances to such accounts in accordance with the direction of the Administrative Agent (in each case of clause (A) or (B) above, a “Notice of Control”). The Administrative Agent agrees that it shall not give a Notice of Control to any financial institution unless and until an Event of Default has occurred and is continuing. Upon the written request of the Loan Party Representative delivered to the Administrative Agent, at any time (1) after the waiver, if any, of any existing Events of Default (other than an Event of Default described in clause (2) immediately below) or (2) six months after the waiver, if any, of any existing Event of Default under Section 13.1.1 or resulting from the violation of any of the financial covenants in Section 11.13, and provided that no other Event of Default has occurred and is continuing, the Administrative Agent shall promptly notify all financial institutions to which it has previously delivered a Notice of Control that such notice is rescinded and that such financial institution is again entitled to rely on the instruction and direction of the applicable Loan Party with respect such accounts until a new Notice of Control is given by the Administrative Agent (a “Notice of Rescission”). The Administrative Agent shall copy the Loan Party Representative on any Notice of Control and Notice of Rescission given to a financial

65

institution but the failure to do so shall in no event effect the validity of any such Notice of Control, nor subject the Administrative Agent to any liability.

10.12Independent Directors. Each Borrower agrees that, at all times, at least one of its directors will be an Independent Director who will serve such Borrower in accordance with the terms of such Borrower’s Articles of Incorporation, and no Borrower shall take, authorize, consent or acquiesce to or permit any of its Subsidiaries to take, authorize, consent or acquiesce to, any of the following without the affirmative vote of such Independent Director: (i) the commencement by or against or the consent or acquiescence to, any proceeding of a type described in Section 13.1.4 involving any Borrower or (ii) the amendment of any provision of this Section 10.12 or such Borrower’s Bylaws or Operating Agreement, as applicable, altering any provision effecting the rights, duties or responsibilities of any Independent Director.

SECTION 11NEGATIVE COVENANTS.

Until the expiration or termination of the Commitments and thereafter until all Obligations (other than unasserted contingent and indemnification obligations) hereunder and under the other Loan Documents are paid in full in cash and all Letters of Credit have been terminated, each Loan Party agrees that, unless at any time the Required Lenders shall otherwise expressly consent in writing, it will:

11.1Debt. Not, and not permit any other Loan Party to, create, incur, assume or suffer to exist any Debt, except:

(a)Obligations under this Agreement and the other Loan Documents;

(b)Debt secured by Liens permitted by Section 11.2(d); provided that the aggregate amount of all such Debt at any time outstanding shall not exceed $2,000,000;

(c)(i) unsecured Debt owing by any Borrower to any other Loan Party, (ii) unsecured Debt owing by any Loan Party (other than a Borrower) which is a Wholly-Owned Subsidiary to any other Loan Party (other than a Borrower), (iii) unsecured Debt owing by any Loan Party (other than a Borrower or a Wholly-Owned Subsidiary) to any other Loan Party, in an aggregate amount at any time outstanding not to exceed $3,000,000 among all Loan Parties, and (iv) unsecured Debt owing by any Loan Party to a First-Tier Foreign Subsidiary of any Loan Party, in an aggregate amount at any time outstanding not to exceed $3,000,000 among all Loan Parties; provided that in each of the cases of (i), (ii) and (iii) above, any such Debt shall be evidenced by a demand note in the form of Exhibit H attached hereto and pledged and delivered to the Administrative Agent pursuant to the Collateral Documents as additional collateral security for the Obligations; provided, further that in each of the cases of clause (i), (ii) and (iii) any such Debt shall be subordinated to the Obligations of the Loan Parties hereunder in a manner reasonably satisfactory to the Administrative Agent (it being agreed that the subordination provisions set forth in the demand note referred to above shall be deemed to be reasonably satisfactory to the Administrative Agent);

(d)unsecured Subordinated Debt (other than Debt described in clause (c) above) in an amount at any time outstanding not to exceed $7,500,000;

66

(e)unsecured Hedging Obligations for bona fide hedging purposes and not for speculation;

(f)Debt existing on the date hereof described on Schedule 9.26 and any extension, renewal or refinancing thereof so long as neither the principal amount thereof is increased, the weighted average life to maturity decreased or, if secured, any additional collateral is granted as security therefor;

(g)the Debt to be Repaid (so long as such Debt is repaid on the Closing Date with the proceeds of the initial Loans hereunder);

(h)unsecured Contingent Liabilities arising with respect to customary indemnification obligations in favor of sellers in connection with Permitted Acquisitions and purchasers in connection with dispositions permitted under Section 11.4;

(i)up to $2,500,000 at any time outstanding of Acquired Debt assumed in Permitted Acquisitions which, if secured, the Liens thereunder would be of a type permitted pursuant to Section 11.2(d);

(j)unsecured Debt in respect of bid, performance or surety, appeal or similar bonds issued for the account of and completion guarantees provided by the Loan Parties in the ordinary course of business;

(k)Debt arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business; provided, however, that such Debt is extinguished within five Business Days of incurrence; and

(l)Debt arising in connection with endorsement of instruments for deposit in the ordinary course of business.

11.2Liens. Not, and not permit any other Loan Party, to create or permit to exist any Lien on any of its real or personal properties, assets or rights of whatsoever nature (whether now owned or hereafter acquired), except:

(a)Liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves;

(b)Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law and (ii) Liens in the form of deposits or pledges incurred in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any advances or borrowed money or the deferred purchase price of property or services and, in each case, for which it maintains adequate reserves;

67

(c)Liens described on Schedule 11.2 existing as of the Closing Date;

(d)subject to the dollar limitation set forth in Section 11.1(b) and Section 11.1(i), (i) Liens (including Liens having priority over the Liens pursuant to the Loan Documents) arising in connection with Capital Leases (and attaching only to the property being leased), (ii) Liens (including Liens having priority over the Liens pursuant to the Loan Documents) of the type described in subclauses (i) and (iii) of this clause (d) existing on property at the time of the acquisition thereof by any Loan Party (and not created in contemplation of such acquisition) pursuant to any Permitted Acquisition and (iii) Liens (including Liens having priority over the Liens pursuant to the Loan Documents) that constitute purchase money security interests on any capital asset securing debt incurred for the purpose of financing all or any part of the cost of acquiring such capital asset, provided that any such Lien attaches solely to the capital asset so acquired and secures no more than the purchase price (or portion) thereof financed thereby;

(e)easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of any Loan Party;

(f)Liens in favor of the Administrative Agent under the Loan Documents;

(g)reserved;

(h)the Earnout Sellers Lien to the extent fully subject to the Earnout Subordination Agreement;

(i)Liens on deposit accounts granted or arising in the ordinary course of business in favor of depositary banks maintaining such deposit accounts solely to secure customary account fees and charges payable in respect of such deposit accounts and overdrafts;

(j)Liens in favor of custom brokers for taxes, assessments and governmental charges the payment of which is not required under Section 10.4 payable in connection with the importation of Inventory in the ordinary course of business of the Borrowers or any other Loan Party;

(k)leases or subleases granted to other Persons (as lessee thereof) not materially interfering with the conduct of the business of any Borrower or any other Loan Party;

(l)precautionary UCC financing statement filings regarding operating leases;

(m)Liens arising out of the existence of judgment or awards not giving rise to an Event of Default; provided that the Loan Parties shall promptly seek the stay of, or otherwise satisfy any such Lien not being contested in good faith;

(n)inchoate statutory and common law landlords’ liens under leases to which any Borrower or any other Loan Party is a party;

68

(o)the replacement, extension or renewal of any Lien permitted by clauses (c) or (d) above upon or in the same property subject thereto arising out of the extension, renewal or replacement of the Debt secured thereby (without increase in the amount or priority thereof or the security or collateral therefor or decrease in the weighted average life to maturity thereof); and

(p)any other Liens in an aggregate amount not exceeding $100,000 at any time.

11.3Restricted Payments. Except as permitted pursuant to the following sentence, not, and not permit any other Loan Party or Subsidiary to (a) make any distribution to any holders of its Capital Securities, (b) purchase or redeem any of its Capital Securities, (c) pay any management fees or similar fees to any of its direct or indirect equityholders or any Affiliate thereof, (d) pay, redeem, prepay, defease, purchase, repurchase or make any other payment on or in respect of any Subordinated Debt, or (e) set aside funds for any of the foregoing. Notwithstanding the foregoing:

(i)any Wholly-Owned Subsidiary may pay dividends or make other distributions in respect of its Capital Securities to the Borrowers or to its parent company (including, without limitation, to enable the recipient to pay taxes);

(ii)(1) so long as no Event of Default or Unmatured Event of Default exists or would result therefrom, the Loan Parties may make regularly scheduled payments of interest (including any interest payable to the Earnout Sellers in connection with the Earnout Consideration) in respect of Subordinated Debt (other than Subordinated Debt owing to any Affiliate) to the extent permitted under the subordination provisions thereof, and (2) the Loan Parties shall be permitted to accrue all non-cash interest (i.e., PIK interest) on its Subordinated Debt and non-cash dividends on its Capital Securities consisting of preferred stock;

(iii)the Borrowers may pay dividends or make other distributions, out of legally available funds, to the Company for the sole purpose of permitting the Company to (and upon receipt by the Company of such funds the Company shall promptly use such funds to) pay income tax liabilities allocable to the Borrowers’ and their Subsidiaries’ operations, to the extent any such taxes are due and owing by the Company and its Subsidiaries on a consolidated basis; it being agreed however that from and after the payment of the Earnout Consideration in full, the proportion (as between the Borrowers and their Subsidiaries on the one hand, and the Russ Berrie B Entities, on the other hand) of the tax liability of the Company that the Borrowers shall be permitted to fund pursuant to this clause (iii) may be increased to the extent and in the amount of taxes which would previously have been owed by the Company based solely on the operations of the Borrowers’ and their Subsidiaries’, but were offset from and after the Closing Date by losses, credits or deductions relating to the Russ Berrie B Entities’ operations;

(iv)any Loan Party (other than a domestic Subsidiary which is not a Wholly-Owned Subsidiary) or a Wholly-Owned Subsidiary may pay dividends or make other distributions in respect of its common stock payable solely in its common stock;

69

(v)so long as both before and immediately after giving effect to the payments described in this clause (v), Excess Revolving Loan Availability will equal or exceed $3,000,000 and (y) no violation of the financial covenants set forth in Sections 11.13.1, 11.13.2 or 11.13.3 would then exist or would, on a pro forma basis result therefrom, upon no less than 10 days’ prior written notice to the Administrative Agent, accompanied by a certificate of the Chief Financial Officer delivered to the Administrative Agent setting forth the calculations of pro forma Excess Revolving Loan Availability and the pro forma calculations of such financial covenants (after giving effect to such payments) in detail reasonably acceptable to the Administrative Agent, the Borrowers may, or may pay dividends or make other distributions to the Company, out of legally available funds, for the sole purpose of permitting the Company to (and upon receipt by the Company of such funds the Company shall promptly use such funds to), pay the Earnout Consideration (or any portion thereof that may be paid at such time in accordance with this clause (v)) as and when due and payable in accordance with the terms of the Kids Line Purchase Agreement;

(vi)so long as (x) the Earnout Consideration has been paid in full, and (y) both before and immediately after giving effect to the payments described in this clause (vi), (1) no Event of Default or Unmatured Event of Default exists or would result therefrom, (2) Excess Revolving Loan Availability will equal or exceed $4,000,000 and (3) no violation of the financial covenants set forth in Sections 11.13.1, 11.13.2 or 11.13.3 would then exist or would, on a pro forma basis result therefrom, upon no less than 10 days’ prior written notice to the Administrative Agent, accompanied by a certificate of the Chief Financial Officer delivered to the Administrative Agent setting forth the calculations of pro forma Excess Revolving Loan Availability and the pro forma calculations of such financial covenants (after giving effect to such payments) in detail reasonably acceptable to the Administrative Agent, the Borrowers may pay dividends or make other distributions to the Company, out of legally available funds, for the sole purpose of permitting the Company to (and upon receipt by the Company of such funds the Company shall promptly use such funds to) pay a regular quarterly dividend payment payable out of legally available funds on the outstanding common stock of the Company;

(vii)so long as (x) the Earnout Consideration has been paid in full and (y) both before and immediately after giving effect to the payments described in this clause (vii), (1) no Event of Default or Unmatured Event of Default exists or would result therefrom and (2) Excess Revolving Loan Availability will equal or exceed $5,000,000 and (z) no violation of the financial covenants set forth in Sections 11.13.1, 11.13.2 or 11.13.3 would then exist or would, on a pro forma basis result therefrom, upon no less than 10 days’ prior written notice to the Administrative Agent, accompanied by a certificate of the Chief Financial Officer delivered to the Administrative Agent setting forth the calculations of pro forma Excess Revolving Loan Availability and the pro forma calculations of such financial covenants (after giving effect to such payments) in detail reasonably acceptable to the Administrative Agent, the Borrowers may pay dividends or make other distributions, out of legally available funds, to the Company for the sole purpose of permitting the Company to (and upon receipt by the Company of such funds the Company shall promptly use such funds to): (A) repurchase or redeem Capital Securities of the Company held by employees, officers and directors in the ordinary

70

course of business and consistent with past practice and (B) make repurchases or redemptions of Capital Securities from employees, officers and directors that die, retire or otherwise terminate their employment; provided, that notwithstanding the prior repayment of the Earnout Consideration (but subject to the other conditions set forth in this clause (vii)), the Borrowers may pay such dividends and other distributions to finance, and the Company may use those proceeds to make, Contractual Redemptions as and when required to be made in accordance with the agreements relating thereto, in an amount not to exceed $500,000, in aggregate, per Fiscal Year; and

(viii)so long as both before and after giving effect to the payments described in this clause (viii), (x) no Event of Default exists or would result therefrom and (y) Excess Revolving Loan Availability will equal or exceed $4,000,000 (compliance with such conditions to be demonstrated by a certificate of the Chief Financial Officer to be delivered to the Administrative Agent by the 10^th Business Day of the month following the month in which any such dividend or distributions is made, in each case, setting forth the calculations of pro forma Excess Revolving Loan Availability (after giving effect to such payments) in detail reasonably acceptable to the Administrative Agent), the Borrowers may pay dividends or make other distributions, out of legally available funds, to the Company for the sole purpose of permitting the Company to pay corporate overhead expenses incurred in the ordinary course of business; provided, that the aggregate amount of dividends or distributions received by the Company from the Borrowers for the payment of such corporate overhead expenses shall not exceed $2,000,000 in any Fiscal Year (it being agreed that this provision shall not be deemed to limit the ability of any Loan Party to reimburse the Company or any Subsidiary thereof for the payment by the Company or such Subsidiary of business expenses incurred by the Company or such Subsidiary for and on behalf of the Loan Parties, which business expenses (1) are of a type typically incurred by the Loan Party on its own behalf in the ordinary course of its business operations and (2) when reimbursed by the Loan Parties are included as expenses on the books and records of the Loan Parties).

11.4Mergers, Consolidations, Sales and Other Transactions Outside the Ordinary Course of Business. Not, and not permit any other Loan Party to:

(a)sell, transfer, convey or lease any of its assets or Capital Securities except for (i) sales of Inventory in the ordinary course of business, (ii) sales of obsolete and unusable Equipment in the ordinary course of business, (iii) sales or other dispositions of assets (other than Inventory (other than as covered in clause (i) above), Capital Securities of Subsidiaries and Accounts and/or receivables of any Loan Party) for at least fair market value (as determined by the board of directors of such Loan Party) so long as the net book value of all assets sold or otherwise disposed of in any Fiscal Year does not exceed $1,000,000, and (iv) in the case of its Capital Securities, as permitted pursuant to clause (d) of this Section;

(b)enter into any transaction whereby such Loan Party leases any property previously owned and sold by any other Loan Party or any Subsidiary;

(c)prepay any Debt (other than the Obligations);

71

(d)be a party to any merger or consolidation or, except as otherwise permitted pursuant to this Section, Section 11.10(a), or Section 11.10(f), purchase or otherwise acquire the assets or the Capital Securities of any class of any other Person; except for (1) (A) the merger or consolidation of any Borrower into any other Borrower or the sale, assignment or conveyances of any, all or substantially all of the assets of one Borrower to another Borrower, and (B) the merger or consolidation of any Loan Party (other than a Borrower) which is a Wholly-Owned Subsidiary into any other Loan Party (other than a Borrower) which is a Wholly-Owned Subsidiary or the sale, assignment or conveyances of any, all or substantially all of the assets of one Loan Party (other than a Borrower) to another Loan Party (other than a Borrower or a Loan Party which is not a Wholly-Owned Subsidiary), or (2) any Acquisition by a Borrower or any other Loan Party (other than a Loan Party which is not a Wholly-Owned Subsidiary) entered into and consummated after June 30, 2006 in respect of which the requirements of Section 10.10 have then been satisfied, where:

(i)the business, divisions or operating units acquired are for use, or the Person acquired is engaged or reasonably related or complementary thereto, in the businesses engaged in by the Loan Parties on the Closing Date;

(ii)immediately before and after giving effect to such Acquisition, no Event of Default or Unmatured Event of Default on an actual or pro forma basis shall exist or would result therefrom;

(iii)the aggregate consideration to be paid by the Loan Parties (including any Debt assumed or issued in connection therewith, the amount thereof to be calculated in accordance with GAAP, and the fair market value of any non-cash consideration) in connection with (1) such Acquisition (or any series of related Acquisitions) is less than $10,000,000 in any given transaction (or series of related transactions) or $15,000,000 in any given Fiscal Year and (2) all Acquisitions after the Closing Date is less than $40,000,000 in the aggregate;

(iv)immediately after giving effect to such Acquisition, the Borrowers and their Subsidiaries are in pro forma compliance with all the financial ratios and restrictions set forth in Section 11.13; provided however that immediately after giving effect to such Acquisition, Excess Revolving Loan Availability shall not be less than $5,000,000;

(v)in the case of the Acquisition of any Person, the governing body of such Person has approved such Acquisition;

(vi)reasonably prior to such Acquisition, the Administrative Agent shall have received complete executed or conformed copies of each material document, instrument and agreement to be executed in connection with such Acquisition together with all lien search reports and lien release letters and other documents as the Administrative Agent may reasonably require to evidence the termination of Liens (other than the Permitted Liens) on the assets or business to be acquired;

72

(vii)reasonably prior to such Acquisition, the Administrative Agent shall have received (A) an acquisition summary with respect to the Person and/or business or division to be acquired, such summary to include a reasonably detailed description thereof (including financial information) and operating results (including financial statements for the most recent 12 month period for which they are available and as otherwise available), the terms and conditions, including economic terms, of the proposed Acquisition, and the Borrowers’ calculation of pro forma compliance with the financial ratios and restrictions set forth in Section 11.13 relating thereto including, without limitation, the Borrowers’ calculation of EBITDA, (B) due diligence materials with respect to the business, legal, tax and environmental aspects of the Person and/or business or division to be acquired and the Administrative Agent shall be satisfied with results of its due diligence and (C) unless the Administrative Agent otherwise consents, in the case of the Acquisition of any Person and/or business or division, evidence that the EBITDA of such Person and/or business or division for the most recent 12 month period for which financial statements are available, as adjusted by such add-backs with respect to cash expenses not related to operations which are acceptable to the Administrative Agent or which are permitted under Article 11 of Regulation S-X promulgated under the Securities Act of 1933, as amended, is not less than zero;

(viii)the Administrative Agent shall have approved (which approval shall not unreasonably be withheld) the Borrowers’ computation of pro forma compliance with the financial ratios and restrictions set forth in Section 11.13 including, without limitation, the Borrowers’ calculation of pro forma EBITDA and the Borrowers’ calculation of Excess Revolving Loan Availability as set forth in clause (iv) above;

(ix)consents have been obtained in favor of the Administrative Agent and the Lenders to the granting of a security interest and/or the collateral assignment of rights and indemnities under the related acquisition documents and opinions of counsel for the Loan Parties and/or relevant Subsidiaries and (if delivered to the Loan Party or any such Subsidiary) the selling party allowing reliance thereon by the Administrative Agent and the Lenders have been delivered and the applicable Loan Party shall have executed an agreement providing for the granting of a security interest in, and the collateral assignment to the Administrative Agent of, such Loan Parties’ rights and indemnities under the related acquisition documents;

(x)unless the Administrative Agent otherwise consents, if such Acquisition is structured as an acquisition of Capital Securities, such Acquisition is of more than fifty percent of the Capital Securities of such Person (and in respect of which the provisions of Section 10.10 will be complied with), or is made through a Domestic Wholly-Owned Subsidiary formed in compliance with Section 11.15, and the provisions of Section 10.10 have been satisfied with respect to all such Persons and its Subsidiaries or such newly-formed Subsidiaries concurrently with or prior to such Acquisition;

(xi)if such Acquisition is structured as an asset acquisition, (A) and if such assets are intended to be included in the Borrowing Base, the Administrative Agent must provide its prior written approval, upon its review of such assets including, without limitation, its review of such field examinations, audits, appraisals and other due

73

diligence as the Administrative Agent shall reasonably require; it being acknowledged and agreed that (1) the Administrative Agent may require that the acquired assets be held in a separate Domestic Wholly-Owned Subsidiary which shall be deemed a Guarantor and (2) such additional assets, if any, included in the Borrowing Base may be subject to different advance rates or may require the imposition of additional reserves with respect thereto and (B) such Loan Party shall not assume any obligations or liabilities of the seller other than Acquired Debt to the extent permitted pursuant to Section 11.1(i); and

(xii)if the Acquisition is structured as a merger, a Loan Party is the surviving entity; provided that no Borrower may enter into a merger unless the Administrative Agent has provided its prior written consent to such merger. (any such Acquisition described in this clause (2), being a “Permitted Acquisition”).

11.5Modification of Organizational Documents. Not permit the charter, by-laws or other organizational documents of any Loan Party or Subsidiary to be amended or modified in any way which could reasonably be expected to materially adversely affect the interests of the Lenders. Not change, or allow any other Loan Party to change, its state of formation or its organizational form unless it gives the Administrative Agent at least 30 days (or such lesser amount of time as consented to by the Administrative Agent) prior written notice thereof and takes actions reasonably requested by Agent to maintain the perfection or priority of any Lien or security interest granted hereunder.

11.6Transactions with Affiliates. Not, and not permit any other Loan Party to, enter into, or cause, suffer or permit to exist any transaction, arrangement or contract with any of its other Affiliates (including any Subsidiary or joint venture of the Loan Parties) which is on terms, which are less favorable than are obtainable from any Person which is not one of its Affiliates, other than (i) customary and reasonable employment arrangements with employees (including without limitation, incentive compensation arrangements) and benefit programs and entered into in the ordinary course of business and pursuant to the reasonable requirements of such Loan Party’s business and, in the case of any senior officers or directors of any Loan Party, approved by the board of directors and permissible under law, (ii) customary indemnification agreements and insurance arrangements entered into for the benefit of any Loan Party’s directors or officers entered into in the ordinary course of business consistent with past practices and pursuant to the reasonable requirements of such Loan Party’s business, (iii) as permitted pursuant to clauses (a), (g) and (j) of Section 11.10, (iv) transactions with officers or directors of a Borrower or its Subsidiaries providing for the payment of customary and reasonable fees, and indemnification and reimbursement of expenses, upon customary and reasonable terms, (v) entering into perpetual, royalty-free, irrevocable licenses of intellectual property with other Loan Parties and their Subsidiaries and (vi) to the extent permitted hereunder, transactions among Loan Parties, among Loan Parties and their Subsidiaries and/or other Subsidiaries of the Company.

11.7Unconditional Purchase Obligations. Not, and not permit any other Loan Party to, enter into, guaranty or be a party to any material contract for the purchase of materials, supplies or other property or services if such contract requires that payment be made by it

74

regardless of whether delivery is ever made of such materials, supplies or other property or services.

11.8Inconsistent Agreements. Not, and not permit any other Loan Party to, enter into any agreement containing any provision which would (a) be violated or breached by any borrowing by the Borrowers hereunder or by the performance by any Loan Party or Subsidiary of any of its Obligations hereunder or under any other Loan Document, (b) prohibit any Loan Party from granting to the Administrative Agent and the Lenders, a Lien on any of its assets (other than distribution agreements or license agreements, provided that with respect to any such distribution agreements or license agreement that prohibit any Loan Party from granting to the Administrative Agent Liens on the right to receive payments and other proceeds from the sale of products licensed or distributed under such agreements, the Borrowers shall use their commercially reasonable efforts (it being agreed that this shall not include the payment of any monies) to obtain the consent of the counterparties thereto to permit the Liens of the Administrative Agent under the Loan Documents and the Borrowers further agree to, and to cause the other Loan Parties to, disclose and schedule such agreements in accordance with the terms of the Guaranty and Security Agreement) or (c) create or permit to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make other distributions to any Loan Party or any Subsidiary, or pay any Debt owed to any Loan Party or any Subsidiary, (ii) make loans or advances to any Loan Party or (iii) transfer any of its assets or properties to any Loan Party, other than (A) customary restrictions and conditions contained in agreements relating to the sale of all or a substantial part of the assets of any Subsidiary pending such sale, provided that such restrictions and conditions apply only to the Subsidiary to be sold and such sale is permitted hereunder, (B) restrictions or conditions imposed by any agreement relating to purchase money Debt, Capital Leases and other secured Debt permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Debt, (C) customary provisions in leases and other contracts restricting the assignment or other transfer thereof, (D) customary provisions in organizational documents of any Foreign Subsidiary that restrict the transfer of Capital Securities of such Subsidiaries, or (E) any applicable law, rule or regulation (including, without limitation, applicable currency control laws and applicable state corporate statutes restricting the payment of dividends in certain circumstances).

11.9Business Activities. Not, and not permit any other Loan Party, to engage in any line of business other than the businesses of the Borrowers engaged in on the date hereof and businesses reasonably related, incidental or complementary thereto.

11.10Investments. Not, and not permit any other Loan Party to, make or permit to exist any Investment in any other Person, except the following; it being agreed that to be permitted hereunder, any such Investment, if evidenced by Capital Securities of the Person being invested in, the provisions of Section 10.10 must be complied with and, if evidenced by Debt, the provision of Section 11.1(c) relating to evidencing and pledging as Collateral of such Debt from a Loan Party and, where appropriate, subordination thereof to the Obligations must be complied with:

(a)contributions by the Loan Parties to the capital of any other Loan Party, so long as the recipient of any such capital contribution has guaranteed the Obligations and such

75

guaranty is secured by a pledge of all of its Capital Securities and substantially all of its real and personal property, in each case in accordance with Section 10.10; provided that the aggregate amount of all contributions to a Loan Party which is not a Wholly-Owned Subsidiary shall not exceed $10,000,000 at any time outstanding;

(b)Investments constituting Debt permitted by Section 11.1(c);

(c)Contingent Liabilities constituting Debt permitted by Section 11.1 or Liens permitted by Section 11.2;

(d)Cash Equivalent Investments;

(e)bank deposits in the ordinary course of business, provided that the Loan Parties shall at no time have deposits or investments of more than $1,000,000, in aggregate, on deposit in Subject Accounts which are not subject to Account Control Agreements;

(f)Investments in securities of Account Debtors received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such account debtors;

(g)loans or advances to employees, officers or directors of the Loan Parties or any Subsidiary incurred in the ordinary course of business (including for travel, entertainment and relocation expenses), in an aggregate amount not to exceed $200,000 at any one time outstanding;

(h)subject to the limitations in Section 11.4, Investments constituting Permitted Acquisitions;

(i)Investments listed on Schedule 11.10 existing as of the Closing Date;

(j)loans and advances permitted pursuant to Section 11.1(c);

(k)loans by a Loan Party to any First-Tier Foreign Subsidiary in an aggregate amount not to exceed $1,000,000 at any time outstanding;

(l)subject to the limitations in Section 11.6, customary security deposits paid to landlords of real property leased by the Loan Parties in the ordinary course of business and in accordance with the lease to which such Loan Party is a party; and

(m)other Investments in an aggregate amount not to exceed $100,000 at any time;

provided that (x) any Investment which when made complies with the requirements of the definition of the term “Cash Equivalent Investment” may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; (y) no Investment otherwise permitted by clause (b) or (c) shall be permitted to be made if, immediately before or after giving effect thereto, any Event of Default or Unmatured Event of Default exists or would result therefrom.

76

11.11Restriction of Amendments to Certain Documents. Not amend or otherwise modify, or waive any rights under the Related Agreements, the Restricted Debt Agreements and any other agreement, document or instrument evidencing any other Subordinated Debt, if, in any case, such amendment, modification or waiver which would be or would reasonably be likely to be adverse to the interests of the Administrative Agent and the Lenders.

11.12Fiscal Year. Not change its current determination of its Fiscal Year.

11.13Financial Covenants.

11.13.1Fixed Charge Coverage Ratio. For any Fiscal Quarter, not permit the Fixed Charge Coverage Ratio (calculated as of the last day of such Fiscal Quarter) to be less than 1.25:1.00.

11.13.2Total Debt to EBITDA Ratio. Not permit the Total Debt to EBITDA Ratio as of the last day of any of the following Fiscal Quarters set forth below to be less than the corresponding applicable ratios set forth below:

Fiscal Quarter Ending	Total Debt to EBITDA Ratio
March 31, 2006	2.60 : 1.00
June 30, 2006	2.50 : 1.00
September 30, 2006	2.25 : 1.00
December 31, 2006	2.25 : 1.00
March 31, 2007	2.20 : 1.00
Each Fiscal Quarter ending on (and including) June 30, 2007 and September 30, 2007	1.75 : 1.00
Each Fiscal Quarter ending thereafter	2.25 : 1.00

11.13.3EBITDA. Not Permit EBITDA for any Computation Period to be less than the corresponding amount set forth below for such Computation Period:

Fiscal Quarter Ending	EBITDA
Each Fiscal Quarter ending on (and including) March 31, 2006 through (and including) December 31, 2006	$	33,000,000
Each Fiscal Quarter ending on (and including) March 31, 2007 through (and including) December 31, 2007	$	34,000,000
Each Fiscal Quarter ending thereafter	$	35,000,000

77

11.13.4Capital Expenditures. Not permit the aggregate amount of all Capital Expenditures made by the Loan Parties in any Fiscal Year to exceed $1,500,000 (the “Capital Expenditure Limitation”). If the Loan Parties do not utilize the entire amount of the Capital Expenditure Limitation permitted in any Fiscal Year, the Loan Parties may carry forward, to the immediately succeeding Fiscal Year only, up to one hundred percent (100%) of such unutilized amount. All Capital Expenditures in any Fiscal Year shall first be applied to reduce the applicable Capital Expenditure Limitation for such Fiscal Year and then to reduce the carry-forward from the previous Fiscal Year, if any.

11.14Cancellation of Debt. Not, and not permit any other Loan Party to, cancel any claim or Debt owing to it, other than (i) in connection with trade discounts or allowances granted in the ordinary course of its business consistent with past practices, and (ii) so long as no Event of Default or Unmatured Event of Default is then outstanding the cancellation of Debts or claims not to exceed $500,000 in any Fiscal Year, in the aggregate, in connection with the resolution of good faith disputes relating thereto.

11.15Creation of Subsidiaries. Not, and not permit any other Loan Party or Domestic Subsidiary to, create any Subsidiary or enter into any joint venture, other than so long as no Event of Default or Unmatured Event of Default then exist or would result therefrom, Subsidiaries in respect of which the provisions of Sections 10.10 shall have been satisfied.

11.16Commingling of Funds. Not, and not permit the Company or any other Loan Party to, commingle any of such Person’s cash or cash equivalents with the cash or cash equivalents of any of the Russ Berrie B Entities.

SECTION 12EFFECTIVENESS; CONDITIONS OF LENDING, ETC.

The obligation of each Lender to make its Loans and of the Issuing Lender to issue Letters of Credit is subject to the following conditions precedent:

12.1Initial Credit Extension. The obligation of the Lenders to make the initial Loans and the obligation of the Issuing Lender to issue its initial Letter of Credit (whichever first occurs) is, in addition to the conditions precedent specified in Section 12.2, subject to the conditions precedent that (a) all Debt to be Repaid has been (or concurrently with the initial borrowing will be) paid in full in cash, and that all agreements and instruments governing the Debt to be Repaid and that all Liens securing such Debt to be Repaid have been (or concurrently with the initial borrowing will be) terminated and (b) the Administrative Agent shall have received or determined the satisfaction of all of the following, which, in the case of any delivery, shall be duly executed and dated the Closing Date (or such earlier date as shall be satisfactory to the Administrative Agent), in form and substance reasonably satisfactory to the Administrative Agent (and the date on which all such conditions precedent have been satisfied or waived in writing by the Administrative Agent and the Lenders is called the “Closing Date”):

78

12.1.1List of Closing Documents. All instruments, documents, certificates and agreements, set forth on the List of Closing Documents attached hereto as Schedule 12.1.1.

12.1.2Consents, etc. Evidence, reasonably satisfactory to the Administrative Agent, that the Loan Parties have received all governmental and third party approvals necessary for the continuing operations of the Loan Parties and such approvals shall be on terms reasonably satisfactory to the Administrative Agent and shall be in full force and effect, except for such approvals the failure to obtain which, individually or in the aggregate, would not have or could not reasonably be expected to have a Material Adverse Effect.

12.1.3Payment of Fees. Receipt by the Administrative Agent of payment by the Loan Parties of all accrued and unpaid fees and expenses to the extent then due and payable to the Administrative Agent and/or the Lenders on the Closing Date (including, without limitation, pursuant to the Agent Fee Letter), together with all Attorney Costs of the Administrative Agent to the extent invoiced prior to the Closing Date, plus such additional amounts of Attorney Costs as shall constitute the Administrative Agent’s reasonable estimate of Attorney Costs incurred or to be incurred by the Administrative Agent through the closing proceedings (provided, that such estimate shall not thereafter preclude final settling of accounts between the Borrowers and the Administrative Agent).

12.1.4Excess Revolving Loan Availability. Excess Revolving Loan Availability shall not be less than $8,500,000 on the Closing Date.

12.1.5Maximum Total Debt to EBITDA Ratio. The Total Debt to EBITDA Ratio for the Computation Period ending December 31, 2005 for the Borrowers and their Subsidiaries shall not be greater than 2.30:1.00.

12.1.6Independent Collateral Field Audit Examination Documents. A collateral field examination shall have been conducted by an independent third party appraiser acceptable to the Administrative Agent, and the written results of such examination shall be satisfactory to the Administrative Agent, in its sole and absolute discretion. To the extent that the Administrative Agent requested any appraisals of any of the assets of the Loan Parties, such appraisals shall have been conducted by independent third party appraisers acceptable to the Administrative Agent, provide that they may be relied upon by the Administrative Agent and the Lenders (subject, if applicable, to reasonable confidentiality restrictions) and the written results of such appraisals shall be satisfactory to the Administrative Agent, in its sole and absolute discretion.

12.1.7Material Adverse Effect. Since December 31, 2004, no event shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect on the Loan Parties, taken as a whole; it being agreed, however, that the consolidated results of operations of the Company and its Subsidiaries for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005, as reported on the 10-Q’s of the Company filed with the SEC on or about May 10, 2005, August 9, 2005 and November 9, 2005 shall not, in and of themselves, be deemed a Material Adverse Effect.

79

12.1.8Due Diligence. The Administrative Agent shall have completed its legal and business due diligence with respect to each Loan Party and the results thereof shall be acceptable to the Administrative Agent, in its reasonable discretion.

12.1.9Capitalization and Structure. The capitalization and structure of the Borrowers and their Subsidiaries after giving effect to the transaction contemplated hereunder shall be reasonably satisfactory to the Administrative Agent.

12.1.10Litigation. The Administrative Agent shall have received evidence, satisfactory to the Administrative Agent, that no litigation (including derivative actions), arbitration proceeding or governmental investigation or proceeding is pending or, to the knowledge of any Loan Party, threatened challenging the validity, permissibility or legality of the transactions contemplated by the Loan Documents.

12.1.11Projections. The Administrative Agent shall have received consolidating projected income statements, balance sheets and statements of cash flow of the Borrowers and their Subsidiaries on a consolidating basis after giving effect to the making of the initial Loans and the issuance of the initial Letters of Credit on a monthly basis for Fiscal Year 2006 and on an annual basis for Fiscal Year 2007, 2008, 2009, 2010 and 2011.

12.1.12Financial Statements. The Administrative Agent shall have received (i) consolidated and consolidating financial statements (including balance sheets, statements of earnings and cash flows) of the Borrowers and their Subsidiaries for the 2002, 2003 and 2004 Fiscal Years and (ii) unaudited interim consolidated and consolidating financial statements (including balance sheets, statements of earnings and cash flows) of the Borrowers and their Subsidiaries for each fiscal month and quarter ended after the latest period for which financial statements have been delivered in accordance with the immediately preceding clause (i).

12.1.13Filings, Registrations and Recordings. The Administrative Agent shall have received (i) the results of recent tax, judgment and UCC lien searches in each relevant jurisdiction with respect to each Loan Party and (ii) each document (including Uniform Commercial Code financing statements) required by the Collateral Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Lenders, a perfected Lien on the collateral described therein, prior to any other Liens (other than prior Liens permitted pursuant to Section 11.2), in proper form for filing, registration or recording, including without limitation, UCC financing statements, mortgages, deeds of trust, account control agreements, title policies.

12.1.14Insurance. The Administrative Agent shall be reasonably satisfied with the insurance program to be maintained by the Loan Parties and shall have received, if requested by the Administrative Agent, copies of Borrowers’ and the other Loan Parties’ insurance policies.

12.1.15Related Transactions. The Administrative Agent shall have received evidence, reasonably satisfactory to the Administrative Agent, that the Company has completed the Related Transactions in accordance with applicable law and on terms consistent with the

80

Related Agreements (with no material provisions waived without the written consent of the Administrative Agent).

12.1.16LaSalle Debt. The Administrative Agent shall have received evidence, reasonably satisfactory to the Administrative Agent, that the Russ Berrie B Entities have closed, or concurrently with the initial credit extension hereunder will close, a credit facility of up to $25,000,000 with LaSalle Business Credit, LLC.

12.1.17Sources and Uses of Funds. The sources and uses of cash for the transactions contemplated under this Agreement shall be consistent in all material respects with the sources and uses of cash previously described by the Borrowers to the Administrative Agent.

12.1.18Amendments to Articles of Incorporation. The Administrative Agent shall have received filed copies of the amendments to each of the Borrower’s Articles of Incorporation in form and substance reasonably satisfactory to the Administrative Agent incorporating the provisions therein that are set forth in Schedule 12.1.18, and each Borrower shall have duly appointed separate Independent Directors who shall be qualified and acting in such capacity as of the Closing Date.

12.1.19Other. Such other documents, instruments or agreements as the Administrative Agent or any Lender may reasonably request.

12.2Conditions. The obligation (a) of each Lender to make each Loan and (b) of the Issuing Lender to issue each Letter of Credit is subject to the following further conditions precedent that:

12.2.1Compliance with Warranties, No Default, etc. Both before and after giving effect to the making, continuation or conversion any Loan or the issuance of any Letter of Credit, the following statements shall be true and correct:

(a)the representations and warranties of each Loan Party set forth in this Agreement and the other Loan Documents shall be true and correct in all material respects with the same effect as if then made (or, if such representations and warranties are qualified by materiality or Material Adverse Effect, in all respects) except to the extent stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date (or, if such representations and warranties are qualified by materiality or Material Adverse Effect, in all respects)); and

(b)no Event of Default or Unmatured Event of Default shall have then occurred and be continuing.

12.2.2Confirmatory Certificate. If requested by the Administrative Agent or any Lender, the Administrative Agent shall have received (in sufficient counterparts to provide one to each Lender) a certificate dated the date of such requested Loan or Letter of Credit and signed by a duly authorized representative of each of the Loan Parties as to the matters set out in Section 12.2.1 (it being understood that each request by the Borrowers for the making of a Loan or the issuance of a Letter of Credit shall be deemed to constitute a representation and warranty

81

by the Loan Parties that the conditions precedent set forth in Section 12.2.1 will be satisfied at the time of the making of such Loan or the issuance of such Letter of Credit).

SECTION 13EVENTS OF DEFAULT AND THEIR EFFECT.

13.1Events of Default. Each of the following shall constitute an Event of Default under this Agreement:

13.1.1Non-Payment of the Loans, etc. Default in the payment when due of the principal of any Loan; or default, and continuance thereof for five days, in the payment when due of any interest, fee, reimbursement obligation with respect to any Letter of Credit or other amount payable by any Loan Party hereunder or under any other Loan Document.

13.1.2Non-Payment of Other Debt. Any default shall occur under the terms applicable to any Debt of any Loan Party in an aggregate amount exceeding $1,000,000 among all of the Loan Parties and such default shall (a) consist of the failure to pay such Debt when due, whether by acceleration or otherwise, and including any such failure as a result of any prohibition under Section 11.3, or (b) accelerate the maturity of such Debt or permit the holder or holders thereof, or any trustee or agent for such holder or holders, to cause such Debt to become due and payable (or to require any Loan Party to purchase or redeem such Debt or post cash collateral in respect thereof) prior to its expressed maturity.

13.1.3Pledge Agreement. Any “Event of Default” occurs and is continuing under (and as defined in) the Pledge Agreement.

13.1.4Bankruptcy, Insolvency, etc. The Company or any Loan Party becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or the Company or any Loan Party applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for the Company or such Loan Party or any property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the Company or any Loan Party or for a substantial part of the property of any thereof and is not discharged within 60 days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of the Company or any Loan Party, and if such case or proceeding is not commenced by the Company or such Loan Party, it is consented to or acquiesced in by the Company or such Loan Party, or remains for 60 days undismissed; or the Company or any Loan Party takes any action to authorize, or in furtherance of, any of the foregoing.

13.1.5Non-Compliance with Loan Documents. (a) Failure by any Loan Party to comply with or to perform any covenant set forth in Sections 10.1.5(a), 10.1.5(d), 10.3.2, 10.3.3, 10.5, 10.11, or 10.12 or Section 11 of this Agreement or Section 5.2 of the Guaranty and Collateral Agreement; provided that the mere failure to deliver insurance certificates or proof of insurance (as distinguished from the failure to maintain any such insurance in effect) as required pursuant to Section 10.3.2 will not cause an Event of Default to immediately occur pursuant to this clause (a), (b) failure by any Loan Party to comply with or to

82

perform any covenant set forth in Sections 10.1.1, 10.1.2, 10.1.3, 10.1.5 (other than clauses (a) or (d) thereof), 10.1.6, 10.1.8 or to deliver insurance certificates or proof of insurance (as distinguished from the failure to maintain any such insurance in effect) as required pursuant to Section 10.3.2, and continuance of such failure described in this clause (b) for 20 days, or (c) failure by the Company or any Loan Party to comply with or to perform any other provision of this Agreement or any other Loan Document (and not constituting an Event of Default under any other provision of this Section 13) and continuance of such failure described in this clause (c) for 30 days.

13.1.6Representations; Warranties. Any representation or warranty made by the Company or any Loan Party herein or any other Loan Document is breached or is false or misleading in any material respect when made or deemed to have been made, or any schedule, certificate, financial statement, report, notice or other writing furnished by the Company or any Loan Party to the Administrative Agent or any Lender in connection herewith or in any other Loan Document is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified.

13.1.7Pension Plans. (a) A Termination Event occurs which has or could reasonably be expected to result in liability to any of the Loan Parties or any other member of the Controlled Group in excess of $1,000,000 in the aggregate; (b) there arises or exists an Unfunded Liability which would or could reasonably be expected to have a Material Adverse Effect or (c) there shall occur any withdrawal or partial withdrawal from a Multiemployer Pension Plan which would or could reasonably be expected to result in a liability to any Loan Party or other member of the Controlled Group in excess of $1,000,000 in the aggregate.

13.1.8Judgments. Final judgments which (i) in the case of monetary judgments, exceed $5,000,000, in aggregate, for all such judgments, in excess of any applicable insurance with respect to which the insurer has not denied liability or coverage or (ii) in the case of non-monetary judgments, would have or could reasonably be expected to have a Material Adverse Effect, shall in either case be rendered against the Company and/or any Loan Party and, in each of the cases of clause (i) and (ii) above, shall not have been paid, discharged or vacated or had execution thereof stayed pending appeal within 30 days after entry or filing of such judgments.

13.1.9Loss of Collateral. Any loss, theft, damage or destruction of any material portion of the Collateral to the extent not fully covered (subject to such deductibles and self-insurance retentions as the Administrative Agent shall have permitted) by insurance or if and to the extent the insurance company has denied or asserted a denial of coverage therefor.

13.1.10Levy, Seizure or Attachment. The making by any Person of a levy, seizure or attachment upon any material portion of the Collateral, except to the extent that such proceedings are being diligently contested in good faith by appropriate proceedings and the enforcement thereof is stayed (and the terms of such stay do not adversely affect in any material respect the Administrative Agent’s Liens or other rights on such Collateral or its ability to accept and retain payment hereunder).

83

13.1.11Invalidity of Collateral Documents, etc. Any Collateral Document shall cease to be in full force and effect (other than in accordance with its terms) or any Loan Party (or any Person by, through or on behalf of the Company or any Loan Party) shall contest in any manner the validity, binding nature or enforceability of any Collateral Document or the Liens purported to be granted therein or any court or any governmental authority shall issue a judgment, order, decree or ruling to the effect that any of the obligations of any party to any Collateral Document are illegal, invalid or unenforceable.

13.1.12Invalidity of Subordination Provisions, etc. Any subordination provision in any document or instrument governing Subordinated Debt, or any subordination provision in any guaranty by any Loan Party of any Subordinated Debt shall, in any such case, cease to be in full force and effect; or any Loan Party, any subordinating party or any governmental authority having jurisdiction over any of them or over the Administrative Agent and/or the Lenders shall contest in any judicial or administrative proceeding the validity, binding nature or enforceability of any such provision or agreement.

13.1.13Change of Control. A Change of Control shall occur.

13.2Effect of Event of Default. If any Event of Default described in Section 13.1.4 shall occur in respect of any Loan Party, the Commitments shall immediately terminate and the Loans and all other Obligations (other than any outstanding Specified Hedging Obligations which would not pursuant to their terms be, become or be declared to be then due and payable) hereunder shall become immediately due and payable and the Loan Parties shall become immediately obligated to Cash Collateralize all Letters of Credit, all without presentment, demand, protest or notice of any kind; and, if any other Event of Default shall occur and be continuing, the Administrative Agent may (and, upon the written request of the Required Lenders shall, declare the respective Commitments to be terminated in whole or in part and/or declare all or any part of the Loans and all other Obligations (other than any outstanding Specified Hedging Obligations which would not pursuant to their terms be, become or be declared to be then due and payable) hereunder to be due and payable and/or demand that the Loan Parties immediately Cash Collateralize all or any Letters of Credit, whereupon the Commitments shall immediately terminate (or be reduced, as applicable) and/or the Loans and other Obligations (other than any outstanding Specified Hedging Obligations which would not pursuant to their terms be, become or be declared to be then due and payable) hereunder shall become immediately due and payable (in whole or in part, as applicable) and/or the Loan Parties shall immediately become obligated to Cash Collateralize the Letters of Credit (all or any, as applicable), all without presentment, demand, protest or notice of any kind. The Administrative Agent shall promptly advise the Loan Party Representative of any such declaration, but failure to do so shall not impair the effect of such declaration. Any cash collateral delivered hereunder shall be held by the Administrative Agent (without liability for interest thereon) and applied to the Obligations arising in connection with any drawing under a Letter of Credit. After the expiration or termination of all Letters of Credit, such cash collateral shall be applied by the Administrative Agent to any remaining Obligations hereunder and any excess shall be delivered to the Loan Party Representative, on behalf of the Loan Parties, or as a court of competent jurisdiction may elect.

84

SECTION 14THE ADMINISTRATIVE AGENT.

14.1Appointment and Authorization. Each Lender hereby irrevocably (subject to Section 14.10) appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duty or responsibility except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein and in other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

14.2Issuing Lender. The Issuing Lender shall act on behalf of the Lenders (according to their Pro Rata Shares relating to the Revolving Loans) with respect to any Letters of Credit issued by it and the documents associated therewith. The Issuing Lender shall have all of the benefits and immunities (a) provided to the Administrative Agent in this Section 14 with respect to any acts taken or omissions suffered by the Issuing Lender in connection with Letters of Credit issued by it or proposed to be issued by it and the applications and agreements for letters of credit pertaining to such Letters of Credit as fully as if the term “Administrative Agent”, as used in this Section 14, included the Issuing Lender with respect to such acts or omissions and (b) as additionally provided in this Agreement with respect to the Issuing Lender.

14.3Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys in fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney in fact that it selects in the absence of gross negligence or willful misconduct.

14.4Exculpation of Administrative Agent. None of the Administrative Agent nor any of its directors, officers, employees or agents shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except to the extent resulting from its own gross negligence or willful misconduct in connection with its duties expressly set forth herein as determined by a final, nonappealable judgment by a court of competent jurisdiction), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by any Loan Party or Affiliate of any Loan Party or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the validity,

85

effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document (or the creation, perfection or priority of any Lien or security interest therein), or for any failure of any Loan Party or any other party to any Loan Document to perform its Obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party or its Affiliates.

14.5Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, electronic mail message, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Loan Parties), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders, as it deems appropriate and, if it so requests, confirmation from the Lenders (or any of them) of their obligation to indemnify the Administrative Agent against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon each Lender. For purposes of determining compliance with the conditions specified in Section 12, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received written notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

14.6Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Unmatured Event of Default except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or the Loan Party Representative referring to this Agreement, describing such Event of Default or Unmatured Event of Default and stating that such notice is a “notice of default”. The Administrative Agent will notify the Lenders of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Event of Default or Unmatured Event of Default as may be requested by the Required Lenders in accordance with Section 13.2; provided that unless and until the Administrative Agent has received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or Unmatured Event of Default as it shall deem advisable or in the best interest of the Lenders.

14.7Credit Decision. Each Lender acknowledges that the Administrative Agent has not made any representation or warranty to it, and that no act by the Administrative Agent

86

hereafter taken, including any consent and acceptance of any assignment or review of the affairs of the Loan Parties, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender as to any matter, including whether the Administrative Agent has disclosed material information in its possession. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties, and made its own decision to enter into this Agreement and to extend credit to the Borrowers hereunder. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial or other condition or creditworthiness of the Loan Parties which may come into the possession of the Administrative Agent.

14.8Indemnification. Whether or not the transactions contemplated hereby are consummated, each Lender shall indemnify upon demand the Administrative Agent and its directors, officers, employees and agents (to the extent not reimbursed by or on behalf of the Loan Parties and without limiting the obligation of the Loan Parties to do so), according to its applicable Pro Rata Share, from and against any and all Indemnified Liabilities (as hereinafter defined); provided that no Lender shall be liable for any payment to any such Person of any portion of the Indemnified Liabilities to the extent such Indemnified Liabilities resulted from the applicable Person’s own gross negligence or willful misconduct. No action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out of pocket expenses (including Attorney Costs and Taxes) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Loan Parties. The undertaking in this Section shall survive repayment of the Loans, cancellation of the Notes, expiration or termination of the Letters of Credit, any foreclosure under, or modification, release or discharge of, any or all of the Collateral Documents, termination of this Agreement and the resignation or replacement of the Administrative Agent.

14.9Administrative Agent in Individual Capacity. LaSalle and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Loan Parties and Affiliates as though LaSalle were not the

87

Administrative Agent hereunder and without notice to or consent of any Lender. Each Lender acknowledges that, pursuant to such activities, LaSalle or its Affiliates may receive information regarding the Loan Parties or their Affiliates (including information that may be subject to confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to their Loans (if any),  LaSalle and its Affiliates shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though LaSalle were not the Administrative Agent, and the terms “Lender” and “Lenders” include LaSalle and its Affiliates, to the extent applicable, in their individual capacities.

14.10Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days’ notice to the Lenders and the Loan Party Representative. If the Administrative Agent resigns under this Agreement, the Required Lenders shall, with (so long as no Event of Default exists) the consent of the Loan Party Representative (which shall not be unreasonably withheld or delayed), appoint from among the Lenders a successor agent for the Lenders. If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Loan Party Representative, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term “Administrative Agent” shall mean such successor agent, and the retiring Administrative Agent’s appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Section 14 and Sections 15.5 and 15.17 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. If no successor agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above.

14.11Collateral Matters. The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, (a) to release any Lien granted to or held by the Administrative Agent under any Collateral Document (i) upon termination of the Commitments and payment in full of all Loans and all other obligations of the Loan Parties hereunder and the expiration or termination of all Letters of Credit; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; or (iii) subject to Section 15.1, if approved, authorized or ratified in writing by the Required Lenders; or (b) to subordinate its interest in any Collateral to any holder of a Lien on such Collateral which is permitted by Section 11.2(d)(i) or (d)(iii) (it being understood that the Administrative Agent may conclusively rely on a certificate from the Loan Party Representative, on behalf of the Loan Parties, in determining whether the Debt secured by any such Lien is permitted by Section 11.1(b)). Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent’s authority to release, or subordinate its interest in, particular types or items of Collateral pursuant to this Section 14.11. Each Lender hereby authorizes the Administrative Agent to give blockage notices in connection with any Subordinated Debt at the

88

direction of the Required Lenders, and agrees that it will not act unilaterally to deliver such notices.

14.12Administrative Agent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Loan Party Representative, on behalf of the Loan Parties) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a)to file and prove one or more claims for the whole amount of the principal and interest owing and unpaid in respect of the Loans, and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 5, 15.5 and 15.17) allowed in such judicial proceedings; and

(b)to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 5, 15.5 and 15.17.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

14.13Other Agents; Arrangers and Managers. None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a “syndication agent,” “documentation agent,” “co-agent,” “book manager,” “lead manager,” “arranger,” “lead arranger” or “co-arranger”, if any, shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.

89

SECTION 15GENERAL.

15.1Waiver; Amendments. Except as set forth in clauses (a) through (d) below, no amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents shall in any event be effective unless the same shall be in writing and acknowledged by the Administrative Agent, the Required Lenders and the Borrowers, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. In addition to the foregoing required consents:

(a)Without the consent of each Lender (including the Issuing Lender) directly affected thereby, no amendment, modification, waiver or consent shall (i) extend or increase the Commitment of any Lender, (ii) extend the date scheduled for payment of any principal (excluding mandatory prepayments) of or interest on the Loans or any fees payable hereunder or waive an Event of Default for non-payment thereof, (iii) reduce the principal amount of any Loan, the rate of interest thereon or any fees payable hereunder (except for periodic changes in the Applicable Margins hereunder or resulting from the imposition of the Default Rate), or (iv) reduce such Lender’s Pro Rata Share.

(b)Without the consent of all Lenders, no amendment, modification, waiver or consent shall (i) except as specifically provided in clause (c) below, release any Loan Party from its obligations hereunder, under any other Loan Document or under any guaranty of the Obligations or release all or any substantial portion of the Collateral, (ii) amend the definition of Required Lenders, (iii) amend the provisions of this Section 15.1 or (iv) amend the definition of Pro Rata Share.

(c)No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents affecting either the Administrative Agent (including each and every provision of Section 14 hereof) or the Issuing Lender, in each case, in such Person’s capacity as such, shall be effective without the consent of the Administrative Agent and/or the Issuing Lender, as applicable.

(d)Notwithstanding any of the foregoing to the contrary, for purposes of voting or consenting to matters with respect to this Agreement and the other Loan Documents, a Defaulting Lender shall not be considered a Lender and such Defaulting Lender’s Pro Rata Share of the Obligations shall each be deemed to be $0 until such Defaulting Lender makes the payments required in this Agreement.

15.2Confirmations. The Loan Party Representative and each holder of a Note agree from time to time, upon written request received by it from the other, to confirm to the other in writing (with a copy of each such confirmation to the Administrative Agent) the aggregate unpaid principal amount of the Loans then outstanding under such Note.

15.3Notices. Except as otherwise provided in Sections 2.2.2 and 2.2.3, all notices hereunder shall be in writing (including facsimile transmission) and shall be sent to the applicable party at its address shown on Annex B or at such other address as such party may, by written notice received by the other parties, have designated as its address for such purpose.

90

Notices sent by facsimile transmission shall be deemed to have been given when sent; notices sent by mail shall be deemed to have been given three Business Days after the date when sent by registered or certified mail, postage prepaid; and notices sent by hand delivery or overnight courier service shall be deemed to have been given when received. For purposes of Sections 2.2.2 and 2.2.3, the Administrative Agent shall be entitled to rely on telephonic instructions from any person that the Administrative Agent in good faith believes is an authorized officer or employee of the Loan Party Representative, and the Loan Party Representative and each Loan Party shall hold the Administrative Agent and each other Lender harmless from any loss, cost or expense resulting from any such reliance. The Administrative Agent agrees to use commercially reasonable efforts give the Loan Party Representative prompt notice of any amendment or modification to the Earnout Subordination Agreement; provided that any failure to do so will not result in any liability of the Administrative Agent or any Lender to any Loan Party, or relieve any Loan Party of any of its obligations hereunder to any such Person.

15.4Computations. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with GAAP, consistently applied; provided that if the Loan Party Representative notifies the Administrative Agent that the Loan Parties wish to amend any covenant in Section 11.13 (or any related definition) to eliminate or to take into account the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Loan Party Representative that the Required Lenders wish to amend Section 11.13 (or any related definition) for such purpose), then the Loan Parties’ compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant (or related definition) is amended in a manner satisfactory to the Loan Parties and the Required Lenders.

15.5Costs, Expenses and Taxes. Without duplication of any other provision of this Agreement, the Borrowers each hereby jointly and severally agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Administrative Agent (including Attorney Costs, all field examination and appraisal costs (subject to the limitations set forth in Section 10.2), and any Taxes in connection with the preparation, execution, syndication, delivery and administration (including perfection and protection of any Collateral and the costs of Intralinks (or other similar service), if applicable) of this Agreement, the other Loan Documents (including any amendment, supplement or waiver to any Loan Document), whether or not the transactions contemplated hereby or thereby shall be consummated, and all reasonable out-of-pocket costs and expenses (including Attorney Costs (including the fees and disbursements) of not more than one counsel for the Administrative Agent and the Lenders) with any local counsel reasonably required to realize or exercise their rights in and upon Collateral in various locations, all field examination and appraisal costs and any Taxes incurred by the Administrative Agent and each Lender after an Event of Default in connection with the collection of the Obligations or the enforcement of this Agreement, the other Loan Documents or any such other documents or during any workout, restructuring or negotiations in respect thereof. In addition, each of the Loan Parties hereby jointly and severally agrees to pay, and to save the Administrative Agent and the Lenders harmless from all liability for, any fees of the Loan Parties’ auditors in

91

connection with any reasonable exercise by the Administrative Agent and the Lenders of their rights pursuant to Section 10.2. All Obligations provided for in this Section 15.5 shall survive repayment of the Loans, cancellation of the Notes, expiration or termination of the Letters of Credit and termination of this Agreement.

15.6Assignments; Participations.

15.6.1Assignments.

(a)Any Lender may at any time assign to one or more Eligible Assignees (any such Eligible Assignee, an “Assignee”) all or any portion of such Lender’s Loans and Commitments, with the prior written consent of the Administrative Agent, the Issuing Lender (for an assignment of the Revolving Loans and the Revolving Commitment) and, so long as no Event of Default exists, the Loan Party Representative (which consents shall not be unreasonably withheld or delayed and shall not be required for an assignment by a Lender to a Lender or an Affiliate of a Lender); provided, that in the event a Lender assigns less than all of its Loans and Commitments at any time, such assignment must be pro-rata with respect to all of such Lender’s Loans and Commitments. Any such assignment shall be in a minimum aggregate amount equal to $5,000,000 or, if less, the remaining Commitment and Loans held by the assigning Lender. The Loan Parties and the Loan Party Representative shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned to an Assignee until the Administrative Agent shall have received and accepted an effective assignment agreement in substantially the form of Exhibit D hereto (an “Assignment Agreement”) executed, delivered and fully completed by the applicable parties thereto and a processing fee of $3,500. No assignment may be made to any Person if at the time of such assignment the Loan Parties would be obligated to pay any greater amount under Section 7.6 or 8 to the Assignee than the Loan Parties are then obligated to pay to the assigning Lender under such Sections (and if any assignment is made in violation of the foregoing, the Loan Parties will not be required to pay such greater amounts). In addition, no Assignee shall be entitled to the benefits of Section 7.6 unless such Assignee has complied and will comply with the requirements of Section 7.6 as though it were a Lender. Any attempted assignment not made in accordance with this Section 15.6.1 shall be treated as the sale of a participation under Section 15.6.2. The Loan Parties shall be deemed to have granted its consent to any assignment requiring its consent hereunder unless the Loan Parties have expressly objected to such assignment within five Business Days after receiving written notice thereof.

(b)From and after the date on which the conditions described above have been met, (i) such Assignee shall be deemed automatically to have become a party hereto and, to the extent that rights and obligations hereunder have been assigned to such Assignee pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (ii) the assigning Lender, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, shall be released from its rights (other than its indemnification rights) and obligations hereunder. Upon the request of the Assignee (and, as applicable, the assigning Lender) pursuant to an effective Assignment Agreement, the Borrowers shall execute and deliver to the Administrative Agent for delivery to the Assignee (and, as applicable, the assigning Lender) Note(s) in the applicable principal amounts of the Assignee’s Pro Rata Share of the Revolving Commitment

92

or Term Loan Commitment, as applicable (and, as applicable, Notes in the principal amount of the Pro Rata Share of the Revolving Commitment or Term Loan Commitment, as applicable, retained by the assigning Lender). Each such Note shall be dated the effective date of such assignment. Upon receipt by the assigning Lender of such Note(s), the assigning Lender shall return to the Loan Party Representative, on behalf of the Borrowers, any prior Note(s) held by it.

(c)Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

15.6.2Participations. Any Lender may at any time sell to one or more Persons participating interests in its Loans, Commitments or other interests hereunder (any such Person, a “Participant”). In the event of a sale by a Lender of a participating interest to a Participant, (a) such Lender’s obligations hereunder shall remain unchanged for all purposes, (b) the Loan Parties, the Loan Party Representative and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations hereunder and (c) all amounts payable by the Loan Parties shall be determined as if such Lender had not sold such participation and shall be paid directly to such Lender. No Participant shall have any direct or indirect voting rights hereunder except with respect to any event described in Section 15.1 expressly requiring the unanimous vote of all Lenders or, as applicable, all affected Lenders. Each Lender agrees to incorporate the requirements of the preceding sentence into each participation agreement which such Lender enters into with any Participant. The Loan Parties each hereby agrees that if amounts outstanding under this Agreement are due and payable (as a result of acceleration or otherwise), each Participant, shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and with respect to any Letter of Credit to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement; provided that such right of set-off shall be further subject to the obligation of each Participant to share with the Lenders, and the Lenders agree to share with each Participant, as provided in Section 7.5. The Loan Parties also each hereby agrees that each Participant shall be entitled to the benefits (and subject to the requirements) of Section 7.6 or 8 as if it were a Lender (provided that on the date of the participation no Participant shall be entitled to any greater compensation pursuant to Section 7.6 or 8 than would have been paid to the participating Lender on such date if no participation had been sold and provided that such Participant shall not be entitled to the benefits of Section 7.6 unless such Participant has complied and will comply with Section 7.6(d) as if it were Lender).

15.7Register. The Administrative Agent shall maintain a copy of each Assignment Agreement delivered and accepted by it and register (the “Register”) for the recordation of names and addresses of the Lenders and the Commitment of each Lender from time to time and whether such Lender is the original Lender or the Assignee. No assignment shall be effective unless and until the Assignment Agreement is accepted and registered in the Register. All records of transfer of a Lender’s interest in the Register shall be conclusive, absent manifest error, as to the ownership of the interests in the Loans. The Administrative Agent shall not incur any liability of any kind with respect to any Lender with respect to the maintenance of the Register.

93

15.8GOVERNING LAW. THIS AGREEMENT AND EACH NOTE SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

15.9Confidentiality. As required by federal law and the Administrative Agent’s policies and practices, the Administrative Agent may need to obtain, verify, and record certain customer identification information and documentation in connection with opening or maintaining accounts, or establishing or continuing to provide services. The Administrative Agent and each Lender agree to use commercially reasonable efforts (equivalent to the efforts the Administrative Agent or such Lender applies to maintain the confidentiality of its own confidential information) to maintain as confidential all non-public information provided to them by any Loan Party (and which at the time is not, and does not thereafter become, publicly available), except that the Administrative Agent and each Lender may disclose such information (a) to Persons employed or engaged by the Administrative Agent or such Lender in evaluating, approving, structuring or administering the Loans and the Commitments; (b) to any assignee or participant or potential assignee or participant that has agreed in writing to comply with the covenant contained in this Section 15.9 (and any such assignee or participant or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any federal or state regulatory authority or examiner, or any insurance industry association, or as reasonably believed by the Administrative Agent or such Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advice of the Administrative Agent’s or such Lender’s counsel, is required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any litigation to which the Administrative Agent or such Lender is a party; (f) to any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender; (g) to any Affiliate of the Administrative Agent, the Issuing Lender or any other Lender who may provide Bank Products to the Loan Parties; or (h) that ceases to be confidential through no fault of the Administrative Agent or any Lender. Notwithstanding the foregoing, the Loan Parties consent to the publication by the Administrative Agent or any Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement; provided that such tombstone or announcement has been approved by the Loan Party Representative, which approval shall not be unreasonably withheld or delayed, and the Administrative Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.

15.10Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All obligations of the Loan Parties and rights of the Administrative Agent and the Lenders expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law.

94

15.11Nature of Remedies. All Obligations of the Loan Parties and rights of the Administrative Agent and the Lenders expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

15.12Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof (except as relates to the fees described in Section 5.3) and any prior arrangements made with respect to the payment by the Loan Parties of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Administrative Agent or the Lenders.

15.13Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof. Electronic records of executed Loan Documents maintained by the Administrative Agent and the Lenders shall deemed to be originals.

15.14Successors and Assigns. This Agreement shall be binding upon the Loan Parties, the Lenders and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of the Loan Parties, the Lenders and the Administrative Agent and the successors and assigns of the Lenders and the Administrative Agent. No other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. No Loan Party may assign or transfer any of its rights or Obligations under this Agreement without the prior written consent of the Administrative Agent and each Lender.

15.15Captions. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

15.16Patriot Act Notice. As required by federal law and LaSalle’s policies and practices, LaSalle may need to collect certain customer identification information and documentation in connection with opening or maintaining accounts or establishing or continuing to provide services.

15.17Indemnification by the Loan Parties. In consideration of the execution and delivery of this Agreement by the Administrative Agent and the Lenders and the agreement to extend the Commitments provided hereunder and other financial accommodations, each Loan Party hereby agrees to jointly and severally indemnify and hold the Administrative Agent, each Lender and each of the officers, directors, employees, affiliates and agents of the Administrative Agent and each Lender (each a “Lender Party”) free and harmless from and against any and all

95

actions, causes of action, suits, losses, liabilities, damages and expenses, including Attorney Costs (collectively, the “Indemnified Liabilities”), incurred by the Lender Parties or any of them as a result of, or arising out of, or relating to (a) any tender offer, merger, purchase of capital securities, purchase of assets or other similar transaction financed or proposed to be financed in whole or in part, directly or indirectly, with the proceeds of any of the Loans, (b) the past, present or future presence, use, handling, release or threat of release, emission, discharge, transportation, storage, treatment or disposal of any Hazardous Substance at or affecting any property owned or leased by any Loan Party, (c) any violation of any Environmental Laws with respect to conditions at any property owned or leased by any Loan Party or the operations conducted thereon, (d) the investigation, cleanup or remediation of offsite locations at which any Loan Party or their respective predecessors are alleged to have directly or indirectly disposed of Hazardous Substances or (e) the execution, delivery, performance or enforcement of this Agreement or any other Loan Document by any of the Lender Parties, except for any such Indemnified Liabilities arising on account of any of the Lender Parties’ gross negligence or willful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, each Loan Party hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. All obligations provided for in this Section 15.17 shall survive repayment of the Loans, cancellation of the Notes, expiration or termination of the Letters of Credit, any foreclosure under, or any modification, release or discharge of, any or all of the Collateral Documents and termination of this Agreement.

15.18Nonliability of Lenders. The relationship between the Loan Parties on the one hand and the Lenders and the Administrative Agent on the other hand shall be solely that of borrower and lender, respectively. Neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Loan Party arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Loan Parties , on the one hand, and the Administrative Agent and the Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor, respectively. Neither the Administrative Agent nor any Lender undertakes any responsibility to any Loan Party to review or inform any Loan Party of any matter in connection with any phase of any Loan Party’s business or operations. Each Loan Party agrees, on behalf of itself and each other Loan Party, that neither the Administrative Agent nor any Lender shall have liability to any Loan Party (whether sounding in tort, contract or otherwise) for losses suffered by any Loan Party in connection with, arising out of, or in any way related to the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless resulting from the gross negligence or willful misconduct of the party from which recovery is sought. NO LENDER PARTY SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY OTHERS OF ANY INFORMATION OR OTHER MATERIALS OBTAINED THROUGH INTRALINKS OR OTHER SIMILAR INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT, NOR SHALL ANY LENDER PARTY HAVE ANY LIABILITY WITH RESPECT TO, AND EACH LOAN PARTY ON BEHALF OF ITSELF AND EACH OTHER LOAN PARTY, HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ARISING OUT OF ITS ACTIVITIES IN CONNECTION HEREWITH OR THEREWITH (WHETHER BEFORE OR

96

AFTER THE CLOSING DATE). Each Loan Party acknowledges that it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party. No joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Loan Parties and the Lenders.

15.19FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE ADMINISTRATIVE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH LOAN PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. With respect to any action by the Administrative Agent to enforce the rights and remedies of the Lender Parties hereunder or under the other Loan Documents, each Lender Party hereby consents to the jurisdiction of the court in which such action is maintained.

15.20WAIVER OF JURY TRIAL. EACH OF THE LOAN PARTIES, THE ADMINISTRATIVE AGENT, THE ISSUING LENDER AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

15.21Other Waivers. The Administrative Agent’s and/or the Lenders’ failure, at any time or times hereafter, to require strict performance by the Loan Parties of any provision of this Agreement or any of the other Loan Documents shall not waive, affect or diminish any right of the Administrative Agent or any Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by the Administrative Agent or any Lender of an Event of Default under this Agreement or any default under any of the other Loan Documents shall not

97

suspend, waive or affect any other Event of Default under this Agreement or any other default under any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. No delay on the part of the Administrative Agent or any Lender in the exercise of any right or remedy under this Agreement or any other Loan Documents shall preclude other or further exercise thereof or the exercise of any right or remedy. None of the undertakings, agreements, warranties, covenants and representations of any Loan Party contained in this Agreement or any of the other Loan Documents and no Event of Default under this Agreement or default under any of the other Loan Documents shall be deemed to have been suspended or waived by the Administrative Agent and/or the Lenders unless such suspension or waiver is in writing, signed by a duly authorized officer of the Administrative Agent, the Required Lenders and/or all of the Lenders, as required herein (with respect to all Lenders, only to the extent expressly required by Section 15.1), and directed to such Loan Party specifying such suspension or waiver.

15.22Joint and Several Liability.

15.22.1Nature of Obligations. Notwithstanding anything to the contrary contained herein, all Obligations of each Loan Party hereunder and under the other Loan Documents shall be joint and several obligations of the Loan Parties.

15.22.2No Fraudulent Conveyances. Notwithstanding any provisions of this Agreement to the contrary, it is intended that the joint and several nature of the Obligations of the Loan Parties and the liens and security interests granted by the Loan Parties to secure the Obligations, not constitute a “Fraudulent Conveyance” (as defined below). Consequently, the Administrative Agent, the Lenders and the Loan Parties agree that if the Obligations of a Loan Party, or any liens or security interests granted by such Loan Party securing the Obligations would, but for the application of this sentence, constitute a Fraudulent Conveyance, the Obligations of such Loan Party and the liens and security interests securing such Obligations shall be valid and enforceable only to the maximum extent that would not cause such Obligations or such lien or security interest to constitute a Fraudulent Conveyance, and the Obligations of such Loan Party and this Agreement shall automatically be deemed to have been amended accordingly. For purposes hereof, “Fraudulent Conveyance” means a fraudulent conveyance under the Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under the applicable provisions of any fraudulent conveyance or fraudulent transfer law or similar law of any state, nation or other governmental unit, as in effect from time to time.

15.23Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by any Loan Party or the transfer to the Administrative Agent or any Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors’ rights, including provisions of the Bankruptcy Code relating to Fraudulent Conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a “Voidable Transfer”), and if the Administrative Agent or any Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Administrative Agent or any Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and Attorneys Costs of the Administrative Agent and/or the Lenders, the Obligations shall automatically shall be revived, reinstated, and

98

restored and shall exist as though such Voidable Transfer had never been made, and if the Termination Date had previously occurred, it shall be rescinded and this Agreement, the other Loan Documents and all Liens granted hereunder and thereunder shall be immediately reinstated until full and final payment of the Obligations, in cash, shall have been received by the Administrative Agent.

99

The parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first set forth above.

				BORROWERS:
				KIDS LINE, LLC, a Delaware limited liability
				company
				By:	/s/ John Wille
				Name:				John Wille
				Title:			Vice President, Treasurer, Asst. Secretary
				SASSY, INC., an Illinois corporation
				By:		/s/ John Wille
				Name:				John Wille
				Title:			Vice President, Treasurer, Asst. Secretary
The undersigned hereby accepts its appointment as the Loan Party Representative pursuant to Section 2.6 of this Agreement and agrees to exercise its powers and perform its duties in its capacity as the Loan Party Representative in accordance with the terms and provisions of this Agreement and the other Loan Documents
RUSS BERRIE AND COMPANY, INC., a
New Jersey corporation
By:	/s/ John Wille
Name:			John Wille
Title:		Vice President and Chief Financial Officer

Signature Page to Credit Agreement

ADMINISTRATIVE AGENT:	LASALLE BANK NATIONAL
	ASSOCIATION, as Administrative Agent
	By:		/s/ Steven E. Friedlander
	Name:					Steven E. Friedlander
	Title:				Senior Vice President
LENDERS/ISSUING LENDER	LASALLE BANK NATIONAL
	ASSOCIATION, as a Lender and as Issuing Lender
	By:	/s/ Steven E. Friedlander
	Name:					Steven E. Friedlander
	Title:			Senior Vice President
	SOVEREIGN BANK, as a Lender and as Syndication Agent
	By:	/s/ Christine Gerula
	Name:					Christine Gerula
	Title:				Senior Vice President
	BANK OF AMERICA, NATIONAL
	ASSOCIATION, as a Lender and as
	Documentation Agent
	By:	/s/ Kathleen M. Auth
	Name:					Kathleen M. Auth
	Title:				Vice President
	GENERAL ELECTRIC CAPITAL
	CORPORATION, as a Lender
	By:		/s/ Karl Kieffer
	Name:					Karl Kieffer
	Title:				Duly Authorized Signatory

Signature Page to Credit Agreement

WACHOVIA BANK, NATIONAL
ASSOCIATION, as a Lender
By:	/s/ Robert C. Babelf
Name:				Robert C. Babelf
Title:			Senior Vice President
THE BANK OF NEW YORK, as a Lender
By:		/s/ Stephen Contos
Name:				Stephen Contos
Title:			Vice President

Signature Page to Credit Agreement

ANNEX A

LENDERS AND PRO RATA SHARES

Lender	Revolving Commitment		Pro Rata Share		Term Loan Commitment		Pro Rata Share
LaSalle Bank National Association	$	5,882,503	16.807151421	%	$	11,469,095	19.11515863	%
Sovereign Bank	$	8,675,799	24.787997391	%	$	8,675,799	14.45966514	%
Bank of America, National Association	$	5,882,503	16.807151421	%	$	11,469,095	19.11515863	%
General Electric Capital Corporation	$	5,882,503	16.807151421	%	$	11,469,095	19.11515863	%
Wachovia Bank, National Association	$	5,882,503	16.807151421	%	$	11,469,095	19.11515863	%
The Bank of New York	$	2,794,189	7.983396925	%	$	5,447,820	9.07970035	%
TOTALS	$	35,000,000	100	%	$	60,000,000	100	%

Signature Page to Credit Agreement

ANNEX B

ADDRESSES FOR NOTICES

If to the Loan Party Representative,

any Borrower or any Loan Party:

c/o  RUSS BERRIE AND COMPANY, INC.

111 Bauer Drive

Oakland, New Jersey  07436

Attention:  Chief Financial Officer

Telephone:  (201) 405-7340

Facsimile:  (201) 405-7333

If to the Administrative Agent or the Issuing Lender:

Notices of Borrowing , Conversion, Continuation and Letter of Credit Issuance

LaSalle Bank National Association

135 South LaSalle Street

Chicago, Illinois  60603

Attention:  Mr. Steven Friedlander

Telephone:  (312) 992-2487

Facsimile:  (312) 904-6450

All Other Notices

LaSalle Bank National Association

135 South LaSalle Street

Chicago, Illinois  60603

Attention:  Mr. C. John Mostofi

Telephone:  (312) 904-8141

Facsimile:  (312) 904-6450

Sovereign Bank

3 Huntington Quad.

Suite 103 South

Melville, New York  11747

Attention:  Ms. Christine Gerula

Telephone:  (631) 351-0728

Facsimile:  (631) 531-0685

Bank of America, National Association

750 Walnut Avenue

Cransford, New Jersey  07016

Attention:  Ms. Kathleen Auth

Telephone:  (908) 709-3185

Facsimile:  (908) 709-5476

Signature Page to Credit Agreement

General Electric Capital Corporation

Corporate Financial Services

201 Merritt 7, P.O. Box 5201

Norwalk, Connecticut  06856-5201

Attention:  Ms. Hittie Chao Lee

Telephone:  (203) -956-4053

Facsimile:  (203) 956-4006

Wachovia Bank, National Association

Commercial Credit Products Management

NJ3161

190 River Road

Summit, New Jersey  07901

Attention:  Mr. James Petronchack

Telephone:  (908) 598-3047

Facsimile:  (908) 598-3800

The Bank of New York

385 Rifle Camp Road

West Paterson, New Jersey  07424-0403

Attention:  Mr. Stephen Contos

Telephone:  (973) 357-7759

Facsimile:  (973) 357-7745

Signature Page to Credit Agreement

EX-4.11

Exhibit 4.11

Execution Version

GUARANTY AND COLLATERAL AGREEMENT

dated as of March 14, 2006

among

KIDS LINE, LLC,

and

SASSY, INC.

and

THE OTHER PARTIES HERETO
as Grantors,

and

LASALLE BANK NATIONAL ASSOCIATION,
as the Administrative Agent

GUARANTY AND COLLATERAL AGREEMENT

This Guaranty and Collateral Agreement dated as of March 14, 2006 (this “Agreement”) is entered into among KIDS LINE, LLC, a Delaware limited liability company (“Kids Line”), SASSY, INC., an Illinois corporation (“Sassy”), and those Domestic Wholly-Owned Subsidiaries that are or, in accordance with Section 10.10 of the Credit Agreement, may hereafter become parties thereto as “Borrowers” (Kids Line, Sassy and such Domestic Wholly-Owned Subsidiaries are sometimes referred to therein collectively as the “Borrowers”, together with any other person that becomes a party hereto as provided herein being, collectively, the “Grantors”), in favor of LASALLE BANK NATIONAL ASSOCIATION, as the “Administrative Agent” for itself and the Lenders (as defined in the Credit Agreement referred to below).

The Administrative Agent and Lenders have severally agreed to extend credit and provide other financial accommodations to the Borrowers pursuant to the Credit Agreement. The Borrowers are affiliated with each other Grantor. The Borrowers and the other Grantors are engaged in interrelated businesses, and each Grantor will derive substantial direct and indirect benefit from extensions of credit under the Credit Agreement. It is a condition precedent to the Administrative Agent’s and each Lender’s obligation to extend credit under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent for the benefit of itself and all the Lenders.

In consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Administrative Agent and the Lenders to extend credit and provide other financial accommodations thereunder, each Grantor hereby agrees with the Administrative Agent, for the benefit of itself and the Lenders, as follows:

SECTION 1DEFINITIONS.

1.1Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms are used herein as defined in the UCC: Accounts, Account Debtor, Certificated Security,  Commercial Tort Claims, Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Goods, Instruments, Inventory, Leases, Letter-of-Credit Rights, Money, Payment Intangibles, Supporting Obligations, Tangible Chattel Paper.

1.2When used herein the following terms shall have the following meanings:

Assigned Agreements means (i) the Related Agreements, together with all security agreements, and all liens, security interest and other encumbrances granted thereunder, (ii) any agreement executed from time to time in favor of the Borrowers (or any of them) by their customers securing the purchase price of goods purchased by such customers from the Borrowers (or any of them), and (iii) each material document, instrument and agreement to be executed in connection with each Permitted Acquisition.

Agreement has the meaning set forth in the preamble hereto.

Borrower Obligations means all Obligations of the Borrowers.

Chattel Paper means all “chattel paper” as such term is defined in Section 9-102(a)(11) of the UCC and, in any event, including with respect to any Grantor, all Electronic Chattel Paper and Tangible Chattel Paper.

Collateral means (a) all of the personal property now owned or at any time hereafter acquired by any Grantor or in which any Grantor now has or at any time in the future may acquire any right, title or interest, including all of each Grantor’s Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments, Intellectual Property, Inventory, Investment Property, Leases, Letter-of-Credit Rights, Money, Supporting Obligations, and Identified Claims, (b) all of the real property mortgaged by any Grantor to the Administrative Agent, (c) all books and records pertaining to any of the foregoing and to each Grantor’s business, (d) any other property of any Grantor now or hereafter in the possession, custody or control of the Administrative Agent, or any Lender or any participant with any Lender in the Loans, for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise), (e) all additions and accessions to, substitutions for, and replacements, products and Proceeds of any of the foregoing, including without limitation, proceeds of all insurance policies insuring the foregoing property, and (f) all collateral security and guaranties given by any Person with respect to any of the foregoing. Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof. Notwithstanding the foregoing, in no event shall any equity interest of Kids Line Australia Pty Ltd., of any Second-Tier Foreign Subsidiary or more than 65% of the total outstanding equity interests of any First-Tier Foreign Subsidiary of any Grantor be deemed at any time to be “Collateral” hereunder. Anything contained in this Agreement to the contrary notwithstanding, the term “Collateral” shall not include any rights or interests in any real property lease or any contract, permit, license, charter or other agreement covering personal property that are now or hereafter held by any Grantor in the event that as a result of an assignment thereof or grant of a security interest therein, such Grantor’s rights in or with respect to such real property lease, contract, permit, license, charter, or other agreement would be forfeited or such Grantor would be deemed to have breached or defaulted under such real property lease, contract, permit, license, charter or other agreement pursuant to restrictions contained in such real property lease, contract, permit, license, charter, or other agreement (but only to the extent such prohibition is enforceable at law) (such real estate leases, contracts, permits, licenses, charters and other agreements being the “Restricted Agreements”); provided that the security interest granted herein and the term “Collateral” shall include the right to receive payments and other Proceeds with respect to such Restricted Agreements (except for the Restricted Agreements set forth on Schedule 1.1A attached hereto as the same may be updated monthly to reflect any additions or changes thereto) and the Goods produced under such Restricted Agreements (except for the Restricted Agreements set forth on Schedule 1.1B attached hereto as the same may be updated monthly to reflect any additions or changes thereto); provided further that the applicable Grantor shall, after the Administrative Agent’s request, have used its reasonable efforts to provide notice to the Administrative Agent of such restrictions contained in any Restricted Agreement to an assignment thereof or a grant of a security interest therein. In addition, the term “Collateral” shall not include Equipment which is subject to a Permitted Lien described in Section 11.2(d) of the Credit Agreement, which pursuant to and for so long as the terms of any lease or financing agreement with respect thereto prohibits the granting of a security interest in such Equipment (so long as such restriction is limited to the particular Equipment financed or leased thereunder).

2

Contract Rights means all of the Grantors’ rights and remedies with respect to the Assigned Agreements.

Copyrights means all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, including those listed on Schedule 5 all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office, and the right to obtain all renewals of any of the foregoing.

Copyright Licenses means all written agreements naming any Grantor as licensor or licensee, including those listed on Schedule 5, granting any right under any Copyright, including the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

Credit Agreement means the Credit Agreement of even date herewith among the Borrowers, the other Subsidiaries from time to time party thereto, the Lenders, and the Administrative Agent, as amended, supplemented, restated or otherwise modified from time to time.

Fixtures means all of the following, whether now owned or hereafter acquired by a Grantor: plant fixtures; business fixtures and other fixtures, wherever located; and all additions and accessories thereto and replacements therefor.

General Intangibles means all “general intangibles” as such term is defined in Section 9-102(a)(42) of the UCC and, in any event, including with respect to any Grantor, all Payment Intangibles, all contracts and Contract Rights (including all Assigned Agreements and Seller Undertakings), agreements, instruments and indentures in any form, and portions thereof, to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same from time to time may be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of such Grantor to damages arising thereunder and (c) all rights of such Grantor to perform and to exercise all remedies thereunder; provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any Receivable or any money or other amounts due or to become due under any such Payment Intangible, contract, agreement, instrument or indenture.

Grantor means the collective reference to the Borrowers and each other Person that becomes a party to this Agreement in accordance with Section 8.16.

Guarantor Obligations means, collectively, with respect to each Guarantor, all Obligations of such Guarantor.

Guarantors means the collective reference to each Grantor other than the Borrowers, if any.

3

Identified Claims means the Commercial Tort Claims described on Schedule 7 as such schedule shall be supplemented from time to time.

Intellectual Property means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

Intercompany Note means any promissory note evidencing loans made by any Grantor to any other Grantor.

Investment Property means the collective reference to (a) all “investment property” as such term is defined in Section 9-102(a)(49) of the UCC (other than the equity interest of any Foreign Subsidiary excluded from the definition of Pledged Equity), (b) all “financial assets” as such term is defined in Section 8-102(a)(9) of the UCC, and (c) whether or not constituting “investment property” as so defined, all Pledged Notes and all Pledged Equity.

Issuers means the collective reference to each issuer of any Investment Property.

Paid in Full means (a) the payment in full in cash and performance of all Secured Obligations (other than unasserted contingent and indemnification obligations), (b) the termination of all Commitments and (c) either (i) the cancellation and return to the Administrative Agent of all Letters of Credit or (ii) the cash collateralization of all Letters of Credit in accordance with the Credit Agreement.

Patents means (a) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including any of the foregoing referred to in Schedule 5, (b) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including any of the foregoing referred to in Schedule 5, and (c) all rights to obtain any reissues or extensions of the foregoing.

Patent Licenses means all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including any of the foregoing referred to in Schedule 5.

Pledged Equity means the equity interests listed on Schedule 1, together with any other equity interests, certificates, options or rights of any nature whatsoever in respect of the equity interests of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect; provided that in no event shall more than 65% of the total outstanding equity interests of any First-Tier Foreign Subsidiary be required to be directly or indirectly pledged hereunder; provided, further that in no event shall any of the equity interests of Kids Line Australia Pty Ltd. or of any Second-Tier Foreign Subsidiary be required to be directly or indirectly pledged hereunder.

4

Pledged Notes means all promissory notes listed on Schedule 1, all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor (other than (a) promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business and (b) any individual promissory note which is less than $250,000 in principal amount, up to an aggregate of $500,000 for all such promissory notes excluded under this clause (b)).

Proceeds means all “proceeds” as such term is defined in Section 9-102(a)(64) of the UCC and, in any event, shall include all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto.

Receivable means any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including any Accounts).

Restricted Agreements has the meaning set forth in the definition of “Collateral.”

Secured Obligations means, collectively, the Borrower Obligations and Guarantor Obligations.

Securities Act means the Securities Act of 1933, as amended.

Seller Undertakings means, collectively, all representations, warranties, covenants and agreements in favor of any Grantor, and all indemnifications for the benefit of any Grantor relating thereto, pursuant to the Assigned Agreements.

Trademarks means (a) all trademarks, trade names, corporate names, the Grantors’ names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including any of the foregoing referred to in Schedule 5, and (b) the right to obtain all renewals thereof.

Trademark Licenses means, collectively, each agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including any of the foregoing referred to in Schedule 5.

UCC means the Uniform Commercial Code as in effect on the date hereof and from time to time in the State of New York, provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interests in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, “UCC” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy.

5

SECTION 2GUARANTY.

2.1Guaranty. (a)  Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, as a primary obligor and not only a surety, guaranties to the Administrative Agent, for the benefit of itself and of the Lenders, and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations.

(b)Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guarantied by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2).

(c)Each Guarantor agrees that the Secured Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guaranty contained in this Section 2 or affecting the rights and remedies of the Administrative Agent or any Lender hereunder.

(d)The guaranty contained in this Section 2 shall remain in full force and effect until all of the Secured Obligations shall have been Paid in Full.

(e)No payment made by the Borrowers, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from the Borrowers, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Secured Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Secured Obligations or any payment received or collected from such Guarantor in respect of the Secured Obligations), remain liable for the Secured Obligations up to the maximum liability of such Guarantor hereunder until the Secured Obligations are Paid in Full.

2.2Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall remain liable to the Administrative Agent and the Lenders for the full amount guarantied by such Guarantor hereunder.

2.3No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Administrative Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the

6

Administrative Agent or any Lender against the Borrowers or any other Guarantor or any collateral security or guaranty or right of offset held by the Administrative Agent or any Lender for the payment of the Secured Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrowers or any other Guarantor in respect of payments made by such Guarantor hereunder, until all of the Secured Obligations are Paid in Full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Secured Obligations shall not have been Paid in Full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Secured Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine.

2.4Amendments, etc. with respect to the Secured Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Secured Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender and any of the Secured Obligations continued, and the Secured Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guaranty therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Required Lenders or all the Lenders, as the case may be) and, to the extent required thereunder, the other parties thereto may deem advisable from time to time. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Secured Obligations or for the guaranty contained in this Section 2 or any property subject thereto.

The Administrative Agent or any Lender may, from time to time, at its sole discretion and without notice to any Guarantor (or any of them), take any or all of the following actions:  (a) retain or obtain a security interest in any property to secure any of the Secured Obligations or any obligation hereunder, (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the undersigned, with respect to any of the Secured Obligations, (c) extend or renew any of the Secured Obligations for one or more periods (whether or not longer than the original period), alter or exchange any of the Secured Obligations, or release or compromise any obligation of any of the undersigned hereunder or any obligation of any nature of any other obligor with respect to any of the Secured Obligations, (d) release any guaranty or right of offset or its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Secured Obligations or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property, and (e) resort to the undersigned (or any of them) for payment of any of the Secured Obligations when due, whether or not the

7

Administrative Agent or such Lender shall have resorted to any property securing any of the Secured Obligations or any obligation hereunder or shall have proceeded against any other of the undersigned or any other obligor primarily or secondarily obligated with respect to any of the Secured Obligations.

2.5Waivers. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Secured Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guaranty contained in this Section 2 or acceptance of the guaranty contained in this Section 2; the Secured Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guaranty contained in this Section 2, and all dealings between the Borrowers and any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guaranty contained in this Section 2. Each Guarantor waives (a) diligence, presentment, protest, demand for payment and notice of default, dishonor or nonpayment and all other notices whatsoever to or upon the Borrowers or any of the Guarantors with respect to the Secured Obligations, (b) notice of the existence or creation or non-payment of all or any of the Secured Obligations and (c) all diligence in collection or protection of or realization upon any Secured Obligations or any security for or guaranty of any Secured Obligations.

2.6Payments. Each Guarantor hereby guaranties that payments by such Guarantor hereunder will be paid to the Administrative Agent without set-off or counterclaim in Dollars at the office of the Administrative Agent specified in the Credit Agreement.

SECTION 3GRANT OF SECURITY INTEREST.

3.1Grant. Each Grantor hereby collaterally assigns and transfers to the Administrative Agent, and hereby grants to the Administrative Agent, for the benefit of itself and the Lenders, a continuing security interest in all of its Collateral, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations or the Guarantor Obligations, as the case may be.

3.2Collateral Assignment of Rights under the Assigned Agreements. Each Grantor hereby irrevocably authorizes and empowers the Administrative Agent or its agents, in their sole discretion, to assert, either directly or on behalf of any Grantor, at any time that an Event of Default has occurred and is continuing, any claims any Grantor may from time to time have against the sellers or any of their affiliates with respect to any and all of the Contract Rights to the extent permitted by the applicable Assigned Agreement or with respect to any and all payments or other obligations due from the sellers or any of their affiliates to any Grantor under or pursuant to the Assigned Agreements (“Payments”), and to receive and collect any damages, awards and other monies resulting therefrom and to apply the same on account of the Secured Obligations. After the occurrence of any Event of Default, the Administrative Agent may provide notice to the sellers or any of their affiliates under any Assigned Agreement that all Payments shall be made to or at the direction of the Administrative Agent for so long as such Event of Default shall be continuing. Following the delivery of any such notice, the

8

Administrative Agent shall promptly notify the sellers under the Assigned Agreement upon the termination or waiver of any such Event of Default. Each Grantor hereby irrevocably makes, constitutes and appoints the Administrative Agent (and all officers, employees, or agents designated by the Administrative Agent) as such Grantor’s true and lawful attorney (and agent-in-fact) for the purpose of enabling the Administrative Agent or its agents to, during the occurrence and continuance of an Event of Default, assert and collect such claims and to apply such monies in the manner set forth hereinabove.

SECTION 4REPRESENTATIONS AND WARRANTIES.

To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, each Grantor jointly and severally hereby represents and warrants to the Administrative Agent and each Lender that:

4.1Title; No Other Liens. Except for Permitted Liens, the Grantors own each item of the Collateral free and clear of any and all Liens. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except filings evidencing Permitted Liens and filings for which termination statements have been delivered to the Administrative Agent.

4.2Perfected First Priority Liens. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 2 (which, in the case of all filings and other documents referred to on Schedule 2, have been delivered to the Administrative Agent in completed and duly executed form) and payment of all necessary filing fees will constitute valid perfected security interests in all of the Collateral in favor of the Administrative Agent, for the benefit of itself and the Lenders  as collateral security for each Grantor’s Obligations, enforceable in accordance with the terms hereof (subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing) against all creditors of each Grantor and any Persons purporting to purchase any Collateral from each Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for Permitted Liens for which priority is accorded under applicable law. Subject to the payment of all necessary filing fees, the filings and other actions specified on Schedule 2 constitute all of the filings and other actions necessary to perfect all security interests granted hereunder. Anything contained in this Agreement to the contrary notwithstanding, in no event shall any Grantor be required to file, register or record any type of pledge or other agreement or filing in a jurisdiction outside the United States with respect to any Pledged Equity (other than filings, registrations or recordations in connection with the Limited Pledge Agreement).

4.3Grantor Information. On the date hereof, Schedule 3 sets forth (a) each Grantor’s jurisdiction of organization, (b) the location of each Grantor’s chief executive office, (c) each Grantor’s exact legal name as it appears on its organizational documents and (d) each Grantor’s organizational identification number (to the extent a Grantor is organized in a jurisdiction which assigns such numbers) and federal employer identification number.

9

4.4Collateral Locations. On the date hereof, Schedule 4 sets forth (a) each place of business of each Grantor (including its chief executive office), (b) all locations where all Inventory and the Equipment owned by each Grantor is kept, except with respect to locations at which Inventory and Equipment with a fair market value of less than $10,000 in the aggregate for each location (up to an aggregate of $200,000 for all locations) and excluding Inventory with respect to “bill and hold” or consignment arrangements with fair market value of less than $10,000 in the aggregate for each location (up to an aggregate of $200,000 for all locations) which may be located at other locations and (c) whether each such Collateral location and place of business (including each Grantor’s chief executive office) is owned or leased (and if leased, specifies the complete name and notice address of each lessor). No Collateral is located outside the United States (excluding In-Transit Inventory) or in the possession of any lessor, bailee, warehouseman or consignee, except as indicated on Schedule 4 or except for Collateral with a fair market value of less than $10,000 in the aggregate for each location and $200,000 in the aggregate for all locations of the Grantors.

4.5Certain Property. None of the Collateral constitutes, or is the Proceeds of, (a) Farm Products, (b) Health Care Insurance Receivables or (c) vessels, aircraft or any other property subject to any certificate of title or other registration statute of the United States, any State or other jurisdiction, except for vehicles owned by the Grantors and used by employees of the Grantors in the ordinary course of business with an aggregate fair market value of less than $200,000 (in the aggregate for all Grantors).

4.6Investment Property. (a)  The Pledged Equity pledged by each Grantor hereunder constitute all the issued and outstanding equity interests of each Issuer owned by such Grantor and, in the case of any First-Tier Foreign Subsidiary, 65% of all issued and outstanding equity interests of such First-Tier Foreign Subsidiary.

(b)All of the Pledged Equity has been duly and validly issued and is fully paid and nonassessable.

(c)Each of the Intercompany Notes and, to the applicable Grantor’s knowledge, each of the other Pledged Notes in favor of such Grantor constitutes the legal, valid and binding obligation of the obligor with respect thereto, enforceable in accordance with its terms (subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing).

(d)Subject to quarterly updates to reflect any additions or changes thereto, Schedule 1 lists all Investment Property owned by each Grantor having a fair market value or remaining principal balance, as applicable, in excess of $250,000 as to each Grantor. Each Grantor is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except Permitted Liens.

10

4.7Receivables. (a)  No amount in excess of $200,000 payable to all such Grantors under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent.

(b)The amounts represented by such Grantor to the Lenders from time to time as owing to such Grantor in respect of the Receivables (to the extent such representations are required by any of the Loan Documents) will at all such times be accurate in all material respects; provided however that such amounts included in any Borrowing Base Certificate shall be accurate in all respects on the date represented in such Borrowing Base Certificate.

4.8Intellectual Property. (a)  Subject to quarterly updates to reflect any additions or changes thereto, Schedule 5 lists all material registered or applied for Intellectual Property owned by such Grantor in its own name on the date hereof.

(b)On the date hereof, all material Intellectual Property owned or licensed by any Guarantor is valid, subsisting, unexpired and enforceable and has not been abandoned.

(c)Subject to quarterly updates to reflect any additions or changes thereto, except as set forth in Schedule 5, none of the material Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor.

(d)Each Grantor owns and possesses or has a license or other right to use all Intellectual Property as is necessary for the conduct of the businesses of such Grantor, without any infringement upon rights of others which could reasonably be expected to have a Material Adverse Effect.

4.9Depositary and Other Accounts. All depositary and other accounts maintained by each Grantor are described on Schedule 6 hereto (subject to quarterly updates to reflect any additions or changes thereto), which description includes for each such account the name of the Grantor maintaining such account, the name, address, telephone and fax numbers of the financial institution at which such account is maintained, the account number of such account.

4.10Eligible Accounts. Each Account which the Grantors shall request the Administrative Agent to classify as an Eligible Account shall, as of the time when such request is made or deemed made, meet all requirements of and constitute an “Eligible Account” for purposes of the Credit Agreement at such time.

SECTION 5COVENANTS.

Each Grantor covenants and agrees with the Administrative Agent and the Lenders that, from and after the date of this Agreement until the Secured Obligations shall have been Paid in Full:

5.1Delivery of Instruments, Certificated Securities and Chattel Paper. If any amount payable under or in connection with any of the Collateral in excess of $250,000 (in the aggregate for all Grantors)shall be or become evidenced by any Instrument, Certificated Security or Chattel Paper, such Instrument, Certificated Security or Chattel Paper shall be

11

delivered to the Administrative Agent within five (5) Business Days of the applicable Grantor’s receipt thereof, duly indorsed in a manner reasonably satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Agreement. Notwithstanding the foregoing, in the event that an Event of Default shall have occurred and be continuing, upon the written request of the Administrative Agent, any Instrument, Certificated Security or Chattel Paper not theretofore delivered to the Administrative Agent and at such time being held by any Grantor shall be promptly delivered to the Administrative Agent, duly indorsed in a manner reasonably satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Agreement.

5.2Maintenance of Perfected Security Interest; Further Documentation. (a) Except with respect to actions affirmatively taken by the Administrative Agent with respect to its Liens or any failure by the Administrative Agent to continue any such Lien prior to the lapse thereof due to the passage of time, such Grantor shall maintain such security interest as a perfected security interest having at least the priority described in Section 4.2 and shall defend such security interest against the claims and demands of all Persons whomsoever.

(b)Such Grantor will furnish to the Administrative Agent and the Lenders from time to time statements and schedules further identifying and describing the assets and property of such Grantor and such other reports in connection therewith as the Administrative Agent may reasonably request, all in reasonable detail.

(c)At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, but not limited to, (i) filing any financing or continuation statements under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and, (ii) subject to Section 4.6(a) hereof in the case of Investment Property and any other relevant Collateral, taking any actions necessary or reasonably advisable to enable the Administrative Agent to obtain “control” (within the meaning of the applicable UCC) with respect thereto, including obtaining Account Control Agreements.

(d)Such Grantor shall not permit any of the Collateral with a fair market value in excess of $250,000, in aggregate for all Grantors to become a Fixture to any real property unless such real property is subject to a mortgage by such Grantor in favor of Administrative Agent.

5.3Changes in Locations, Name, etc. Such Grantor shall not, except upon twenty (20) days’ prior written notice to the Administrative Agent and delivery to the Administrative Agent of (a) all additional financing statements and other documents reasonably requested by the Administrative Agent as to the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to Schedule 4 showing any additional location at which Inventory or Equipment shall be kept (other than locations at which Inventory or Equipment shall be kept with a fair market value not to exceed $10,000 in the aggregate for each location and $300,000 in aggregate for all locations for all Grantors):

12

(i)permit any of the Inventory or Equipment (other than In-Transit Inventory or Inventory related to any “bill and hold” or consignment arrangement, with a fair market value not to exceed $10,000 in the aggregate for each location and $300,000 in the aggregate for all locations for all Grantors) to be kept at a location other than those listed on Schedule 4;

(ii)change its jurisdiction of organization or the location of its chief executive office from that specified on Schedule 3 or in any subsequent notice delivered pursuant to this Section 5.3; or

(iii)change its name, identity or corporate structure.

5.4Notices. Such Grantor will advise the Administrative Agent promptly, in reasonable detail, of:

(a)any Lien (other than Permitted Liens) on any of the Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies hereunder; and

(b)the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereby.

5.5Investment Property. (a)  If such Grantor shall become entitled to receive or shall receive any certificate, option or rights in respect of the equity interests (other than the equity interests not required to be pledged hereunder)  of any Issuer of Pledged Equity, whether in addition to, in substitution of, as a conversion of, or in exchange for, any of the Pledged Equity, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Administrative Agent and the Lenders, hold the same in trust for the Administrative Agent and the Lenders and, if certificated, deliver the same forthwith to the Administrative Agent in the exact form received, duly indorsed by such Grantor to the Administrative Agent, if required, together with an undated instrument of transfer covering such certificate duly executed in blank by such Grantor, to be held by the Administrative Agent, subject to the terms hereof, as additional Collateral for the Secured Obligations (and if uncertificated, shall promptly notify the Administrative Agent of its receipt thereof and take such actions as the Administrative Agent shall reasonably request to note the Administrative Agent’s Lien on such interest, right or option and to enable the Administrative Agent to exercise its rights with respect thereto (including the transfer thereof) upon the occurrence and during the continuance of an Event of Default without any action on the part of the Grantor). Upon the occurrence and during the continuance of an Event of Default, (i) any sums paid upon or in respect of the Investment Property upon the liquidation or dissolution of any Issuer shall be paid over to the Administrative Agent to be held by it hereunder as additional Collateral for the Secured Obligations, and (ii) in case any distribution of capital shall be made on or in respect of the Investment Property or any property shall be distributed upon or with respect to the Investment Property pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected Lien in favor of the Administrative Agent, be delivered to the Administrative Agent to be held by it hereunder as

13

additional Collateral for the Secured Obligations. Upon the occurrence and during the continuance of an Event of Default, if any sums of money or property so paid or distributed in respect of the Investment Property shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Administrative Agent, hold such money or property in trust for the Lenders, segregated from other funds of such Grantor, as additional Collateral for the Secured Obligations.

(b)Without the prior written consent of the Administrative Agent, such Grantor will not (i) vote to enable, or take any other action to permit, any Issuer of Pledged Equity to issue any equity interests of any nature or to issue any other securities or interests convertible into or granting the right to purchase or exchange for any equity interests of any nature of any Issuer of Pledged Equity, except, in each case, as permitted by the Credit Agreement, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Investment Property or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement) other than, with respect to Investment Property not constituting Pledged Equity or Pledged Notes, any such action which is not prohibited by the Credit Agreement, (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person other than such Grantor with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for Permitted Liens, or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Administrative Agent to sell, assign or transfer any of the Investment Property or Proceeds thereof, except, with respect to such Investment Property, shareholders’ agreements entered into by such Grantor with respect to Persons in which such Grantor maintains an ownership interest of 50% or less.

(c)In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Investment Property issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Section 5.5(a) with respect to the Investment Property issued by it and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to such Grantor with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 regarding the Investment Property issued by it.

5.6Receivables. (a)  Other than in the ordinary course of business consistent with the past practices of the Grantors and/or the Company and in amounts which are not material to such Grantor and as permitted by Section 11.14 of the Credit Agreement, such Grantor will not (i) grant any extension of the time of payment of any Receivable, (ii) compromise or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, (iv) allow any credit or discount whatsoever on any Receivable or (v) amend, supplement or modify any Receivable in any manner that could reasonably be expected to materially and adversely affect the value thereof; provided, however, that no Grantor shall take any such action at any time that an Event of Default then exists or would result therefrom; provided further that no Grantor shall take any action described in clause (v) above at any time that an Event of Default or an Unmatured Event of Default then exists or would result therefrom.

(b)Such Grantor will deliver to the Administrative Agent a copy of each material demand, notice or document received by it that questions or calls into doubt the validity

14

or enforceability of more than 5%of the aggregate amount of the then outstanding Receivables for all Grantors.

5.7Intellectual Property. (a)  Unless such Grantor, in its commercially reasonable business judgment determines that doing otherwise would be in its best commercial interest, such Grantor (either itself or through licensees) will (i) continue to use each Trademark material to its business in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Administrative Agent, for the benefit of itself and the Lenders, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not knowingly permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way.

(b)Unless such Grantor, in its commercially reasonable business judgment determines doing so would be in its best commercial interest, such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any Patent material to its business may become forfeited, abandoned or dedicated to the public.

(c)Unless such Grantor, in its commercially reasonable business judgment determines that doing otherwise would be in its best commercial interest, such Grantor (either itself or through licensees) (i) will employ each Copyright material to its business and (ii) will not (and will not knowingly permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of such Copyrights may become invalidated or otherwise impaired. Such Grantor will not (either itself or through licensees) do any act whereby any material portion of such Copyrights may fall into the public domain.

(d)Such Grantor (either itself or through licensees) will not do any act that knowingly uses any Intellectual Property material to its business to infringe the intellectual property rights of any other Person.

(e)Such Grantor will notify the Administrative Agent and the Lenders promptly if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding, such Grantor’s ownership of, or the validity of, any material Intellectual Property or such Grantor’s right to register the same or to own and maintain the same.

(f)Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Administrative Agent by the later of 30 days thereafter orconcurrently

15

with the next delivery of financial statements of the Borrowers pursuant to Section 10.1 of the Credit Agreement. Upon the request of the Administrative Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent’s and the Lenders’ security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby.

(g)Unless such Grantor, in its commercially reasonable business judgment determines doing so would be in its best commercial interest, such Grantor will take all reasonable and necessary steps to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of all material Intellectual Property owned by it.

(h)In the event that any material Intellectual Property is infringed upon or misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Grantor in its commercially reasonable business judgment determines that such Intellectual Property is of material economic value, promptly notify the Administrative Agent after it learns thereof and, to the extent, in its commercially reasonable business judgment, such Grantor determines it appropriate under the circumstances, sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution.

5.8Seller Undertakings.

(a)Each Grantor shall keep the Administrative Agent informed of all circumstances bearing upon any potential claim under or with respect to the Assigned Agreements and the Seller Undertakings that could have a materially adverse effect on the Administrative Agent and the Lenders and such Grantor shall not, without the prior written consent of the Administrative Agent, (i) waive any of its rights or remedies under any Assigned Agreement with respect to any of the Seller Undertakings in excess of $25,000, (ii) settle, compromise or offset any amount payable by the sellers to such Grantor under any Assigned Agreement in excess of $25,000 or (iii) amend or otherwise modify any Assigned Agreement in any manner which is materially adverse to the interests of the Administrative Agent or the Lenders.

(b)Each Grantor shall perform and observe all the material terms and conditions of each Assigned Agreement to be performed by it, maintain each Assigned Agreement in full force and effect (except such Assigned Agreement which, by its terms, has expired or terminated), enforce the material provisions of each Assigned Agreement in accordance with its terms as it deems appropriate in its reasonable business judgment and, after the occurrence and during the continuance of an Event of Default, take all such action to such end as may from time to time be reasonably requested by the Administrative Agent.

(c)Anything herein to the contrary notwithstanding, (i) each applicable Grantor shall remain liable under each Assigned Agreement to the extent set forth therein to perform all of its material duties and obligations thereunder to the same extent as if this

16

Agreement had not been executed, (ii) the exercise by the Administrative Agent of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under any Assigned Agreement and (iii) neither the Administrative Agent nor any other Lender shall have any obligation or liability under any Assigned Agreement by reason of this Agreement, nor shall the Administrative Agent or any other Lender be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

5.9Collection of Accounts. Administrative Agent may, at any time after the occurrence and during the continuance of an Event of Default, whether before or after notification to any Account Debtor and whether before or after the maturity of any of the Secured Obligations, (i) enforce collection of any of each Grantor’s Accounts or other amounts owed to a Grantor by suit or otherwise; (ii) exercise all of such Grantor’s rights and remedies with respect to proceedings brought to collect any Accounts or other amounts owed to such Grantor; (iii) surrender, release or exchange all or any part of any Accounts or other amounts owed to such Grantor, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder; (iv) sell or assign any Account of such Grantor or other amount owed to such Grantor upon such terms, for such amount and at such time or times as the Administrative Agent deems advisable; (v) prepare, file and sign such Grantor’s name on any proof of claim in bankruptcy or other similar document against any Account Debtor or other Person obligated to such Grantor; and (vi) do all other acts and things which are necessary or reasonably advisable, in the Administrative Agent’s commercially reasonable discretion, to fulfill such Grantor’s obligations under this Agreement and the Credit Agreements and to allow Administrative Agent to collect the Accounts or other amounts owed to such Grantor. In addition to any other provision hereof, Administrative Agent may at any time, after the occurrence and during the continuance of an Event of Default, at Grantors’ expense, notify any parties obligated on any of the Accounts to make payment directly to Administrative Agent of any amounts due or to become due thereunder.

5.10Other Matters.

(a)Grantors shall each use commercially reasonable efforts to cause to be delivered to the Administrative Agent a Collateral Access Agreement with respect to (a) each bailee with which such Grantor keeps Inventory or other assets as of the Closing Date with a fair market value in excess of $450,000 and (b) each landlord which leases real property (and the accompanying facilities) to any of the Grantors at which such Grantor keeps Inventory or other assets with a fair market value in excess of $250,000. Such requirement may be waived at the option of the Administrative Agent or may, in the discretion of the Administrative Agent after consultation with the Loan Party Representative, be substituted with a requirement to maintain a Rent Reserve as set forth in the Credit Agreement.

(b)Each Grantor authorizes the Administrative Agent to, at any time and from time to time, file financing statements, continuation statements, and amendments thereto that describe the Collateral as set forth herein or describe the collateral covered thereby as “all assets” of each Grantor, or words of similar effect, and which contain any other information required pursuant to the UCC for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, and each Grantor agrees to furnish any such information

17

to the Administrative Agent promptly upon request. Any such financing statement, continuation statement, or amendment may be signed and/or filed by the Administrative Agent on behalf of any Grantor and may be filed at any time in any jurisdiction.

(c)Each Grantor shall, at any time and from time and to time, take such steps as the Administrative Agent may reasonably request for the Administrative Agent (i) to obtain an acknowledgement, in form and substance reasonably satisfactory to the Administrative Agent, of any bailee having possession of any of the Collateral having a value in excess of $250,000, stating that the bailee holds such Collateral for the Administrative Agent, (ii) to obtain “control” of any letter-of-credit rights, or electronic chattel paper having a value in excess of $250,000 (as such terms are defined by the UCC with corresponding provisions thereof defining what constitutes “control” for such items of Collateral), with any agreements establishing control to be in form and substance reasonably satisfactory to the Administrative Agent, and (iii) otherwise to insure the continued perfection and priority of the Administrative Agent’s security interest in any of the Collateral and of the preservation of its rights therein. If any Grantor shall at any time, acquire a “commercial tort claim” (as such term is defined in the UCC) in excess of $250,000, such Grantor shall promptly notify the Administrative Agent thereof in writing and supplement Schedule 7, therein providing a reasonable description and summary thereof, and upon delivery thereof to the Administrative Agent, such Grantor shall be deemed to thereby grant to the Administrative Agent (and such Grantor hereby grants to the Administrative Agent) a security interest and lien in and to such commercial tort claim and all proceeds thereof, all upon the terms of and governed by this Agreement.

(d)Without limiting the generality of the foregoing, if any Grantor at any time holds or acquires an interest in any electronic chattel paper or any “transferable record”, as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in §16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction having a value greater than $250,000, such Grantor shall promptly notify the Administrative Agent thereof and, at the request of the Administrative Agent, shall take such action as the Administrative Agent may reasonably request to vest in the Administrative Agent “control” under Section 9-105 of the UCC of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, §16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.

(e)Subject to Section 10.2 of the Credit Agreement, each Grantor shall permit during regular business hours and with reasonable prior notice (or at any time without notice if an Event of Default has occurred and is continuing) the Administrative Agent and the Lenders to examine any of the Collateral and wherever the Collateral may be located. Each Grantor shall, at the request of the Administrative Agent, indicate on its records concerning the Collateral a notation, in form reasonably satisfactory to the Administrative Agent, of the security interest of the Administrative Agent hereunder.

(f)Each Grantor shall (x) use its commercially reasonable efforts to obtain the consent to the assignment thereof or the granting of a security interest by such Grantor to the Administrative Agent of the applicable parties to any Restricted Agreement entered into after the date of this Agreement which contains a restriction or prohibition on the assignment of, or grant

18

of a security interest in the right to receive payments and other Proceeds with respect to, or the Goods produced under, such Restricted Agreement (provided however that such Grantor’s commercially reasonable efforts shall not include the requirement that such Grantor pay any fees to any other party of a Restricted Agreement to obtain a consent to the assignment thereof or a grant of a security interest therein), and (y) shall provide the Administrative Agent with monthly updates to Schedules 1.1A and 1.1B to reflect any additions to or changes in such schedules.

SECTION 6REMEDIAL PROVISIONS.

6.1Certain Matters Relating to Receivables. (a)  At any time after the occurrence and during the continuance of an Event of Default, the Administrative Agent (through its officers, employees or agents) shall have the right to make test verifications of the Receivables in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Administrative Agent may reasonably require in connection with such test verifications. At any time after the occurrence and during the continuance of an Event of Default, upon the Administrative Agent’s request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others reasonably satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, agings and test verifications of, and trial balances for, the Receivables.

(b)The Administrative Agent hereby authorizes each Grantor to collect such Grantor’s Receivables, and the Administrative Agent may curtail or terminate such authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any event, within 1 Business Day) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Administrative Agent if required, in a collateral account maintained under the sole dominion and control of the Administrative Agent, subject to withdrawal by the Administrative Agent for the account of the Lenders only as provided in Section 6.5, and (ii) until so turned over, shall be held by such Grantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Grantor. If required by the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, each such deposit of Proceeds of Receivables shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit.

(c)At any time after the occurrence and during the continuance of an Event of Default, at the Administrative Agent’s request, each Grantor shall deliver to the Administrative Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including all original orders, invoices and shipping receipts in such Grantor’s possession.

(d)Each Grantor hereby irrevocably authorizes and empowers the Administrative Agent, in the Administrative Agent’s sole discretion, at any time after the occurrence and during the continuance of an Event of Default, to assert, either directly or on behalf of such Grantor, any claim such Grantor may from time to time have against the sellers under or with respect to the Assigned Agreements and to receive and collect any and all

19

damages, awards and other monies resulting therefrom and to apply the same to the Secured Obligations. Each Grantor hereby irrevocably makes, constitutes and appoints the Administrative Agent as its true and lawful attorney in fact for the purpose of enabling the Administrative Agent to, after the occurrence and during the continuance of an Event of Default, assert and collect such claims and to apply such monies in the manner set forth above, which appointment, being coupled with an interest, is irrevocable.

6.2Communications with Obligors; Grantors Remain Liable. (a)  The Administrative Agent in its own name or in the name of others may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables to verify with them to the Administrative Agent’s satisfaction the existence, amount and terms of any Receivables.

(b)Anything herein to the contrary notwithstanding, each Grantor shall remain liable in respect of each of the Receivables to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither the Administrative Agent nor any Lender shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Administrative Agent or any Lender of any payment relating thereto, nor shall the Administrative Agent or any Lender be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Receivable (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

(c)For the purpose of enabling the Administrative Agent to exercise rights and remedies under this Agreement, each Grantor hereby grants to the Administrative Agent, for the benefit of the Administrative Agent and the Lenders, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor) to, during the continuance of an Event of Default, use, license or sublicense for such purpose any Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and, to the extent permitted by terms of the applicable underlying agreement, all computer software and programs used for the compilation or printout thereof.

6.3Investment Property. (a)  Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given written notice to the relevant Grantor of the Administrative Agent’s intent to exercise its corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash dividends and distributions paid in respect of the Pledged Equity and all payments made in respect of the Pledged Notes, to the extent permitted in the Credit Agreement, and to exercise all voting and other rights with respect to the Investment Property; provided, that no vote shall be cast or other right exercised or action taken which would or would reasonably be likely to impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document.

20

(b)If an Event of Default shall occur and be continuing and the Administrative Agent shall give written notice of its intent to exercise such rights to the relevant Grantor or Grantors, (i) the Administrative Agent shall have the right to receive any and all cash dividends and distributions, payments or other Proceeds paid in respect of the Investment Property and make application thereof to the Secured Obligations in accordance with Section 6.5 hereof, and (ii) any or all of the Investment Property shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (x) all voting and other rights pertaining to such Investment Property at any meeting of holders of the equity interests of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property as if it were the absolute owner thereof (including the right to exchange at its discretion any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate or other structure of any Issuer, or upon the exercise by any Grantor or the Administrative Agent of any right, privilege or option pertaining to such Investment Property, and in connection therewith, the right to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except for the Administrative Agent’s gross negligence or willful misconduct and except to account for property actually received by it, but the Administrative Agent shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

(c)Each Grantor hereby authorizes and instructs each Issuer under the control of such Grantor of any Investment Property pledged by such Grantor hereunder to (i) comply with any instruction received by it from the Administrative Agent in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying and (ii) unless otherwise expressly permitted by this Agreement or other Loan Documents, pay any dividends, distributions or other payments with respect to the Investment Property directly to the Administrative Agent.

6.4Proceeds to be Turned Over to Administrative Agent. In addition to the rights of the Administrative Agent and the Lenders specified in Section 6.1 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all Proceeds received by any Grantor consisting of cash, checks and other cash equivalent items shall be held by such Grantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Administrative Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Administrative Agent, if required). All such Proceeds received by the Administrative Agent under this Section 6.4 shall be held by the Administrative Agent in a collateral account maintained under its sole dominion and control. All such Proceeds, while held by the Administrative Agent in any collateral account (or by such Grantor in trust for the Administrative Agent and the Lenders) established pursuant hereto, shall continue to be held as collateral security for the Secured Obligations and shall not constitute payment thereof until applied as provided in Section 6.5.

21

6.5Application of Proceeds. At such intervals as may be elected by the Administrative Agent upon its receipt of any payments or Net Cash Proceeds in respect of the Secured Obligations, the Administrative Agent may or, if an Event of Default shall have occurred and be continuing, upon its receipt of any payments or Net Cash Proceeds in respect of the Secured Obligations, the Administrative Agent shall apply all or any part of Net Cash Proceeds from the sale of, or other realization upon, all or any part of the Collateral in payment of the Secured Obligations as set forth below (subject to the terms of the Credit Agreement). Any part of such funds which the Administrative Agent elects not so to apply and deems not required as collateral security for the Secured Obligations shall be paid over from time to time by the Administrative Agent to the applicable Grantor or to whomsoever may be lawfully entitled to receive the same. Any balance of such Net Cash Proceeds remaining after the Secured Obligations shall have been Paid in Full shall be paid over to the applicable Grantor or to whomsoever may be lawfully entitled to receive the same. In the absence of a specific determination by the Administrative Agent, and at all times during the continuation of an Event of Default, the Net Cash Proceeds from the sale of, or other realization upon, all or any part of the Collateral in payment of the Secured Obligations shall be applied in the following order:

FIRST, TO THE PAYMENT OF ALL FEES, REASONABLE COSTS, REASONABLE EXPENSES AND INDEMNITIES OF THE ADMINISTRATIVE AGENT (IN ITS CAPACITY AS SUCH), INCLUDING ATTORNEY COSTS, AND ANY OTHER SECURED OBLIGATIONS THEN DUE AND PAYABLE TO THE ADMINISTRATIVE AGENT IN RESPECT OF SUMS ADVANCED BY THE ADMINISTRATIVE AGENT TO PRESERVE THE COLLATERAL OR TO PRESERVE ITS SECURITY INTEREST IN THE COLLATERAL, UNTIL PAID IN FULL;

SECOND, TO THE PAYMENT OF ALL FEES, REASONABLE COSTS, REASONABLE EXPENSES AND INDEMNITIES OF THE LENDERS, PRO-RATA, UNTIL PAID IN FULL;

THIRD, TO THE PAYMENT OF ALL OF THE SECURED OBLIGATIONS CONSISTING OF ACCRUED AND UNPAID INTEREST THEN DUE AND PAYABLE TO THE LENDERS, PRO-RATA, UNTIL PAID IN FULL;

FOURTH, TO THE PAYMENT OF ALL SECURED OBLIGATIONS CONSISTING OF PRINCIPAL THEN DUE AND PAYABLE TO THE LENDERS, PRO-RATA, UNTIL PAID IN FULL;

FIFTH, TO THE PAYMENT OF THE ADMINISTRATIVE AGENT AN AMOUNT EQUAL TO ALL SECURED OBLIGATIONS IN RESPECT OF ALL OUTSTANDING LETTERS OF CREDIT, IF ANY, TO BE HELD AS CASH COLLATERAL IN RESPECT OF SUCH OBLIGATIONS;

SIXTH, TO THE PAYMENT OF ALL BANK PRODUCTS OBLIGATIONS AND SPECIFIED HEDGING OBLIGATIONS THEN DUE AND PAYABLE TO ANY LENDER OR ITS AFFILIATES, PRO-RATA, UNTIL PAID IN FULL;

22

SEVENTH, TO THE PAYMENT OF ALL OTHER SECURED OBLIGATIONS THEN DUE AND PAYABLE TO EACH LENDER, PRO-RATA, UNTIL PAID IN FULL; AND

EIGHTH, THE REMAINING PROCEEDS, IF ANY, TO THE GRANTORS OR TO WHOMEVER MAY BE LAWFULLY ENTITLED TO RECEIVE SUCH AMOUNTS.

6.6Code and Other Remedies. If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Lenders, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC or any other applicable law. Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate, realize upon and take possession of the Collateral, or any part thereof (in addition to Collateral of which it already has possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may enter onto any of Grantor’s premises where any of the Collateral may be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of, and Administrative Agent shall have the right to store the same at any of Grantor’s premises without cost to Administrative Agent or any Lender in each case, subject to the terms of the applicable lease agreement and Collateral Access Agreements with respect to premises leased by Grantor. The Administrative Agent may forthwith sell, lease, assign, give options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Administrative Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery with assumption of any credit risk. The Administrative Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Each Grantor further agrees, at the Administrative Agent’s request and at each Grantor’s expense, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Grantor’s premises or elsewhere. The Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.6, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the Lenders hereunder, including Attorney Costs, as provided in Section 6.5. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Administrative Agent or any Lender arising out of the exercise by them of any rights hereunder, except claims, damages and demands related to Administrative Agent or any Lender’s gross negligence, willful misconduct or bad faith. If any notice of a proposed sale

23

or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

6.7Registration Rights. (a)  If the Administrative Agent shall determine to exercise its right to sell any or all of the Pledged Equity in any Domestic Wholly-Owned Subsidiary (as defined in the Credit Agreement) pursuant to Section 6.6, and if in the opinion of the Administrative Agent it is necessary or reasonably advisable to have the Pledged Equity in any Subsidiary, or that portion thereof to be sold, registered under the provisions of the Securities Act, the relevant Grantor will cause the Issuer thereof to (i) execute and deliver, and cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the reasonable opinion of the Administrative Agent or its counsel, necessary or advisable to register the Pledged Equity, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use commercially reasonable efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of the Pledged Equity, or that portion thereof to be sold, and (iii) make all amendments thereto and/or to the related prospectus which, in the reasonable opinion of the Administrative Agent or its counsel, are necessary or reasonably advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. Each Grantor agrees to cause such Issuer to comply with the provisions of the securities or “Blue Sky” laws of any and all jurisdictions which the Administrative Agent shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act.

(b)Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Pledged Equity, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Administrative Agent shall be under no obligation to delay a sale of any of the Pledged Equity for the period of time necessary to permit the Issuer thereof to register such securities or other interests for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so.

(c)Each Grantor agrees to use commercially reasonable efforts to do or cause to be done all such other acts as may be reasonably necessary to make such sale or sales of all or any portion of the Pledged Equity pursuant to this Section 6.7 valid and binding and in compliance with applicable law. Each Grantor further agrees that a breach of any of the covenants contained in this Section 6.7 will cause irreparable injury to the Administrative Agent and the Lenders, that the Administrative Agent and the Lenders have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such

24

covenants except for a defense that no Event of Default has occurred under the Credit Agreement.

6.8Waiver; Deficiency. Each Grantor waives and agrees not to assert any rights or privileges which it may acquire under Section 9-626 of the UCC. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Secured Obligations in full and the reasonable fees and disbursements of any attorneys employed by the Administrative Agent or any Lender to collect such deficiency.

SECTION 7THE ADMINISTRATIVE AGENT.

7.1Administrative Agent’s Appointment as Attorney-in-Fact, etc. (a)  Each Grantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be reasonably necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Administrative Agent the power and right, on behalf of and at the expense of such Grantor, without notice to or assent by such Grantor, to do any or all of the following:

(i)in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed reasonably appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due under any Receivable or with respect to any other Collateral whenever payable;

(ii)in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent’s security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby;

(iii)discharge Liens levied or placed on or threatened against the Collateral (other than Permitted Liens), and effect any repairs or insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

(iv)execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

(v)(1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other

25

amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Administrative Agent may deem reasonably appropriate; (7) assign any Copyright, Patent or Trademark, in each case, that is subject to the Lien of the Administrative Agent granted pursuant to any Loan Document, throughout the world for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its reasonable discretion determine; (8) vote any right or interest with respect to any Investment Property; (9) order good standing certificates and conduct lien searches in respect of such jurisdictions or offices as the Administrative Agent may deem reasonably appropriate; and (10) generally sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent’s option and such Grantor’s expense, at any time, or from time to time, all acts and things which the Administrative Agent deems reasonably necessary to protect, preserve or realize upon the Collateral and the Administrative Agent’s security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

Anything in this Section 7.1(a) or any other Loan Document to the contrary notwithstanding, the Administrative Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing.

(b)If any Grantor fails to perform or comply with any of its agreements contained herein, the Administrative Agent, at its option, but without any obligation so to do, may, after written notice to such Grantor, perform or comply, or otherwise cause performance or compliance, with such agreement.

(c)Each Grantor hereby ratifies all that such attorneys in fact shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the Secured Obligations are Paid in Full.

7.2Duty of Administrative Agent. The Administrative Agent’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent or any Lender nor any of their respective officers, directors, employees or agents shall be liable for any failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any

26

other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Administrative Agent and the Lenders hereunder are solely to protect the Administrative Agent’s and the Lenders’ interests in the Collateral and shall not impose any duty upon the Administrative Agent or any Lender to exercise any such powers. The Administrative Agent and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither the Administrative Agent, nor any Lender nor any of their respective officers, directors, employees or agents shall be responsible to any Grantor for any act (except for the Administrative Agent’s or any Lender’s gross negligence or willful misconduct in so acting) or failure to act hereunder.

7.3Authority of Administrative Agent. Each Grantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Grantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority.

SECTION 8MISCELLANEOUS.

8.1Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 15.1 of the Credit Agreement.

8.2Notices. All notices, requests and demands to or upon the Administrative Agent or any Grantor hereunder shall be addressed to the Administrative Agent or Loan Party Representative, respectively, and effected in the manner provided for in Section 15.3 of the Credit Agreement and each Grantor hereby appoints the Loan Party Representative as its agent to give and receive notices hereunder and the Administrative Agent shall be fully protected and held harmless by the Grantors hereunder for relying on any such notice reasonably believed by it to have been delivered by the Loan Party Representative.

8.3Indemnification by Grantors. THE GRANTORS, JOINTLY AND SEVERALLY, HEREBY AGREE TO INDEMNIFY AND HOLD EACH LENDER PARTY  FREE AND HARMLESS FROM AND AGAINST ANY AND ALL INDEMNIFIED LIABILITIES, INCURRED BY THE LENDER PARTIES OR ANY OF THEM AS A RESULT OF, OR ARISING OUT OF, OR RELATING TO (A) ANY TENDER OFFER, MERGER, PURCHASE OF EQUITY INTERESTS, PURCHASE OF ASSETS (INCLUDING THE RELATED TRANSACTIONS) OR OTHER SIMILAR TRANSACTION FINANCED OR PROPOSED TO BE FINANCED IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, WITH THE PROCEEDS OF ANY OF THE LOANS, (B) THE PAST, PRESENT OR FUTURE PRESENCE, USE, HANDLING, RELEASE OR THREAT OF RELEASE, EMISSION, DISCHARGE, TRANSPORTATION, STORAGE, TREATMENT OR DISPOSAL OF ANY HAZARDOUS SUBSTANCE AT OR AFFECTING ANY PROPERTY OWNED OR LEASED

27

BY ANY GRANTOR, (C) ANY VIOLATION OF ANY ENVIRONMENTAL LAWS WITH RESPECT TO CONDITIONS AT ANY PROPERTY OWNED OR LEASED BY ANY GRANTOR OR THE OPERATIONS CONDUCTED THEREON, (D) THE INVESTIGATION, CLEANUP OR REMEDIATION OF OFFSITE LOCATIONS AT WHICH ANY GRANTOR OR ITS RESPECTIVE PREDECESSORS ARE ALLEGED TO HAVE DIRECTLY OR INDIRECTLY DISPOSED OF HAZARDOUS SUBSTANCES OR (E) THE EXECUTION, DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BY ANY OF THE LENDER PARTIES, EXCEPT FOR ANY SUCH INDEMNIFIED LIABILITIES ARISING ON ACCOUNT OF THE APPLICABLE LENDER PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IF AND TO THE EXTENT THAT THE FOREGOING UNDERTAKING MAY BE UNENFORCEABLE FOR ANY REASON, EACH GRANTOR HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. ALL OBLIGATIONS PROVIDED FOR IN THIS SECTION 8.3 SHALL SURVIVE REPAYMENT OF ALL (AND SHALL BE) SECURED OBLIGATIONS (AND TERMINATION OF ALL COMMITMENTS UNDER THE CREDIT AGREEMENT), ANY FORECLOSURE UNDER, OR ANY MODIFICATION, RELEASE OR DISCHARGE OF, ANY OR ALL OF THE COLLATERAL DOCUMENTS AND TERMINATION OF THIS AGREEMENT.

8.4Enforcement Expenses. (a)  Each Grantor agrees, on a joint and several basis, to pay or reimburse within three (3) Business Days of demand each Lender and the Administrative Agent for all reasonable out-of-pocket costs and expenses (subject to the limitations on the number of counsel set forth in Section 15.5 of the Credit Agreement, including, without duplication of any provision of this Agreement, Attorney Costs) incurred in collecting against any Guarantor under the guaranty contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents.

(b)Each Grantor agrees to pay, and to save the Administrative Agent and the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay caused by any Grantor in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement.

(c)The agreements in this Section 8.4 shall survive repayment of all (and shall be) Secured Obligations (and termination of all commitments under the Credit Agreement), any foreclosure under, or any modification, release or discharge of, any or all of the Collateral Documents and termination of this Agreement.

8.5Captions. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

8.6Nature of Remedies. All Secured Obligations of each Grantor and rights of the Administrative Agent and the Lenders expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any

28

right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

8.7Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. Receipt by telecopy of any executed signature page to this Agreement or any other Loan Document shall constitute effective delivery of such signature page.

8.8Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

8.9Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof and any prior arrangements made with respect to the payment by any Grantor of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Administrative Agent or the Lenders.

8.10Successors; Assigns. This Agreement shall be binding upon Grantors, the Lenders and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of Grantors, Lenders and the Administrative Agent and the successors and assigns of the Lenders and the Administrative Agent. No other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. No Grantor may assign or transfer any of its rights or Obligations under this Agreement without the prior written consent of the Administrative Agent.

8.11Governing Law. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

8.12Forum Selection; Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE ADMINISTRATIVE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION IN WHICH COLLATERAL IS LOCATED. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE

29

JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH GRANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

8.13Waiver of Jury Trial. EACH GRANTOR, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

8.14Set-off. Each Grantor agrees that the Administrative Agent and each Lender have all rights of set-off and bankers’ lien provided by applicable law, and in addition thereto, each Grantor agrees that at any time any Event of Default occurs and is continuing, the Administrative Agent and each Lender may apply to the payment of any Secured Obligations, whether or not then due, any and all balances, credits, deposits, accounts or moneys of such Grantor then or thereafter with the Administrative Agent or such Lender.

8.15Acknowledgements. Each Grantor hereby acknowledges that:

(a)it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party;

(b)neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c)no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Grantors and the Lenders.

8.16Additional Grantors. Each Loan Party that is required to become a party to this Agreement pursuant to Section 10.10 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Loan Party of a joinder agreement in the form of Exhibit G to the Credit Agreement.

30

8.17Releases. (a)  At such time as the Secured Obligations have been Paid in Full, the Collateral shall be automatically released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of any Grantor concurrently with any such termination, the Administrative Agent shall deliver to the Grantors any Collateral held by the Administrative Agent hereunder, and execute and deliver to the Grantors such documents as the Grantors shall reasonably request to evidence such termination.

(b)If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Administrative Agent, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. At the request and sole expense of the Borrowers, a Guarantor shall be released from its obligations hereunder in the event that all the equity interests of such Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement; provided that the Borrowers shall have delivered to the Administrative Agent, with reasonable notice prior to the date of the proposed release, a written request for release identifying the relevant Guarantor and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Borrowers stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents.

8.18Obligations and Liens Absolute and Unconditional. Each Grantor understands and agrees that the obligations of each Grantor under this Agreement shall be construed as a continuing, absolute and unconditional without regard to (a) the validity or enforceability of any Loan Document, any of the Secured Obligations or any other collateral security therefor or guaranty or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Grantor or any other Person against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of any Grantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Grantor for the Secured Obligations, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Grantor, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any other Grantor or any other Person or against any collateral security or guaranty for the Secured Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from any other Grantor or any other Person or to realize upon any such collateral security or guaranty or to exercise any such right of offset, or any release of any other Grantor or any other Person or any such collateral security, guaranty or right of offset, shall not relieve any Grantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the

31

Administrative Agent or any Lender against any Grantor. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

8.19Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor or any Issuer for liquidation or reorganization, should Grantor or any Issuer become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Grantor’s or and Issuer’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference”, “fraudulent conveyance”, or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

[signature pages follow]

32

Each of the undersigned has caused this Guaranty and Collateral Agreement to be duly executed and delivered as of the date first above written.

KIDS LINE, LLC, a Delaware limited liability company
By:	/s/ John Wille
Name: John Wille
Title: Vice President, Treasurer and Assistant Secretary
SASSY, INC., an Illinois corporation
By:	/s/ John Wille
Name: John Wille
Title: Vice President, Treasurer and Assistant Secretary

LASALLE NATIONAL BANK ASSOCIATION, as Administrative Agent and Issuing Lender
By:	/s/ Steven E. Friedlander
Name:  Steven E. Friedlander
Title:  Senior Vice President

EX-4.12

Exhibit 4.12

Execution Copy

CREDIT AGREEMENT

dated as of March 14, 2006

among

RUSS BERRIE AND COMPANY, INC.,
as the Loan Party Representative

and

RUSS BERRIE U.S. GIFT, INC.,
RUSS BERRIE & CO. (WEST), INC.,
RUSS BERRIE AND COMPANY PROPERTIES, INC.,
RUSSPLUS, INC., AND
RUSS BERRIE AND COMPANY INVESTMENTS, INC.
as the Borrowers,

THOSE FINANCIAL INSTITUTIONS PARTY HERETO,
as Lenders,

LASALLE BUSINESS CREDIT, LLC,
as Administrative Agent  and Arranger,

and

LASALLE BANK NATIONAL ASSOCIATION,
as Issuing Bank

TABLE OF CONTENTS

								Page
SECTION 1.				DEFINITIONS				1
1.1		Definitions						1
1.2		Other Interpretive Provisions						29
SECTION 2.				COMMITMENTS OF THE LENDERS; BORROWING, CONVERSION AND LETTER OF CREDIT PROCEDURES				30
2.1		Commitments						30
		2.1.1					Revolving Loan Commitment	30
		2.1.2					[Intentionally Omitted]	31
		2.1.3					L/C Commitment	31
2.2		Loan Procedures						32
		2.2.1				Various Types of Revolving Loans		31
		2.2.2				Borrowing Procedures		32
		2.2.3				Conversion and Continuation Procedures		33
		2.2.4				Borrowing Representations and Warranties		34
2.3		Letter of Credit Procedures						34
		2.3.1			L/C Applications			34
		2.3.2			Participations in Letters of Credit			34
		2.3.3			Reimbursement Obligations			35
		2.3.4			Funding by the Lenders to Issuing Bank			36
2.4		Commitments Several						36
2.5		Certain Conditions						37
2.6		Loan Party Representative						37
2.7		Increase in Commitments						37
SECTION 3.			EVIDENCING OF REVOLVING LOANS					38
3.1		Notes						38
3.2		Recordkeeping						38
SECTION 4.			INTEREST					38
4.1	Interest Rates							38
4.2	Interest Payment Dates							38
4.3	Setting and Notice of LIBOR Rates							39

i

						Page
4.4	Computation of Interest						39
SECTION 5.			FEES				39
5.1	Non-Use Fee						39
5.2	Letter of Credit Fees						39
5.3	Administrative Agent’s Fees						40
5.4	Termination Fee						40
SECTION 6.			REDUCTION OR TERMINATION OF THE REVOLVING COMMITMENT LIMIT AND THE REVOLVING COMMITMENT; PREPAYMENTS				40
6.1	Reduction or Termination of the Revolving Commitment						40
	6.1.1				Voluntary Reduction or Termination of the Revolving Commitment		40
	6.1.2				[Intentionally Omitted]		40
	6.1.3				All Reductions of the Revolving Commitment		40
6.2	Prepayments						40
	6.2.1				Voluntary Prepayments		41
	6.2.2				Mandatory Prepayments		41
6.3	Manner of Prepayments						42
6.4	Repayments						42
	6.4.1				All Obligations		42
	6.4.2				Revolving Loans		42
SECTION 7.		MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES					42
7.1	Making of Payments						42
	7.1.1			Manner of Payment; Application of Payment			42
	7.1.2			Payment Authorization			43
	7.1.3			Settlement			43
7.2	Application of Certain Payments						44
7.3	Due Date Extension						44
7.4	Setoff						44
7.5	Proration of Payments						44
7.6	Taxes						45

ii

					Page
SECTION 8.				INCREASED COSTS; SPECIAL PROVISIONS FOR LIBOR LOANS	46
8.1	Increased Costs				46
8.2	Basis for Determining Interest Rate Inadequate or Unfair				47
8.3	Changes in Law Rendering LIBOR Loans Unlawful				48
8.4	Funding Losses				48
8.5	Right of Lenders to Fund through Other Offices				49
8.6	Discretion of Lenders as to Manner of Funding				49
8.7	Mitigation of Circumstances; Replacement of Lenders				49
8.8	Conclusiveness of Statements; Survival of Provisions				50
SECTION 9.				REPRESENTATIONS AND WARRANTIES	50
9.1		Organization			50
9.2		Authorization; No Conflict			50
9.3		Validity and Binding Nature			51
9.4		Financial Condition			51
9.5		No Material Adverse Change			51
9.6		Litigation and Contingent Liabilities			51
9.7		Ownership of Properties; Liens			51
9.8		Equity Ownership; Subsidiaries			52
9.9		Pension Plans			52
9.10		Investment Company Act			53
9.11		Public Utility Holding Company Act			53
9.12		Regulation U			53
9.13		Taxes			53
9.14		Solvency, etc			54
9.15		Environmental Matters			54
9.16		Insurance			55
9.17		Real Property			55
9.18		Information			55
9.19			Intellectual Property		56

iii

						Page
9.20	Burdensome Obligations					56
9.21	Labor Matters					56
9.22	No Default					56
9.23	Related Agreements, etc					56
9.24	[Intentionally Omitted]					57
9.25	Eligible Accounts and Eligible Inventory					57
9.26	Other Debt					57
9.27	Inactive Subsidiaries					57
SECTION 10.			AFFIRMATIVE COVENANTS			57
10.1		Reports, Certificates and Other Information				57
		10.1.1			Annual Report	57
		10.1.2			Interim Reports	58
		10.1.3			Compliance Certificates	59
		10.1.4			Reports to the SEC and to Shareholders	59
		10.1.5			Notice of Default, Litigation and ERISA Matters	59
		10.1.6			Borrowing Base Certificates	60
		10.1.7			Management Reports	61
		10.1.8			Projections	61
		10.1.9			Material Notices	61
		10.1.10			Asset Dispositions	61
		10.1.11			Other Information	61
10.2		Books, Records and Inspections				61
10.3		Maintenance of Property; Insurance				63
		10.3.1		Obligation to Maintain Properties		62
		10.3.2		Property Insurance		62
		10.3.3		Liability Insurance		63
		10.3.4		Forced Place Coverage		64
10.4		Compliance with Laws; Payment of Taxes and Liabilities				64
10.5		Maintenance of Existence, etc				65
10.6		[Intentionally Omitted]				65

iv

				Page
10.7	Use of Proceeds			65
10.8	Employee Benefit Plans			65
10.9	Environmental Matters			65
10.10	New Subsidiaries			66
10.11	Deposit Accounts			67
10.12	[Intentionally Omitted]			68
10.13	Appraisal of Inventory			69
10.14	Post-Closing Spin-Off Consents			69
SECTION 11.		NEGATIVE COVENANTS		69
11.1	Debt			69
11.2	Liens			70
11.3	Restricted Payments			72
11.4	Mergers, Consolidations, Sales and Other Transactions Outside the Ordinary Course of Business			73
11.5	Modification of Organizational Documents			74
11.6	Transactions with Affiliates			74
11.7	Unconditional Purchase Obligations			74
11.8	Inconsistent Agreements			75
11.9	Business Activities; Issuance of Equity			75
11.10	Investments			75
11.11	Restriction of Amendments to Certain Documents			77
11.12	Fiscal Year			77
11.13	Financial Covenants			77
	11.13.1		Excess Revolving Loan Availability	77
	11.13.2		Minimum EBITDA	77
	11.13.3		Capital Expenditures	78
	11.13.4		Fixed Charge Coverage Ratio	78
11.14	Cancellation of Debt			78
11.15	Creation of Subsidiaries			78
11.16	Inactive Subsidiaries			78

v

				Page
11.17	Commingling of Funds			79
SECTION 12.		EFFECTIVENESS; CONDITIONS OF LENDING, ETC		79
12.1	Initial Credit Extension			79
	12.1.1		List of Closing Documents	79
	12.1.2		Consents, etc	79
	12.1.3		Payment of Fees	79
	12.1.4		Excess Revolving Loan Availability	80
	12.1.5		Independent Collateral Field Audit Examination Documents	80
	12.1.6		Material Adverse Effect	80
	12.1.7		Due Diligence	80
	12.1.8		Litigation	80
	12.1.9		Projections	80
	12.1.10		Financial Statements	80
	12.1.11		Filings, Registrations and Recordings	81
	12.1.12		Insurance	81
	12.1.13		EDA Documents	81
	12.1.14		Capitalization and Structure	81
	12.1.15		Related Transactions	81
	12.1.16		Debt	81
	12.1.17		Sources and Uses of Funds	81
	12.1.18		Other	81
12.2	Conditions to Loans and Increase in Commitments			81
	12.2.1		Compliance with Warranties, No Default, etc	82
12.3	Confirmatory Certificate			82
SECTION 13.		EVENTS OF DEFAULT AND THEIR EFFECT		82
13.1	Events of Default			82
	13.1.1		Non-Payment of the Revolving Loans, etc	82
	13.1.2		Non-Payment of Other Debt	82
	13.1.3		Pledge Agreement Default	83
	13.1.4		Bankruptcy, Insolvency, etc	83

vi

				Page
	13.1.5		Non-Compliance with Loan Documents	83
	13.1.6		Representations; Warranties	83
	13.1.7		Pension Plans	83
	13.1.8		Judgments	84
	13.1.9		Loss of Collateral	84
	13.1.10		Levy, Seizure or Attachment	84
	13.1.11		Invalidity of Collateral Documents, etc	84
	13.1.12		Invalidity of Subordination Provisions, etc	84
	13.1.13		Change of Control	84
	13.1.14		EDA Matters	84
	13.1.15		Triggering Event	85
13.2	Effect of Event of Default			85
SECTION 14.		THE ADMINISTRATIVE AGENT		86
14.1	Appointment and Authorization			86
14.2	Issuing Bank			86
14.3	Delegation of Duties			86
14.4	Exculpation of Administrative Agent			86
14.5	Reliance by Administrative Agent			87
14.6	Notice of Default			87
14.7	Credit Decision			87
14.8	Indemnification			88
14.9	Administrative Agent in Individual Capacity			88
14.10	Successor Administrative Agent			89
14.11	Collateral Matters			89
14.12	Administrative Agent May File Proofs of Claim			90
14.13	Other Agents; Arrangers and Managers			90
SECTION 15.		GENERAL		91
15.1	Waiver; Amendments			91
15.2	Confirmations			91
15.3	Notices			91

vii

			Page
15.4	Computations		92
15.5	Costs, Expenses and Taxes		92
15.6	Assignments; Participations		93
	15.6.1	Assignments	93
	15.6.2	Participations	94
15.7	Register		94
15.8	GOVERNING LAW		95
15.9	Confidentiality		95
15.10	Severability		95
15.11	Nature of Remedies		96
15.12	Entire Agreement		96
15.13	Counterparts		96
15.14	Successors and Assigns		96
15.15	Captions		96
15.16	Patriot Act Notice		96
15.17	Indemnification by the Loan Parties		96
15.18	Nonliability of Lenders		97
15.19	FORUM SELECTION AND CONSENT TO JURISDICTION		98
15.20	WAIVER OF JURY TRIAL		98
15.21	Other Waivers		98
15.22	Joint and Several Liability		99
	15.22.1	Nature of Obligations	99
	15.22.2	No Fraudulent Conveyances	99
15.23	Revival and Reinstatement of Obligations		99

viii

ANNEXES
ANNEX A	Lenders and Pro Rata Shares
ANNEX B	Addresses for Notices
SCHEDULES
SCHEDULE 9.6	Litigation and Contingent Liabilities
SCHEDULE 9.8	Subsidiaries
SCHEDULE 9.9	Pension Plans
SCHEDULE 9.15	Environmental Matters
SCHEDULE 9.16	Insurance
SCHEDULE 9.17	Real Property
SCHEDULE 9.19	Intellectual Property
SCHEDULE 9.21	Labor Matters
SCHEDULE 9.23	Outstanding Consents
SCHEDULE 9.26	Other Debt
SCHEDULE 10.11	Specified Exempted Bank Accounts
SCHEDULE 11.2	Existing Liens
SCHEDULE 11.10	Investments
SCHEDULE 12.1	Debt to be Repaid
SCHEDULE 12.1.1	List of Closing Documents
EXHIBITS
EXHIBIT A	Form of Note (Section 3.1)
EXHIBIT B	Form of Compliance Certificate (Section 10.1.3)
EXHIBIT C	Form of Borrowing Base Certificate (Section 1.1)
EXHIBIT D	Form of Assignment Agreement (Section 15.6.1)
EXHIBIT E	Form of Notice of Borrowing (Section 2.2.2)
EXHIBIT F	Form of Notice of Conversion/Continuation (Section 2.2.3)
EXHIBIT G	Form of Intercompany Note
EXHIBIT H	Form of Joinder Agreement

ix

CREDIT AGREEMENT

THIS CREDIT AGREEMENT dated as of March 14, 2006 (this “Agreement”) is entered into by and among Russ Berrie and Company, Inc. (the “Company”), Russ Berrie U.S. Gift, Inc., a Delaware corporation(“Russ Gift”), Russ Berrie & Co. (West), Inc. (“Russ West”), Russ Berrie and Company Properties, Inc. (“Russ Properties”), Russplus, Inc. (“Russplus”), and Russ Berrie and Company Investments, Inc. (“Russ Investments”) (Russ Gift, Russ West, Russ Properties, Russplus, and Russ Investments are sometimes referred to herein collectively as the “Borrowers” and individually as a “Borrower”), the financial institutions that are or may from time to time become parties hereto as “Lenders” (and each being a “Lender”), LASALLE BANK NATIONAL ASSOCIATION, in its capacity as “Issuing Bank” hereunder, LASALLE BUSINESS CREDIT, LLC (in its individual capacity, “LaSalle”), as administrative agent (in such capacity, the “Administrative Agent”) for the Lenders.

The Lenders have agreed to make available to the Borrowers a revolving credit facility (which includes letters of credit) and the Issuing Bank has agreed to issue letters of credit for the Borrowers, upon the terms and conditions set forth herein.

In consideration of the mutual agreements herein contained, the parties hereto agree as follows:

SECTION 1.   DEFINITIONS.

1.1Definitions. When used herein the following terms shall have the following meanings:

Account Debtor is defined in the UCC.

Account or Accounts is defined in the UCC.

Account Control Agreement means a bank agency or other similar agreement with the Administrative Agent, the applicable Borrower and any financial institution at which such Borrower maintains a depositary or other account, in form and substance reasonably satisfactory to the Administrative Agent, in order to give the Administrative Agent “control” (as defined in the UCC) of such account.

Acquisition means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of all or substantially all of any business or division of a Person, (b) the acquisition of all of the outstanding Capital Securities (including the acquisition or termination of any rights, warrants or options to acquire the Capital Securities) of any Person, or otherwise causing any Person to become a Wholly-Owned Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is already a Wholly-Owned Subsidiary).

Administrative Agent means LaSalle in its capacity as administrative agent for itself, the Lenders and the Issuing Bank hereunder and any successor thereto in such capacity.

Affected Loan - see Section 8.3.

Affiliate of any Person means (a) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person, (b) any officer or director of such Person and (c) with respect to any Lender, any entity administered or managed by such Lender or an Affiliate or investment advisor thereof and which is engaged in making, purchasing, holding or otherwise investing in commercial loans. A Person shall be deemed to be “controlled by” any other Person if such Person possesses, directly or indirectly, power to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managers or power to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. Unless expressly stated otherwise herein, neither the Administrative Agent, the Issuing Bank nor any Lender shall be deemed an Affiliate of any Loan Party or Subsidiary.

Affiliated Account Debtors means, with respect to any Account Debtor, any other Account Debtor who, to the best of the Chief Financial Officer’s knowledge (including after written notice thereof from the Administrative Agent), controls, is controlled by, or is under common control with, such Account Debtor. For purposes of this definition, the meaning of “control” (including, with correlative meanings, “controlled by” and “under common control with”) is limited to the direct or indirect legal or beneficial ownership of more than fifty percent (50%) of the voting control or equity interests of an Account Debtor or an Affiliated Account Debtor.

Agent Account has the meaning set forth in the Guaranty and Collateral Agreement.

Agent Fee Letter means that certain letter agreement dated as of the Closing Date among the Borrowers and the Administrative Agent regarding fees payable to the Administrative Agent pursuant hereto.

Agreement - see the Preamble.

Applicable Margin means, subject to the provisions of Section 10.1.3, for any day, the rate per annum set forth below, it being understood that the “Applicable Margin” for (i) Revolving Loans which are designated as LIBOR Loans (the “LIBOR Margin”) shall be the percentage set forth under the column “LIBOR Margin,” (ii) Revolving Loans which are designated as Base Rate Loans (the “Base Rate Margin”) shall be the percentage set forth under the column “Revolving Loan Base Rate Margin,” (iii) the Non-Use Fee Rate shall be the percentage set forth under the column “Non-Use Fee Rate,” and (iv) the L/C Fee Rate shall be the percentage set forth under the column “L/C Fee Rate”:

LIBOR Margin		Base Rate Margin		Non-Use Fee Rate		L/C Fee Rate
2.75	%	1.25	%	0.50	%	2.75	%

Asset Disposition means the sale, lease (including any sale/leaseback), assignment or other transfer for value by any Loan Party to any Person (other than a Loan Party) of any asset or right of such Loan Party (including, the loss, destruction or damage of any thereof or any actual

2

condemnation, confiscation, requisition, seizure or taking thereof) (each, a “Disposition”), other than the sale, lease or other dispositions of Inventory in the ordinary course of business or any Disposition of Equipment sold in the ordinary course of the Loan Parties’ business and not having an aggregate book value of more than $200,000 in any Fiscal Year.

Assignment Agreement - see Section 15.6.1.

Attorney Costs means, with respect to any Person, all reasonable fees and charges of any counsel to such Person, the reasonable allocable cost of internal legal services of such Person, all reasonable disbursements of such internal counsel and all court costs and similar legal expenses, in each case, without duplication.

Back-Stop L/C means a Letter of Credit previously requested by the Borrowers in the original face amount of $7,388,356.16 to be issued on or after the Closing Date by the Issuing Bank for the benefit of The Bank of New York in lieu of posting cash collateral for the obligations of the Company under the EDA Standby L/C Reimbursement Agreement.

Bank Product Agreements means those certain cash management service agreements entered into from time to time between any Loan Party and LaSalle Bank, any Lender or any of their respective Affiliates in connection with any of the Bank Products.

Bank Product Obligations means all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by the Loan Parties to LaSalle Bank, any Lender or any of their respective Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that a Loan Party is obligated to reimburse to the Administrative Agent or LaSalle Bank, any Lender or any of their respective Affiliates as a result of the Administrative Agent or LaSalle Bank, any Lender or any of their respective Affiliates purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to the Loan Parties pursuant to the Bank Product Agreements.

Bank Products means any service or facility extended to any Loan Party by LaSalle Bank, any Lender or any of their respective Affiliates including:  (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH transactions, or (f) cash management, including controlled disbursement, accounts or services.

Bankruptcy Code means the United States Bankruptcy Code, Title 11 of United States Code (11 U.S.C. § 101, et seq.), together with the rules promulgated thereunder, in each case, as amended.

Base Rate means at any time the greater of (a) the Federal Funds Rate plus 0.5% and (b) the Prime Rate.

Base Rate Margin - see definition of Applicable Margin.

Base Rate Loan means any Revolving Loan which bears interest at or by reference to the Base Rate.

3

Berrie Commitment means, the letter agreement of March 13, 2006 from Angelica Berrie to the Board of Directors of the Company regarding her agreement to fund the full amount to effect the EDA Bond Redemption in accordance with the provisions of the EDA Indenture, by no later than March 20, 2006.

BNY/Administrative Agent Commitment means that certain letter agreement dated as of the Closing Date among the Administrative Agent, The Bank of New York, the Company and the Borrowers regarding the issuance of the Back-Stop L/C and the entry into the EDA Participation Agreement.

Board of Directors means, with respect to any Person, the board of directors of such Person or any committee thereof duly authorized to act on behalf of such board of directors.

Borrower and Borrowers  - see Preamble.

Borrowing Base means an amount equal to:

(A)the total of (a) up to 85% of the unpaid amount of all Eligible Accounts, plus (b) the lesser of (x) up to 65% of the value of all Eligible Inventory valued at the lower of cost or market, (y) up to 85% of the value of all Eligible Inventory valued at the Net Orderly Liquidation Value thereof as determined by the Administrative Agent from time to time in its commercially reasonable credit judgment after consultation with the Loan Party Representative, and (z) Fifteen Million Dollars ($15,000,000); minus

(B)the EDA Reserve, if any, as in effect at such time; minus

(C)the Rent Reserve, if any, in effect at such time; minus

(D)the estimated aggregate amount of the Specified Hedging Obligations as determined in good faith as between the Administrative Agent, the Loan Party Representative and the counterparty on such Specified Hedging Agreements; and minus

(E)such other reserves (without duplication) as the Administrative Agent elects, in its commercially reasonable credit judgment after consultation with the Loan Party Representative, to establish from time to time.

Borrowing Base Certificate means a certificate substantially in the form of Exhibit C.

Bright of America Note - see Section 11.14.

BSA - see Section 10.4.

Business Day means any day on which commercial banks are open for commercial banking business in Chicago, Illinois and New York, New York and, in the case of a Business Day which relates to a LIBOR Loan, on which dealings are carried on in the London interbank eurodollar market.

4

Canadian Agent means LaSalle Business Credit, a division of ABN AMRO Bank N.V., Canada Branch, a Canadian branch of a Netherlands bank.

Canadian Borrower means Amram’s Distributing Ltd., a corporation organized under the laws of Canada.

Canadian Guaranty means that certain Guaranty dated as of June 28, 2005 (as the same may be amended, restated, supplemented or otherwise modified from time to time), executed by the Company in favor of the Canadian Agent and guaranteeing the obligations owing by the Canadian Borrower under the Canadian Loan Documents.

Canadian Intercreditor Agreement means an intercreditor agreement between the Canadian Agent and the Administrative Agent in form and substance reasonably satisfactory to the Administrative Agent, pursuant to which the Canadian Agent shall, among other things, subordinate its rights to payments and to enforce its remedies, in each case, under the Canadian Guaranty, to those of the Lenders hereunder and under the other Loan Documents.

Canadian Lenders means the “Lenders” as defined under the Canadian Loan Agreement.

Canadian Loan Agreement means that certain Credit Agreement dated as of June 28, 2005 (as the same may be amended, restated, supplemented or otherwise modified from time to time), among the Canadian Agent, the Canadian Lenders and the Canadian Borrower and acknowledged by the Company.

Canadian Loan Documents means the “Loan Documents” as defined under the Canadian Loan Agreement.

Capital Expenditures means with respect to any Person all expenditures which, in accordance with GAAP, would be required to be capitalized and shown on the consolidated balance sheet of such Person, including expenditures in respect of Capital Leases; provided, that for the purposes of this Agreement, including the calculation of the Fixed Charge Coverage Ratio, the reinvestment of sale or insurance proceeds arising from a sale (permitted hereunder) or casualty loss of a capital asset in replacement capital assets having the same or substantially similar use as the affected capital asset shall not be included as a Capital Expenditure hereunder to the extent of such reinvestment.

Capital Lease means, with respect to any Person, any lease of (or other agreement conveying the right to use) any real, personal or mixed property by such Person that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of such Person.

Capital Securities means, with respect to any Person, all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person’s capital, whether now outstanding or issued or acquired after the Closing Date, including common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership, interests in a trust, interests in other unincorporated organizations or any other equivalent of such ownership interest.

5

Cash Collateralize means to deliver cash collateral to the Administrative Agent in the amount equal to 105% of the sum of (x) the aggregate Stated Amount plus (y) the aggregate amount of unpaid letter of credit fees then accrued and thereafter scheduled to accrue for the duration of the outstanding Letters of Credit pursuant to Section 5.2(a) and (b), to be held as cash collateral for outstanding Letters of Credit pursuant to documentation reasonably satisfactory to the Administrative Agent. Derivatives of such term have corresponding meanings.

Cash Equivalent Investment means, at any time, (a) any evidence of Debt, maturing not more than one year after such time, issued or guaranteed by the United States Government or any agency thereof, (b) commercial paper, maturing not more than one year from the date of issue, or corporate demand notes, in each case (unless issued by a Lender, its Affiliate or its holding company) rated at least A-2 by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. or P-2 by Moody’s Investors Service, Inc., (c) any certificate of deposit, time deposit or banker’s acceptance, maturing not more than one year after such time, or any overnight Federal Funds transaction that is issued or sold by LaSalle Bank or any Lender or its respective holding company (or by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $250,000,000), (d) any repurchase agreement entered into with any Lender (or commercial banking institution of the nature referred to in clause (c)) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) above and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such Lender (or other commercial banking institution) thereunder and (e) money market accounts or mutual funds in which 90% or more of the assets invested satisfy the foregoing requirements, and (f) other short term liquid investments approved in writing by the Administrative Agent.

Change of Control means each occurrence of any of the following:

(a)any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of 50.1% or more of the Capital Securities of the Company having the right to vote for the election of members of the Board of Directors of the Company,

(b)a majority of the members of the Board of Directors of the Company do not constitute Continuing Directors,

(c)the common stock of the Company ceases to be listed and traded on a national stock exchange;

(d)the Company ceases to own and control, directly or indirectly, 100% of the shares of the Capital Securities of each of the Borrowers, unless otherwise permitted hereunder,

(e)any Borrower ceases to own and control, directly or indirectly, 100% of the shares of the Capital Securities of any Loan Party which is its Subsidiary, unless otherwise permitted hereunder, or

6

(f)(i) the Company consolidates with or merges with or into another entity (other than a Loan Party that is a Domestic Wholly-Owned Subsidiary of the Company) and is not the surviving entity or (ii) conveys, transfers or leases all or substantially all of its property and assets to any Person (other than a Loan Party that is a Domestic Wholly-Owned Subsidiary of the Company).

Chief Financial Officer means the chief financial officer of the Company.

Closing Date - see Section 12.1.

Code means the Internal Revenue Code of 1986.

Collateral has the meaning set forth in the Guaranty and Collateral Agreement.

Collateral Access Agreement means an agreement in form and substance reasonably satisfactory to the Administrative Agent pursuant to which a mortgagee or lessor of real property on which Collateral is stored or otherwise located, or a warehouseman, processor or other bailee of Inventory or other property owned by any Loan Party, acknowledges the Liens of the Administrative Agent and waives or, in the reasonable discretion of the Administrative Agent, subordinates on terms reasonably acceptable to the Administrative Agent, any Liens held by such Person on such property, and, in the case of any such agreement with a mortgagee or lessor, permits the Administrative Agent reasonable access to and use of such real property following the occurrence and during the continuance of an Event of Default to assemble, complete and sell any Collateral stored or otherwise located thereon.

Collateral Documents means, collectively, the Guaranty and Collateral Agreement, the Pledge Agreement, each Mortgage, each Collateral Access Agreement, each Account Control Agreement and any other agreement or instrument pursuant to which any Loan Party, the Company, any Subsidiary or any other Person grants or purports to grant Collateral to the Administrative Agent for the benefit of the Lenders or otherwise relates to such Collateral.

Commitment means, as to any Lender, such Lender’s commitment to make Revolving Loans and/or to issue or participate in Letters of Credit, in each case, under this Agreement and “Commitments” means the sum of all such Commitments of all Lenders, in each case, as the same may, from time to time, be increased or supplemented pursuant to Section 2.7 or reduced pursuant to Section 6.1.1. The initial amount of each Lender’s Commitment to make Revolving Loans is set forth on Annex A.

Company - see Preamble.

Compliance Certificate means a Compliance Certificate in substantially the form of Exhibit B.

Computation Period means each period of four consecutive Fiscal Quarters ending on the last day of a Fiscal Quarter.

Consolidated Net Income means, with respect to the Borrowers and their consolidated Subsidiaries, on a consolidated basis, for any period, the net income (or loss) of the Borrowers

7

and their consolidated Subsidiaries for such period, in each case, determined in accordance with GAAP, but excluding any extraordinary after-tax gains and losses, any non-recurring gains or losses, or any non-cash gains or losses from Asset Dispositions,any non-cashrestructuring charges,any tax refunds, net operating losses orother net tax benefits and any after-tax gains and losses from discontinued operations.

Contingent Liability means, with respect to any Person, each obligation and liability of such Person and all such obligations and liabilities of such Person incurred pursuant to any agreement, undertaking or arrangement by which such Person:  (a) guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, dividend, obligation or other liability of any other Person in any manner (other than by endorsement of instruments in the course of collection), including any indebtedness, dividend or other obligation which may be issued or incurred at some future time; (b) guarantees the payment of dividends or other distributions upon the Capital Securities of any other Person; (c) undertakes or agrees (whether contingently or otherwise):  (i) to purchase, repurchase, or otherwise acquire any indebtedness, obligation or liability of any other Person or any property or assets constituting security therefor, (ii) to advance or provide funds for the payment or discharge of any indebtedness, obligation or liability of any other Person (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, working capital or other financial condition of any other Person, or (iii) to make payment to any other Person other than for value received; (d) agrees to lease property or to purchase securities, property or services from such other Person with the purpose or intent of assuring the owner of such indebtedness or obligation of the ability of such other Person to make payment of the indebtedness or obligation; (e) to induce the issuance of, or in connection with the issuance of, any letter of credit for the benefit of such other Person; or (f) undertakes or agrees otherwise to assure a creditor against loss. The amount of any Contingent Liability shall (subject to any limitation set forth herein) be deemed to be the outstanding principal amount (or maximum permitted principal amount, if larger) of the indebtedness, obligation or other liability guaranteed or supported thereby. The term “Contingent Liability” shall exclude endorsements of instruments for deposit or collection in the ordinary course of business and product warranties extended in the ordinary course of business.

Continuing Director means (a) any member of the Board of Directors of the Company who was a director (or comparable manager) of the Company on the Closing Date, and (b) any individual who becomes a member of the Board of Directors of the Company after the Closing Date if such individual was appointed or nominated for election to the Board of Directors of the Company by a majority of the Continuing Directors of the Company.

Controlled Group means all members of a controlled group of corporations, all members of a controlled group of trades or businesses (whether or not incorporated) under common control and all members of an affiliated service group which, together with the Company and its Subsidiaries, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

8

Debt means, with respect to any Person means, without duplication, (a) all indebtedness of such Person, (b) all borrowed money of such Person, whether or not evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person as lessee under Capital Leases which have been or should be recorded as liabilities on a balance sheet of such Person in accordance with GAAP, (d) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable or other accounts payable incurred in the ordinary course of such Person’s business), (e) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person; provided that if such Person has not assumed or otherwise become liable for such indebtedness, such indebtedness shall be measured at the fair market value of such property securing such indebtedness at the time of determination, (f) all obligations, contingent or otherwise, with respect to the face amount of all letters of credit (whether or not drawn), bankers’ acceptances and similar obligations issued for the account of such Person (including the Letters of Credit), (g) all Hedging Obligations of such Person, (h) all Contingent Liabilities of such Person, (i) all Debt of any partnership of which such Person is a general partner, (j) all monetary obligations of such Person under (i) so called synthetic, off-balance sheet or tax retention leases (solely for purposes of calculating compliance with the financial covenants set forth in Section 11.13, discounted to present value at a reasonable capitalization rate fixed reasonably acceptable to the Administrative Agent), or (ii) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment), (k) any Capital Securities or other equity instrument, whether or not mandatorily redeemable, that under GAAP is characterized as debt, whether pursuant to Financial Accounting Standards Board Issuance No. 150 or otherwise, and (l) the Restricted Debt.

Debt to be Repaid means Debt listed on Schedule 12.1.

Defaulting Lender – see Section 2.1.1(c).

Designated Proceeds - see Section 6.2.2.

Disposition – see the definition of “Asset Disposition.”

Disproportionate Advance – see Section 2.2.2(i).

Dollar and the sign “$” mean lawful money of the United States of America.

Domestic Wholly-Owned Subsidiary means any wholly-owned direct or indirect Subsidiary of a Loan Party (other than any Inactive Subsidiary) which is organized under the laws of any state in the United States of America. Unless the context otherwise requires, each reference to a Domestic Wholly-Owned Subsidiary herein shall be a reference to a Domestic Wholly-Owned Subsidiary of a Borrower.

Earnout Consideration means the “Earnout Consideration” as defined in the Kids Line Purchase Agreement as in effect on the date hereof (without giving effect to any amendment or other modification thereof after the Closing Date, except to the extent expressly permitted

9

hereunder). As used herein, the term “Earnout Consideration” shall also include any payments in respect of any guaranty of the Earnout Consideration.

Earnout Security Documents means, collectively, that certain Guaranty, dated as of December 15, 2004, executed by the Company and each of its subsidiaries party thereto in favor of the Earnout Sellers Agent (as amended as of the Closing Date to, among other things, partially release the Company and fully-release each of the Borrowers therefrom), that certain Subordinated Security Agreement, dated as of December 15, 2004 (as amended as of the Closing Date to, among other things, release the Company and each of the Borrowers therefrom), executed by the Company and certain of its subsidiaries in favor of the Earnout Sellers Agent for the benefit of the Earnout Sellers as security for such Person’s obligations with respect to payment (or guaranty of payment) of the Earnout Consideration, that certain Subordinated Mortgage by and from Sassy to the Earnout Sellers Agent, dated as of January 28, 2005, and any other agreement, instrument, and other document executed and delivered pursuant thereto or related to such security interests, in each case as in effect on the date hereof (without giving effect to any amendment or other modification thereof after the Closing Date except to the extent expressly permitted hereunder).

Earnout Sellers means, collectively, the “Deferred Payout Sellers” as defined in the Kids Line Purchase Agreement as in effect on the date hereof (without giving effect to any amendment or other modification thereof after the Closing Date, except to the extent expressly permitted hereunder).

Earnout Sellers Agent means California KL Holdings, Inc., a California corporation, as agent for the Earnout Sellers.

Earnout Subordination Agreement means that certain Subordination Agreement dated as of the Closing Date (as amended, restated, supplemented or otherwise defined from time to time in accordance with the terms hereof) among LaSalle Bank National Association, in its capacity as administrative agent, the Earnout Sellers and the Earnout Seller’s Agent.

EBITDA means, for any period, with respect to the Borrowers and their consolidated Subsidiaries on a consolidated basis, Consolidated Net Income for such period plus (minus), to the extent deducted (added) in determining such Consolidated Net Income, (i) Interest Expense, (ii) income tax expense, (iii) depreciation, (iv) amortization, (v) other non-cash charges (gains), (vi) if expensed, reasonable costs, expenses and fees incurred in connection with the negotiation, execution and delivery of the Loan Documents, the Canadian Loan Documents, and the financings contemplated thereby and by the Spin-Off and (vii) non-cash transaction losses (gains) due solely to fluctuations in currency values, in each case, during such period.

EDA means the New Jersey Economic Development Authority, a public bodycorporate and politic constituting an instrumentality of the State of New Jersey.

EDA Bondholders means, collectively, the holders of EDA Bonds.

EDA Bond Indenture means that certain Indenture of Trust dated as of December 1, 1983 by the EDA and the EDA Bond Trustee with respect to the EDA Bonds.

10

EDA Bond Redemption means the redemption or repayment in full, in cash (unfinanced by the Company or any of its Subsidiaries), and cancellation, of all EDA Bonds (including the payment of all accrued interest and fees) in accordance with the terms of the EDA Bond Indenture, the satisfaction and termination, in full and in cash, of all obligations of the Company under the EDA Standby L/C Reimbursement Agreement and the EDA Guaranty, and the termination and release of all Liens securing the EDA Bonds, the EDA Guaranty, the EDA Loan Agreement and the EDA Standby L/C Reimbursement Agreement.

EDA Bonds means, collectively, the Variable/Fixed Rate Economic Development Bonds (Russell Berrie – 1983 Project) issued pursuant to the EDA Bond Indenture.

EDA Bond Trustee means Deutsche Bank Trust Company Americas, as successor trustee to Bankers Trust Company under the EDA Bond Indenture, or any successor trustee.

EDA Borrower means the Estate of Russell Berrie or its distributee, Angelica Berrie.

EDA Documents means, collectively, the EDA Loan Guarantee, the EDA Standby L/C Reimbursement Agreement, the EDA Standby L/C, the EDA Bond Indenture, the EDA Loan Agreement, the EDA Financing Statements, the EDA Standby L/C Reimbursement Agreement Modification Letter, the Berrie Commitment, the Back-Stop L/C, and the BNY/Administrative Agent Commitment.

EDA Financing Statements means, in each case as amended or continued from time to time, (i) that certain financing statement naming the Company as debtor and EDA Standby L/C Issuer as secured party, filed on February 17, 2000 in the UCC Section, Department of Treasury of the State of New Jersey under file number 1957259 (including any continuations thereof), and (ii) that certain financing statement (or continuation thereof) naming the Company as debtor and EDA Bond Trustee as secured party, filed on December 10, 2004 in the UCC Section, Department of Treasury of the State of New Jersey under file number 22713766.

EDA Loan Agreement means that certain Loan Agreement dated as of December 1, 1983 (as amended from time to time through the Closing Date) between EDA and EDA Borrower.

EDA Lien means the security interest granted by the Company in favor of the EDA Bond Trustee and the EDA Standby L/C Issuer on accounts receivable and inventory of the Company (and to the extent applicable, Russ Gift, as assignee thereof) to secure its obligations under the EDA Loan Guarantee and the EDA Standby L/C Reimbursement Agreement.

EDA Loan Guarantee means that certain Guarantee dated as of December 1, 1983 (as amended from time to time through the Closing Date), by the Company in favor of the EDA, the EDA Bond Trustee and EDA Bondholders, purporting to guaranty the obligations of EDA Borrower under the EDA Loan Agreement or any substitute guaranty therefor executed by the Company on substantially the same terms (for purposes of clarity, changes to material terms thereof shall not be deemed substantially the same terms), or otherwise in form and substance reasonably satisfactory to the Administrative Agent (in each case, without giving effect to any amendment or other modification thereof after the Closing Date, except to the extent expressly permitted hereunder).

11

EDA Participation Agreement means a participation agreement to be entered into among the Administrative Agent, the Lenders and the EDA Standby L/C Issuer pursuant to the BNY/Administrative Agent Commitment, pursuant to which, among other things, the Agent and the Lenders would be granted a one hundred percent (100%) participation interest in the EDA Standby L/C Issuer’s interest under the EDA Standby L/C Reimbursement Agreement and all collateral documents relating thereto upon a draw on the Back-Stop L/C.

EDA Release Date means the date upon which the EDA Bond Redemption shall have occurred.

EDA Reserve means, (1) prior to the EDA Release Date, an amount (but not less than zero) equal tothe maximum aggregate amount of the Company’s obligations (including contingent obligations) under the EDA Loan Guaranty and the EDA Standby L/C Reimbursement Agreement (or such lesser portion thereof above which (and for so long as) the EDA Standby L/C Issuer has agreed not to require Liens, cash collateral or other collateral therefor, including the Back-Stop L/C), less the amount of (x) the drawn and undrawn amount of the Back-Stop L/C and (y) any unfinanced cash collateral provided by the Company to (and which is then on deposit with) the EDA Standby L/C Issuer solely for applications to such obligations (it being agreed that funds on deposit with the EDA Bond Trustee (or any remarketing agent for the EDA Bonds) to fund the EDA Bond Redemption shall not be deemed to be cash collateral for purposes hereof) and (2) from and after the EDA Release Date, zero; provided that notwithstanding clause (1) above, until such time as the Back-Stop L/C is issued (or the Issuing Bank’s commitment to issue such Letter of Credit has terminated prior to such issuance), clause (1) shall be deemed to be an amount equal to $7,388,356.16.

EDA Standby L/C Issuer means The Bank of New York or any successor thereto as the issuer of the EDA Standby L/C.

EDA Standby L/C means that certain Letter of Credit dated March 25, 1994, as amended as of the Closing Date issued by the EDA Standby L/C Issuer for the account of the Company in a maximum amount available to be drawn thereunder of $7,388,356.16 or any other letter of credit issued for the account of the Company upon or following the expiration of the aforementioned Letter of Credit to secure the payment of the EDA Bonds in an amount not to exceed $7,388,356.16 and having substantially the same terms as the aforementioned Letter of Credit (other than the maturity date thereof) (in each case, without giving effect to any amendment or other modification thereof after the Closing Date, except to the extent expressly permitted hereunder).

EDA Standby L/C Reimbursement Agreement means that certain Amended and Restated Letter of Credit and Reimbursement Agreement dated as of the Closing Date, between the EDA Standby L/C Issuer and the Company or any replacement agreement therefor executed by the Company in connection with any replacement EDA Standby L/C, on substantially the same terms (for purposes of clarity, changes to material terms thereof shall not be deemed substantially the same terms), or otherwise in form and substance reasonably satisfactory to the Administrative Agent (in each case, without giving effect to any amendment or other modification thereof after the Closing Date, except to the extent expressly permitted hereunder).

12

EDA Standby L/C Reimbursement Agreement Modification Letter means that certain letter agreement dated on or prior to the Closing Date from the EDA Standby L/C Issuer to the Company and the Borrowers regarding limitations on the EDA Standby L/C Issuer’s ability to require additional cash collateral for the Company’s reimbursement obligations under the EDA Standby L/C Reimbursement Agreement.

Eligible Account means an Account (other than any portion of which is owing in respect of sales, excise or similar taxes) owing to a Borrower which is acceptable for lending purposes to the Administrative Agent in its commercially reasonable credit judgment. Without limiting the Administrative Agent’s aforementioned credit judgment, the Administrative Agent shall, in general, consider an Account to be an Eligible Account if it meets, and so long as if continues to meet, the following requirements:

(a)it arises from the final, bona fide sale or lease of goods or the rendering of services which have been fully performed by such Borrower; and if it arises from the sale or lease of goods, (i) such goods comply with the relevant Account Debtor’s specifications (if any) and have been delivered to such Account Debtor and (ii) such Borrower has possession of delivery receipts evidencing such delivery;

(b)it (i) is owned by such Borrower, (ii) is subject to a perfected, first priority Lien in favor of the Administrative Agent and (iii) is not subject to any other assignment, claim or Lien (other than the EDA Lien to the extent the full amount thereof is covered by the EDA Reserve); provided that, if subject to any such other assignment, claim or Lien (other than the EDA Lien, as aforesaid), such Account shall be deemed ineligible pursuant to this clause (b) only to the extent of the amount of such assignment, claim or Lien;

(c)it (i) is a valid, legally and enforceable obligation of the Account Debtor with respect thereto, (ii) is not subject to (x) the fulfillment of any condition whatsoever or any counterclaim, offset, credit, allowance, discount, rebate, or adjustment by the Account Debtor with respect thereto, or (y) any claim by such Account Debtor denying liability thereunder in whole or in part; provided that only such portion of such Account subject to such counterclaim, offset, credit, allowance, discount, rebate, adjustment or liability shall be deemed ineligible pursuant to this clause (c)(ii), and (iii) the Account Debtor has not refused to accept and/or has not returned or offered to return any of the goods or services which are the subject of such Account;

(d)there is no bankruptcy, insolvency or liquidation proceeding pending by or against the Account Debtor or any Affiliated Account Debtor with respect thereto;

(e)the Account Debtor with respect thereto is a resident or citizen of, and is located within, the United States (including Puerto Rico, the U.S. Virgin Islands and Guam) or Canada (excluding Newfoundland, the Northwest Territories or Nunavut), unless the sale of goods or rendering of services giving rise to such Account is on letter of credit, bankers’ acceptance or other credit support terms reasonably acceptable to the Administrative Agent (any such Account in respect of which the Account Debtor thereon is a resident of Canada, being a “Canadian Account”), and such Account is denominated in United States dollars, or in the case of a Canadian Account, Canadian dollars;

13

(f)it is not (i) an Account arising from a “sale on approval,” “sale or return,” “consignment” or “bill and hold” or subject to any other repurchase or return agreement, or (ii) subject to a reserve or contra-account established by such Borrower for potential returns or refunds (without duplication of any other reserve or deductions regarding such returns or refunds); provided that only such portion of such Account in the amount of such reserve or contra-account shall be deemed ineligible pursuant to this clause (f)(ii);

(g)it is not an Account with respect to which possession and/or control of the goods sold giving rise thereto is held, maintained or retained by such Borrower (or by any agent or custodian of such Borrower) for the account of or subject to further and/or future direction from the Account Debtor with respect thereto;

(h)it arises in the ordinary course of business of such Borrower;

(i)if the Account Debtor is the United States or any state or local government, or any department, agency or instrumentality thereof, such Borrower has assigned its right to payment of such Account to the Administrative Agent pursuant to the Assignment of Claims Act of 1940 or any comparable state or local law, as applicable, and evidence (reasonably satisfactory to the Administrative Agent) of such assignment has been delivered to the Administrative Agent;

(j)if such Borrower maintains a credit limit for an Account Debtor, the aggregate dollar amount of Accounts due from such Account Debtor and its Affiliated Account Debtors, including such Account, does not exceed such credit limit; provided that only such portion of such Account that exceeds such credit limit shall be deemed ineligible pursuant to this clause (j);

(k)it is not an Account evidenced by chattel paper or an instrument;

(l)such Account is evidenced by an invoice delivered to the related Account Debtor and is not more than (i) 60 days past the due date thereof or (ii) 90 days past the original invoice date thereof, in each case according to the original terms of sale; provided that up to $5,000,000 of Accounts evidenced by invoices not more than (x) 60 days past the due date thereof or (y) 180 days past the original invoice date thereof but which otherwise meet all other eligibility criteria hereunder shall not be deemed ineligible pursuant to this clause (l);

(m)it is not owing by an Account Debtor in respect of which 35% or more of the aggregate dollar amount of all Accounts owing by such Account Debtor and its Affiliated Account Debtors are ineligible pursuant to clause (l) immediately above;

(n)it is not an Account with respect to an Account Debtor that is located in any jurisdiction which has adopted a statute or other requirement with respect to which any Person that obtains business from within such jurisdiction must file a notice of business activities report or make any other required filings in a timely manner in order to enforce its claims in such jurisdiction’s courts unless (i) such notice of business activities report has been duly and timely filed or such Borrower is exempt from filing such report and has provided the Administrative Agent with reasonably satisfactory evidence of such exemption or (ii) the failure to make such filings may be cured retroactively by such Borrower for a nominal fee;

14

(o)the Account Debtor or Affiliated Account Debtor with respect thereto is not (i) a Loan Party or an Affiliate of a Loan Party or (ii) a director, officer, employee or agent of a Loan Party or an Affiliate of a Loan Party;

(p)if the aggregate amount of all Accounts owed by the Account Debtor and its Affiliated Account Debtors thereon exceeds 15% of the aggregate amount of all Eligible Accounts at such time, then all Accounts owed by such Account Debtor or Affiliated Account Debtors in excess of such amount shall be deemed ineligible; provided, however that with respect to any Account Debtor and its Affiliated Account Debtors that have a long-term unsecured debt rating of BBB or better by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. or the equivalent rating from Moody’s Investors Services, Inc. (each such Account Debtor, a “Specified Account Debtor”), if the aggregate amount of all Accounts owed by such Specified Account Debtor (including those owed by its Affiliated Account Debtors) thereon exceeds 35% of the aggregate amount of all Eligible Accounts at such time, then all Accounts owed by such Specified Account Debtor and its Affiliated Account Debtors in excess of such amount shall be deemed ineligible;

(q)it is not an Account (i) with respect to which any representation or warranty contained in this Agreement or any other Loan Document is untrue in any material respect (or, if such representation or warranty is qualified by materiality or Material Adverse Effect, in any respect), (ii) which violates any of the covenants contained in this Agreement, any other Loan Document or the agreement or contract under which it arises in any material respect (or, if such covenant is qualified by materiality or Material Adverse Effect, in any respect), or (iii) which arises out of a contract or order which fails in any material respect to comply with the requirements of applicable law;

(r)it is not an Account for which such Borrower has received any prepayment or a deposit in respect of such Account; provided, that the amount of such Account in excess of the amount of any such prepayment and/or deposit shall not be deemed ineligible pursuant to this clause (r); and

(s)it does not arise from the sale of goods covered under any license agreement, distribution agreement or other similar agreement that prohibits the granting of Liens in the proceeds of such goods in favor of the Administrative Agent to secure the Obligations (and such prohibition has not been waived).

An Account which is at any time an Eligible Account, but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be an Eligible Account. Further, with respect to any Account, if the Administrative Agent or the Required Lenders at any time hereafter determine in its or their reasonable credit judgment that the prospect of payment or performance by the Account Debtor with respect thereto is materially impaired for any reason whatsoever, such Account shall cease to be an Eligible Account after consultation with, and notice of such determination is given to, the Loan Party Representative.

Eligible Assignee means (i) commercial banks organized under the laws of the United States, or any State thereof, and having combined capital and surplus of at least $500,000,000; (ii) commercial banks organized under the laws of any other country that is a member of the

15

OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to borrow, or a political subdivision of any such country, and having combined capital and surplus of at least $500,000,000, so long as any such bank is acting through a branch or agency located in the United States; (iii) finance companies, insurance companies or other financial institutions or funds (whether corporations, partnerships, trusts or other entities) that are regularly engaged in the United States in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having combined capital and surplus of at least $500,000,000 or with respect to any funds with total assets under its management in excess of $250,000,000; and (iv) any other Person other than an Affiliate of a Loan Party approved by the Administrative Agent and the Loan Party Representative, such approval not to be unreasonably withheld or delayed.

Eligible Inventory means Inventory of a Borrower which is acceptable for lending purposes to the Administrative Agent in its commercially reasonable credit judgment. Without limiting the Administrative Agent’s aforesaid credit judgment, the Administrative Agent shall, in general, consider Inventory to be Eligible Inventory if it meets, and for so long as it continues to meet, each of the following requirements:

(a)it (i) is owned by such Borrower, (ii) is subject to a perfected, first priority Lien in favor of the Administrative Agent and (iii) is not subject to any other assignment, claim or Lien, other than the EDA Lien, to the extent the full amount thereof is covered by the EDA Reserve; provided that, if subject to any such other assignment, claim or Lien (other than the EDA Lien, as aforesaid), such Inventory shall be deemed ineligible pursuant to this clause (a) only to the extent of the amount of such assignment, claim or Lien;

(b)it is salable and not slow-moving, obsolete or discontinued;

(c)it is in the possession and control of a Loan Party and it is stored and held in facilities owned by a Loan Party (and not subject to a mortgage other than a mortgage in favor of the Administrative Agent) or, if such facilities are not so owned, the Administrative Agent is in possession of a Collateral Access Agreement from any lessor or mortgagee thereof with respect thereto or a Rent Reserve is then in effect with respect to such location;

(d)it is not Inventory produced in violation of the Fair Labor Standards Act and subject to the “hot goods” provisions contained in Title 29 U.S.C. §215;

(e)it is not subject to any agreement or license which would restrict the Administrative Agent’s ability to sell or otherwise dispose of such Inventory or which contains any prohibition on the Administrative Agent’s Lien therein to secure the Obligations (unless such prohibition shall have been waived);

(f)it is located at one of the owned or leased locations of such Borrower identified on Schedule 4 of the Guaranty and Collateral Agreement or otherwise identified to the Administrative Agent pursuant to Section 5.3 thereof in the United States or in any territory or possession of the United States that has adopted Article 9 of the Uniform Commercial Code;

(g)it is not “in transit” to such Borrower or held by such Borrower on consignment; provided that up to $3,000,000 of Inventory which is “in transit” (the “In-Transit Inventory”)

16

shall be deemed eligible hereunder so long as such In-Transit Inventory (i) otherwise meets all other criteria for eligibility hereunder, (ii) the In-Transit Inventory is subject to bills of lading, air bills or other similar documentation (collectively, the “Shipping Documents”) which are adequate as determined by the Administrative Agent in its commercially reasonable credit judgment; (iii) the In-Transit Inventory is fully-insured under an insurance policy naming the Administrative Agent as loss payee, (iv) the applicable Borrower has title to such an In-Transit Inventory, (v) such In-Transit Inventory shall be listed as such on the report required pursuant to Section 10.1.6 for the months in which such In-Transit Inventory is in transit, and (vi) the Borrowers have, if and to the extent requested by the Administrative Agent at any time during the continuation of an Unmatured Event of Default or Event of Default, delivered such Shipping Documents to the Administrative Agent, appropriately endorsed, together with a power of attorney to allow the Administrative Agent to list itself as “consignee” thereunder;

(h)it is finished goods and is not work-in-progress,display inventory, supply items, packaging, tooling, samples or literature;

(i)it is not identified to any purchase order or contract to the extent progress or advance payments are received with respect to such Inventory; and

(j)it does not breach any of the representations, warranties or covenants pertaining to Inventory set forth in the Loan Documents in any material respect (or, if such representation or warranty is qualified by materiality or Material Adverse Effect, in any respect).

Inventory which is at any time Eligible Inventory but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be Eligible Inventory.

Environmental Claims means all claims, however asserted, by any governmental, regulatory or judicial authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment.

Environmental Laws means all present or future federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative or judicial orders, consent agreements, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authority, in each case relating to any matter arising out of or relating to public health and safety, or pollution or protection of the environment or workplace, including any of the foregoing relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, emission, release, threatened release, control or cleanup of any Hazardous Substance.

ERISA means the Employee Retirement Income Security Act of 1974.

Event of Default means any of the events described in Section 13.1.

Excess Revolving Loan Availability means at any time the difference between Revolving Loan Availability and the Revolving Outstandings at such time.

Exchange Act means the Securities Exchange Act of 1934, as amended.

17

Excluded Taxes means taxes (i) based upon, or measured by, the Lender’s or Administrative Agent’s (or a branch of the Lender’s or Administrative Agent’s) overall net income, overall net receipts, or overall net profits (including franchise taxes imposed in lieu of such taxes), but only to the extent such taxes are imposed by a taxing authority (a) in the United States or a jurisdiction (or political subdivision thereof) under the laws of which such Lender or Administrative Agent is organized, (b) in a jurisdiction which the Lender’s or Administrative Agent’s principal office is located, or (c) in a jurisdiction in which such Lender or Administrative Agent maintains a lending office (or branch), including the lending office in respect of which payments under this Agreement are made is located, or in which such Lender or Administrative Agent is a resident for income tax purposes and (ii) branch profits taxes.

Federal Funds Rate means, for any day, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. The Administrative Agent’s determination of such rate shall be binding and conclusive absent manifest error.

First-Tier Foreign Subsidiary means, any direct Foreign Subsidiary (other than an Inactive Subsidiary) of a Loan Party or Subsidiary organized under the laws of the United States of America.

Fiscal Quarter means a fiscal quarter of a Fiscal Year.

Fiscal Year means the fiscal year of the Borrowers and their consolidated Subsidiaries, which period shall be the 12-month period ending on December 31st of each calendar year. References to a Fiscal Year with a number corresponding to any calendar year (e.g., “Fiscal Year 2006”) refers to the Fiscal Year ending on December 31st of such calendar year.

Fixed Charge Coverage Ratio means, as of the last day of any Fiscal Quarter for the Computation Period ending on such date for the Borrowers and their consolidated Subsidiaries on a consolidated basis, the ratio of (a) the total for such period of EBITDA for the Computation Period ending on such date (calculated, where applicable, using the EBITDA values set forth in the definition thereof) minus the sum of (i) income taxes paid (or which should have been paid) in cash by such Persons during such Computation Period, (ii) all unfinanced Capital Expenditures of such Persons incurred during such Computation Period, and (iii) all cash dividends or distributions paid during such Computation Period to (b) the sum for such Computation Period for the Borrowers and their consolidated Subsidiaries on a consolidated basis of all scheduled interest and principal payments of Debt, including the principal component of any Capital Lease (in each case, whether or not in fact paid during such period).

Foreign Subsidiary means a Subsidiary organized in a jurisdiction outside of the United States of America.

18

Fraudulent Conveyance – see Section 15.22.2.

FRB means the Board of Governors of the Federal Reserve System or any successor thereto.

GAAP means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination.

Group - see Section 2.2.1.

Guarantor means a Person that is both a “Grantor” and a “Guarantor” under and as defined in the Guaranty and Collateral Agreement.

Guaranty and Collateral Agreement means the Guaranty and Collateral Agreement dated as of the date hereof executed and delivered by the Loan Parties, and such other parties as may from time to time become parties thereto in accordance with the terms hereof and/or thereof, and any other guaranty and collateral agreement executed by a Loan Party, in each case in form and substance reasonably satisfactory to the Administrative Agent, in each case, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Hazardous Substances means (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, dielectric fluid containing levels of polychlorinated biphenyls, radon gas and mold; (b) any chemicals, materials, pollutant or substances defined as or included in the definition of “hazardous substances”, “hazardous waste”, “hazardous materials”, “extremely hazardous substances”, “restricted hazardous waste”, “toxic substances”, “toxic pollutants”, “contaminants”, “pollutants” or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the exposure to, or release of which is prohibited, limited or regulated by any governmental authority or for which any duty or standard of care is imposed pursuant to, any Environmental Law.

Hedging Agreement means any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices.

Hedging Obligation means, with respect to any Person, the amount of the obligations of such Person under any Hedging Agreement calculated by reference to the marked-to-market termination value of such Hedging Agreement.

Inactive Subsidiary means any domestically organized Subsidiary of the Company or a Loan Party designated as an “Inactive Subsidiary” in writing by the Loan Party Representative to the Administrative Agent and which satisfies all requirements of an “Inactive Subsidiary” set forth in Section 11.16, and shall include as of the Closing Date, (and thereafter for so long as such Persons shall continue to meet such requirements) RBCACQ, Inc., a California corporation,

19

Fluf N’ Stuf, a Pennsylvania corporation, RBTACQ, Inc., an Ohio corporation, P/F Done, Inc., a Pennsylvania corporation and BOA Done, Inc., a West Virginia corporation, and Inactive Subsidiaries means all such subsidiaries.

Indemnified Liabilities - see Section 15.17.

Interest Expense means for any period the consolidated interest expense of the Borrowers and their consolidated Subsidiaries, on a consolidated basis, for such period (including all imputed interest on Capital Leases).

Interest Period means, as to any LIBOR Loan, the period commencing on the date such Revolving Loan is borrowed or continued as, or converted into, a LIBOR Loan and ending on the date one, two, three or six months thereafter as selected by the Loan Party Representative pursuant to Section 2.2.2 or 2.2.3, as the case may be; provided that:

(a)if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day;

(b)any Interest Period that begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period;

(c)the Loan Party Representative may not select any Interest Period which would extend beyond the Scheduled Termination Date; and

(d)there may be no more than five (5) Interest Periods outstanding at any time.

Interim Advance - see Section 2.1.1(b).

Inventory is defined in the Guaranty and Collateral Agreement.

Investment means, with respect to any Person, any investment in another Person, whether by acquisition of any debt or Capital Security, by making any loan or advance, by assuming, becoming obligated with respect to a liability, Debt or Contingent Liability in respect of obligations of such other Person (other than travel, relocation and similar advances to employees in the ordinary course of business).

Issuing Bank means LaSalle Bank, in its capacity as the issuer of Letters of Credit hereunder, or any Affiliate of LaSalle that may from time to time issue Letters of Credit, and in each case, any successor and assign thereof acting  in such capacity.

Kids Line means Kids Line, LLC, a Delaware limited liability company.

Kids Line Credit Agreement means that certain Credit Agreement dated as of the date hereof by and among Kids Line and Sassy, each as borrowers, and LaSalle Bank National Association, as the administrative agent, and the other lenders designated therein.

20

Kids Line Purchase Agreement means that certain Membership Interest Purchase Agreement, dated as of December 15, 2004, among Kids Line, the Company and the various seller parties thereto, as the same has been modified by that certain letter agreement dated on or about the date hereof among the Company, Kids Line, Sassy, the Earnout Sellers (through their authorized representative) and the Earnout Sellers Agent to release the Loan Parties from their obligations thereunder.

LaSalle - see the Preamble.

LaSalle Bank – means LaSalle Bank National Association.

L/C Application means, with respect to any request for the issuance of a Letter of Credit, a letter of credit application in the form being used by the Issuing Bank at the time of such request for the type of letter of credit requested.

L/C Fee Rate - see the definition of Applicable Margin.

Lender and Lenders - see Preamble. In addition, (i) the term “Lender” shall include the Administrative Agent to the extent it makes any loans or advances any financial accommodations hereunder or under any other Loan Documents, (ii) for the purpose of identifying the Persons entitled to share in the Collateral and the proceeds thereof under, and in accordance with the provisions of this Agreement and the Collateral Documents and the Persons entitled to indemnification and exculpation as a Lender or a Lender Party hereunder or under any of the other Loan Documents, the term “Lender” and “Lender Party” shall include the Issuing Bank, and (iii) the term Lender shall include any Affiliate of a Lender providing a Bank Product pursuant to this Agreement or any other Loan Document and the transactions contemplated hereby or thereby.

Lender Party - see Section 15.17 and the definition of Lender above.

Letter of Credit - see Section 2.1.3 and such definition shall include the Back-Stop L/C.

LIBOR Loan means any Revolving Loan which bears interest at a rate determined by reference to the LIBOR Rate.

LIBOR Margin - see the definition of Applicable Margin.

LIBOR Office means with respect to any Lender the office or offices of such Lender which shall be making or maintaining the LIBOR Loans of such Lender hereunder. A LIBOR Office of any Lender may be, at the option of such Lender, either a domestic or foreign office.

LIBOR Rate means a rate of interest equal to (a) the per annum rate of interest at which United States dollar deposits in an amount comparable to the amount of the relevant LIBOR Loan and for a period equal to the relevant Interest Period are offered in the London Interbank Eurodollar market at 11:00 A.M. (London time) two (2) Business Days prior to the commencement of such Interest Period (or three (3) Business Days prior to the commencement of such Interest Period if banks in London, England were not open and dealing in offshore United States dollars on such second preceding Business Day), as displayed in the Bloomberg

21

Financial Markets system (or other authoritative source selected by the Administrative Agent in its sole discretion) or, if the Bloomberg Financial Markets system or another authoritative source is not available, as the LIBOR Rate is otherwise determined by the Administrative Agent in its sole and absolute discretion, divided by (b) a number determined by subtracting from 1.00 the then stated maximum reserve percentage for determining reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D), such rate to remain fixed for such Interest Period. The Administrative Agent’s determination of the LIBOR Rate shall be conclusive, absent manifest error.

Lien means, with respect to any Person, any interest granted by such Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person (including an interest in respect of a Capital Lease) which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, title retention lien, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise.

Loan Documents means this Agreement, the Notes, the Letters of Credit, the Master Letter of Credit Agreement, the L/C Applications, the Agent Fee Letter, the Collateral Documents, the BNY/Administrative Agent Commitment, the subordination agreements, if any, relating to any Subordinated Debt and all other documents, instruments and agreements delivered in connection with the foregoing, in each case, as the same may be amended, restated, supplemented or otherwise modified from time to time. In no event shall the Guaranty by Russ Gift of the Canadian Borrower’s obligations under the Canadian Loan Documents be deemed to be a Loan Document.

Loan Party means, collectively, the Borrowers and each Guarantor, and Loan Parties means all such Persons, collectively. For the avoidance of doubt, the Company shall not be a Loan Party under this Agreement for any purpose.

Loan Party Representative means the Company in its capacity as Loan Party Representative pursuant to the provisions of Section 2.6.

Mandatory Prepayment Event - see Section 6.2.2(a).

Margin Stock means any “margin stock” as defined in Regulation U.

Master Letter of Credit Agreement means, at any time, with respect to the issuance of Letters of Credit, a master letter of credit agreement or reimbursement agreement in the form, if any, being used by the Issuing Bank at such time, together with any amendments, restatements, supplements or modifications thereto.

Material Adverse Effect means (a) a material adverse change in, or a material adverse effect upon, the condition (financial or otherwise), operations, assets, liabilities, business, or properties of the Loan Parties taken as a whole, (b) a material impairment of the ability of the Loan Parties taken as a whole to perform their obligations under the Loan Documents or (c) a material adverse effect upon any material portion of the Collateral or the validity, perfection or priority of any Lien in favor of the Administrative Agent for the benefit of the Lenders under the

22

Collateral Documents against any material portion of the Collateral or upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document, or the rights and remedies, taken as a whole, of the Administrative Agent or the Lenders under any Loan Document.

Maximum Revolving Commitment means, the lesser of (x) $25,000,000, as such amount may be decreased from time to time in accordance with Section 6.1.1 (the “Revolving Commitment Limit”) and (y) the sum of the Commitments of all Lenders as in effect at such time.

Mortgage means a mortgage, deed of trust, leasehold mortgage or similar instrument granting the Administrative Agent a Lien on real property of any Loan Party, in each case, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Multiemployer Pension Plan means a multiemployer plan, as defined in Section 3(37)(A) of ERISA, to which any Loan Party or any other member of the Controlled Group maintains, contributes to, or has an obligation to contribute to (or, within the immediately preceding six (6) years, maintained, contributed to or had an obligation to contribute to) on behalf of participants who were employed by any of them.

Net Cash Proceeds means:

(a)with respect to any Asset Disposition relating to any property of any Loan Party, the aggregate cash proceeds (including cash proceeds received pursuant to policies of insurance or by way of deferred payment of principal pursuant to a note, installment receivable or otherwise, but only as and when received) received by any Loan Party pursuant to such Asset Disposition, net of (i) the direct reasonable costs, expenses and fees relating to such Asset Disposition (including reasonable and customary sales commissions and reasonable legal, accounting and investment banking and other professional and transactional fees), (ii) taxes paid or reasonably estimated by such Loan Party to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), (iii) amounts required to be applied to the repayment of any Debt secured by a Permitted Lien having priority over the Liens of the Administrative Agent under the Loan Documents on the asset subject to such transaction (other than the Loans); and (iv) amounts reserved in accordance with GAAP for any indemnification obligations associated with such sale so long as such reserves are required to be maintained; it being agreed that the amount of such reserves shall be deemed Net Cash Proceeds of such transaction received by such Loan Party upon (and in the amount of) the release or reduction of any such reserve.

(b)with respect to any issuance of Capital Securities, the aggregate cash proceeds received by any Loan Party pursuant to such issuance, net of the direct reasonable and customary costs, expenses and fees (including legal, accounting and other professional fees, costs and expenses) relating to such issuance (including reasonable and customary sales and underwriters’ commissions); and

(c)with respect to any issuance of Debt, the aggregate cash proceeds received by any Loan Party pursuant to such issuance, net of the direct reasonable and customary costs, expenses

23

and fees (including legal, accounting and other professional fees, costs and expenses) relating to such issuance (including reasonable and customary up-front, underwriters’ and placement fees).

Net Orderly Liquidation Value means, when used in respect of the Borrowing Base as it relates to the Borrowers’ Eligible Inventory (and without limiting the Administrative Agent’s ability to assign any lower value thereto or apply reserves in accordance with the definition of Borrowing Base), the orderly liquidation value thereof, net of costs, fees and expenses arising in connection with such orderly liquidation thereof, determined in accordance with the methodologies and conclusions set forth in the appraisal of such Inventory prepared for the Administrative Agent by Hilco Appraisal Services, LLC on or about May 25, 2005 or, if elected by the Administrative Agent, any subsequent field audit or appraisal of such assets conducted for the Administrative Agent in accordance with the terms hereof.

Non-U.S. Participant - see Section 7.6(d)(i).

Non-Use Fee Rate - see the definition of Applicable Margin.

Notes - see Section 3.1.

Notice of Borrowing - see Section 2.2.2.

Notice of Conversion/Continuation - see Section 2.2.3.

Obligations means all obligations, liabilities and indebtedness (monetary or otherwise, including post-petition and default interest, allowed or not) of any Loan Party under this Agreement and any other Loan Document owing to any Lender, the Administrative Agent, the Issuing Bank, any Lender Party or any other party to or beneficiary of this Agreement or any other Loan Document (and any successor or assign of any of the foregoing), including, without limitation, for principal, interest (including post-petition interest, allowed or not), fees, costs, expenses, indemnification, Attorney Costs, any reimbursement obligations of each Loan Party in respect of Letters of Credit and surety bonds, all Specified Hedging Obligations permitted hereunder and incurred in connection herewith which are owed to the Administrative Agent, LaSalle Bank or any Lender and each of their respective Affiliates, and all Bank Products Obligations permitted hereunder and incurred in connection herewith which are owed to the Administrative Agent, LaSalle Bank or any Lender and each of their respective Affiliates, in each case, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due; provided, that (i) obligations of any Loan Party under any Specified Hedging Agreement shall be secured and guaranteed pursuant to the provisions of this Agreement and the Loan Documents only to the extent that, and for so long as, the other Obligations are so secured and guaranteed and (ii) any release of Collateral or guarantors effected in the manner permitted by this Agreement shall not require the consent of any counterparty on any Specified Hedging Agreement or the holder of any Specified Hedging Obligations. In no event shall the obligations of Russ Gift under the Canadian Guaranty made in favor of the Canadian Lenders and Canadian Agent be deemed to be Obligations hereunder.

OFAC - see Section 10.4.

24

PBGC means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.

Participant - see Section 15.6.2.

Pension Plan means a “pension plan”, as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA or the minimum funding standards of ERISA (other than a Multiemployer Pension Plan), which any Loan Party or any member of the Controlled Group maintains, contributes to, or has an obligation to contribute to (or, within the immediately preceding six (6) years, maintained, contributed to or had an obligation to contribute to) on behalf of participants who were employed by any of them. The term Pension Plan shall also include any other plan providing retirement income that is not governed by the laws of the United States.

Permitted Holder means (i) Angelica Berrie; (ii) any lineal descendant of Russell Berrie; (iii) the Estate of Russell Berrie; (iv) The Russell Berrie 2002A Trust; (v) The Russell Berrie Foundation, a New Jersey Nonprofit Corporation; (vi) any trust created pursuant to the terms of the instruments governing or creating any of the Persons referred to in clause (iii), (iv), or (v); (vii) any fiduciary of any of the Persons referred to in clause (iii) (iv), (v) or (vi); or (viii) (1) any institutional Person or entity described in Rule 13d-1(b)(1)(ii) under the Exchange Act, (2) any “qualified institutional buyer” as defined in Rule 144(a)(1) promulgated under the Securities Act, (3) any institutional Person or entity described in clauses (1), (2), (3), (7) or, to the extent comprised of institutional Persons or entities described in clauses (1), (2), (3) and/or (7), clause (8) of the definition of “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act, or (4) any similar institutional equity investor.

Permitted Lien means a Lien expressly permitted hereunder pursuant to Section 11.2.

Person means any natural person, corporation, partnership, trust, limited liability company, association, governmental authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity.

Pledge Agreement means the Pledge Agreement dated as of the Closing Date (as the same may be amended, restated, supplemented or otherwise modified from time to time) executed and delivered by the Company in favor of the Administrative Agent for the benefit of the Lenders.

Pre-Settlement Determination Date – see Section 7.1.3.

Prime Rate means, for any day, the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent as its prime rate (whether or not such rate is actually charged by the Administrative Agent), which is not intended to be the Administrative Agent’s lowest or most favorable rate of interest at any one time. Any change in the Prime Rate announced by the Administrative Agent shall take effect at the opening of business on the day specified in the public announcement of such change; provided that the Administrative Agent shall not be obligated to give notice of any change in the Prime Rate.

25

Pro Rata Share means with respect to a Lender’s obligation to make Revolving Loans, participate in Letters of Credit, reimburse the Issuing Bank, and/or receive payments of principal, interest, fees, costs, and expenses with respect thereto, (x) prior to the Commitments being terminated or reduced to zero, the percentage obtained by dividing (i) such Lender’s Commitment at such time, by (ii) the aggregate Commitments of Lenders at such time and (y) from and after the time the Commitments have been terminated or reduced to zero, the percentage obtained by dividing (i) the aggregate unpaid principal amount of such Lender’s Revolving Outstandings at such time by (ii) the aggregate unpaid principal amount of all Revolving Outstandings at such time.

Regulation D means Regulation D of the FRB.

Regulation U means Regulation U of the FRB.

Related Agreements means, collectively, that certain Assignment and Assumption Agreement and Bill of Sale, that certain Omnibus Amendment of Intellectual Property and the related individual assignments of specified intellectual property, in each case, dated on or prior to the date hereof between the Company and Russ Gift, the incorporation documents for Russ Gift, together with any other instruments, documents and agreements entered into in connection therewith, in each case, as the same may be amended, restated, supplemented or otherwise modified in accordance with Section 11.11.

Related Transactions means the Spin-Off and the other transactions contemplated by the Related Agreements.

Rent Reserve means a dollar amount equal to three times the monthly lease or mortgage payments of each leased or owned and mortgaged facility of the Borrowers where any Inventory intended to be classified as Eligible Inventory is maintained and in respect of which the Administrative Agent has not received a Collateral Access Agreement with respect to such facility.

Replacement Lender - see Section 8.7(b).

Reportable Event means a reportable event as defined in Section 4043 of ERISA and the regulations issued thereunder as to which the PBGC has not waived the notification requirement of Section 4043(a), or the failure of a Pension Plan to meet the minimum funding standards of Section 412 of the Code (without regard to whether the Pension Plan is a plan described in Section 4021(a)(2) of ERISA) or under Section 302 of ERISA.

Required Lenders means, at any time, those Lenders whose Pro Rata Shares exceed 50.1%; provided that if there are two or fewer Lenders, then the term “Required Lenders” shall mean all of the Lenders.

Restricted Debt means (a) the obligations of the Company and any other Loan Party with respect to the EDA Standby L/C Reimbursement Agreement and the EDA Loan Guarantee and (b) any other Subordinated Debt.

26

Restricted Debt Agreements means, collectively, the Kids Line Purchase Agreement, the Earnout Security Documents, the Earnout Subordination Agreement and any other security agreement, pledge agreement, collateral assignments, account control agreements, if any, or other security documents, and employment agreements entered into in connection therewith, in each case, as the same may be amended, restated, supplemented or otherwise modified in accordance with Section 11.11.

Revolving Commitment Limit - see the definition of Maximum Revolving Commitment.

Revolving Loan and Revolving Loans - see Section 2.1.1(a).

Revolving Loan Availability means the difference between (a) (i) before an increase in Commitments pursuant to Section 2.7, the Borrowing Base or (ii) at all times after an increase in Commitments pursuant to Section 2.7, the lesser of (x) the Maximum Revolving Commitment in effect at such time and (y) the Borrowing Base at such time, minus (b) the sum of the aggregate principal amount of all “Loans,” all “Specified Hedging Obligations” and the “Stated Amount” of all “Letters of Credit” outstanding or requested but not yet funded under (and, in each case, as such terms are defined in) the Canadian Loan Agreement.

Revolving Outstandings means, at any time, the sum of (a) the aggregate principal amount of all outstanding Revolving Loans, plus (b) the Stated Amount of all Letters of Credit.

Sassy means Sassy, Inc., an Illinois corporation.

Scheduled Termination Date means March 14, 2011.

SEC means the Securities and Exchange Commission or any other governmental authority succeeding to any of the principal functions thereof.

Second-Tier Foreign Subsidiary means any direct or indirect Subsidiary of any First-Tier Foreign Subsidiary.

Securities Act means the Securities Act of 1933, as amended.

Senior Officer means, with respect to any Loan Party, any of the chief executive officer, the chief financial officer, the chief operating officer or the treasurer or controller or vice president of finance, of such Loan Party.

Settlement Date – see Section 7.1.3.

Specified Hedging Agreement means any Hedging Agreement (a) entered into by (i) a Borrower and (ii) any Lender (as determined as of the date such Hedging Agreement is entered into) or any affiliate thereof, as counterparty and (b)(i) the covered transactions thereunder are the Revolving Loans or Obligations hereunder or (ii) that has otherwise been designated by the Administrative Agent, such Lender or such affiliate, as the case may be, and the Loan Party Representative, on behalf of such Borrower, by notice to the Administrative Agent, as a Specified Hedging Agreement. The designation of any Hedging Agreement as a Specified Hedging Agreement shall not create in favor of the Administrative Agent, any Lender or affiliate

27

thereof that is a party thereto any rights in connection with the management or release of any Collateral or of the obligations of any guarantor under this Agreement or the Loan Documents.

Spin-Off means the transfer to Russ Gift of substantially all of the assets and operations of the Company in accordance with the Related Agreements.

Specified Hedging Obligationmeans any Hedging Obligations of any of the Borrowers under any Specified Hedging Agreement and Specified Hedging Obligationsmeans all such obligations and liabilities collectively.

Stated Amount means, with respect to any Letter of Credit at any date of determination, (a) the maximum aggregate amount available for drawing thereunder under any and all circumstances plus (b) the aggregate amount of all unreimbursed payments and disbursements under such Letter of Credit which have not been converted to Revolving Loans pursuant to Section 2.3.2.

Subordinated Debt means any Debt of the Borrowers and their consolidated Subsidiaries on a consolidated basis that is unsecured and is expressly subordinated to the prior payment in full, in cash, of the Obligations pursuant to an agreement in form and substance reasonably satisfactory to the Administrative Agent.

Subsidiary means, with respect to any Person, a corporation, partnership, limited liability company or other entity of which such Person owns, directly or indirectly, such number of outstanding Capital Securities as have more than 50% of the ordinary voting power for the election of directors or other managers of such corporation, partnership, limited liability company or other entity. Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of a Borrower.

Taxes means any and all present and future taxes, duties, levies, imposts, deductions, assessments, charges or withholdings imposed by the United States, any state or locality or any political subdivision thereof, and any and all liabilities (including interest and penalties and other additions to taxes) with respect to the foregoing, but excluding Excluded Taxes.

Termination Date means the earliest to occur of (i) the Scheduled Termination Date, (ii) the termination of the Commitments (either automatically or at the Required Lenders’ election) pursuant to Section 13.2, and (iii) the termination or reduction to zero of the Commitments by the Borrowers pursuant to Section 6.1.1.

Termination Fee - see Section 5.4.

Termination Event means, with respect to a Pension Plan, (a) a Reportable Event, (b) the withdrawal of any member of the Controlled Group from such Pension Plan during a plan year in which any member of the Controlled Group was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA, (c) the termination of such Pension Plan, the filing of a notice of intent to terminate the Pension Plan or the treatment of an amendment of such Pension Plan as a termination under Section 4041 of ERISA, (d) the institution by the PBGC of proceedings to terminate such Pension Plan or (e) any event or

28

condition that might constitute grounds under Section 4042 of ERISA for the termination of, or appointment of a trustee to administer, such Pension Plan.

Triggering Event means any invalidation, rescission or avoidance of (a) the transfer of the assets and operations of the Company to Russ Gift pursuant to the Related Agreements and/or (b) the liens and security interests granted by Russ Gift on such assets to secure the Obligations, in either case, under or pursuant to any state or federal law relating to bankruptcy, insolvency or  creditors’ rights, generally, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences or other voidable or recoverable payments of money or transfers of property.

type - see Section 2.2.1.

UCC is defined in the Guaranty and Collateral Agreement.

Unfunded Liability means the amount (if any) by which the present value of all vested and unvested accrued benefits under all Pension Plans of the Loan Parties and each other member of the Controlled Group exceeds the fair market value of all assets allocable to those benefits, all determined as of the then most recent valuation date for each Pension Plan, using the actuarial assumptions used by the Pension Plans for purposes of determining the minimum funding contributions under Section 412 of the Code to the extent applicable.

Unmatured Event of Default means any event that, if it continues uncured, will, with lapse of time, giving of notice or both, constitute an Event of Default.

Voidable Transfer – see Section 15.23.

Wholly-Owned Subsidiary means, as to any Person, a Subsidiary all of the Capital Securities of which (except directors’ qualifying Capital Securities) are at the time directly or indirectly owned by such Person and/or another Wholly-Owned Subsidiary of such Person. Unless the context otherwise requires, each reference to a Wholly-Owned Subsidiary herein shall be a reference to a Wholly-Owned Subsidiary of a Borrower.

1.2Other Interpretive Provisions.

(a)The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

(b)Section, Annex, Schedule and Exhibit references are to this Agreement unless otherwise specified.

(c)The term “including” is not limiting and means “including without limitation.”

(d)In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”, and the word “through” means “to and including.”

29

(e)Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement and the other Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, supplements and other modifications thereto, but only to the extent such amendments, restatements, supplements and other modifications are not prohibited by the terms of any Loan Documents, and (ii) references to any statute or regulation shall be construed as including all statutory and regulatory provisions amending, replacing, supplementing or interpreting such statute or regulation and the regulations promulgated thereunder.

(f)This Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and each shall be performed in accordance with its terms. In the event of any inconsistency between the terms of the Master Letter of Credit Agreement and the terms of this Agreement, the terms of this Agreement shall control for the purposes of calculating compliance with any condition or covenant, and the occurrence of any Event of Default or Unmatured Event of Default, under the terms of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, the occurrence of a default, Unmatured Event of Default or Event of Default under, and as defined in the Master Letter of Credit Agreement shall not result in a default, Unmatured Event of Default or Event of Default under this Agreement if the event that created such default, Unmatured Event of Default or Event of Default would not, if the Master Letter of Credit Agreement was not a Loan Document, have independently created a default, Unmatured Event of Default or Event of Default under this Agreement.

(g)This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Administrative Agent, the Company, the Loan Parties, the Lenders, the Issuing Bank and the other parties hereto and thereto and are the products of all parties. Accordingly, they shall not be construed against the Administrative Agent, the Lenders or the Issuing Bank merely because of the Administrative Agent’s, Lenders’ or the Issuing Bank’s involvement in their preparation.

SECTION 2.COMMITMENTS OF THE LENDERS; BORROWING, CONVERSION AND LETTER OF CREDIT PROCEDURES.

2.1Commitments. On and subject to the terms and conditions of this Agreement, each of the Lenders, severally and for itself alone, agrees to make Revolving Loans to, and to issue or participate in Letters of Credit for the account of, the Borrowers as follows:

2.1.1Revolving Loan Commitment.

(a)Revolving Loans. Subject to the terms and conditions of this Agreement, each Lender agrees to make loans on a revolving basis (each, a “Revolving Loan”, and collectively, the “Revolving Loans”) from time to time until the Termination Date in such Lender’s Pro Rata Share of such aggregate amounts as the Loan Party Representative may request from the Administrative Agent in accordance with Section 2.2.2; provided that, except as and to the extent set forth in clause (b) below, the Revolving Outstandings will not at any time exceed Revolving Loan Availability or result in the violation of Section 11.13.1.

30

(b)Interim Advances. If at any time the Revolving Outstandings exceeds the Borrowing Base or Section 11.13.1 is violated, and without limiting the other rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents, the Borrowers shall immediately, and without the necessity of demand by the Administrative Agent, make the mandatory prepayment required pursuant to Section 6.2.2(b) to the Administrative Agent; provided, that the Administrative Agent may, at its option and in its sole discretion, permit such excess (the “Interim Advance”) to remain outstanding and continue to advance Revolving Loans to the Borrowers on behalf of the Lenders without the consent of any Lender for a period of up to thirty (30) calendar days, so long as (i) the amount of the Interim Advances does not exceed at any time One Million dollars ($1,000,000), (ii) the Revolving Outstandings do not exceed the Commitments, and (iii) in the case of any subsequent Interim Advances, the Administrative Agent has not been notified by the Required Lenders to cease making such Revolving Loans. If the Interim Advance is not repaid (or otherwise eliminated) in full within thirty (30) days of the initial occurrence of the Interim Advance, no future advances may be made to the Borrowers without the consent of all Lenders until the Interim Advance is repaid in full.

(c)Defaulting Lender. If and to the extent that a Lender does not settle with the Administrative Agent as required under this Agreement (a “Defaulting Lender”), the Borrowers and such Defaulting Lender severally agree to repay to the Administrative Agent forthwith on demand such amount required to be paid by such Defaulting Lender to the Administrative Agent, together with interest thereon, for each day from the date such amount is made available to the Borrowers until the date such amount is repaid to the Administrative Agent (x) in the case of a Defaulting Lender at the Federal Funds Rate, and (y) in the case of the Borrowers, at the interest rate applicable at such time for such Revolving Loans; provided, that the Borrowers’ obligation to repay such advance to the Administrative Agent shall not relieve such Defaulting Lender of its liability to the Administrative Agent for failure to settle as provided in this Agreement.

2.1.2[Intentionally Omitted].

2.1.3L/C Commitment. Subject to Section 2.3.1 and the other terms and conditions of this Agreement, the Issuing Bank agrees to issue letters of credit, in each case containing such terms and conditions as are permitted by this Agreement and are reasonably satisfactory to the Issuing Bank (each, a “Letter of Credit”), at the request of the Loan Party Representative and for the account of the Borrowers from time to time before the Termination Date and, as more fully set forth in Section 2.3.2, each Lender (which shall not include the Issuing Bank) agrees to purchase a participation in each such Letter of Credit; provided that (a) the aggregate Stated Amount of all Letters of Credit (after giving effect to the Stated Amount of any Letter of Credit so requested) shall not at any time exceed Eight Million Dollars ($8,000,000) and (b) the Revolving Outstandings (after giving effect to the Stated Amount of any Letter of Credit so requested) shall not at any time exceed Revolving Loan Availability or result in a violation of Section 11.13.1. Without limiting any of the foregoing (and without duplication of the EDA Reserve), the Back-Stop L/C shall be deemed to have been requested by the Borrowers on the Closing Date, regardless of when issued.

31

2.2Loan Procedures.

2.2.1Various Types of Revolving Loans. Each Revolving Loan shall be divided into tranches which are, either a Base Rate Loan or a LIBOR Loan (each a “type” of Loan), as the Loan Party Representative shall specify in the related notice of borrowing or conversion pursuant to Section 2.2.2 or 2.2.3. LIBOR Loans having the same Interest Period which expire on the same day are sometimes called a “Group” or collectively “Groups”. Base Rate Loans and LIBOR Loans may be outstanding at the same time, provided that not more than five (5) different Groups of LIBOR Loans, in aggregate, shall be outstanding at any one time. All borrowings, conversions and repayments of Revolving Loans shall be effected so that each Lender will have a ratable share (according to its Pro Rata Share) of all types and Groups of Revolving Loans.

2.2.2Borrowing Procedures. The Loan Party Representative shall give written notice (each such written notice, a “Notice of Borrowing”) substantially in the form of Exhibit E or telephonic notice (followed immediately by a Notice of Borrowing) to the Administrative Agent of each proposed borrowing not later than (a) in the case of a Base Rate borrowing, 11:00 A.M., Chicago time, on the proposed date of such borrowing, and (b) in the case of a LIBOR borrowing, 11:00 A.M., Chicago time, at least three (3) Business Days prior to the proposed date of such borrowing. Each such notice shall be effective upon receipt by the Administrative Agent, shall be irrevocable, and shall specify the date, amount and type of borrowing and, in the case of a LIBOR borrowing, the initial Interest Period therefor. Upon its receipt of any such notice, the Administrative Agent, at its option and in its sole discretion, shall do either of the following:

(i)advance the amount of the proposed Revolving Loan to the Loan Party Representative on behalf of the applicable Borrower disproportionately (a “Disproportionate Advance”) out of the Administrative Agent’s own funds on behalf of the Lenders, which advance shall be made (x) in the case of a Base Rate Loan, on the same day as the Loan Party Representative’s request therefor if the Loan Party Representative notifies the Administrative Agent of such request by 11:00 A.M. (Chicago time) on such day or (y) in the case of a LIBOR Rate Loan, on the third Business Day following such request therefor if the Loan Party Representative notifies the Administrative Agent of such request by 11:00 A.M. (Chicago time) on such third Business Day preceding such day, and, in either case, thereafter request settlement in accordance with Section 7.1.3 such that upon such settlement each Lender’s share of the outstanding Revolving Loans (including, without limitation, the amount of any Disproportionate Advance) equals its Pro Rata Share; or

(ii)Notify each Lender by telecopy, electronic mail or other similar form of teletransmission of the proposed advance on the same day the Administrative Agent is notified or deemed notified by the Loan Party Representative of the Loan Party Representative’s request for an advance pursuant to this Section 2.2.2. Each Lender shall remit, to the demand deposit account designated by the Loan Party Representative (x) with respect to Base Rate Loans, at or prior to 1:00 P.M., Chicago time, on the date of the proposed borrowing, if such notification is made before 11:00 A.M., Chicago time, or (y) with respect to LIBOR Rate Loans, at or prior to 10:30 A.M., Chicago time, on the date such LIBOR Rate Loans are to be advanced, immediately available funds in an amount equal to such Lender’s Pro Rata Share of such proposed advance.

32

Each borrowing shall be on a Business Day. Each Base Rate borrowing shall be in an aggregate amount of at least $100,000 and integral multiples of $100,000 in excess thereof, and each LIBOR borrowing shall be in an aggregate amount of at least $500,000 and integral multiples of at least $100,000 in excess thereof. Delivery of any Notice of Borrowing, any request for a Letter of Credit, and the acceptance of any Revolving Loan or any Letter of Credit, shall be deemed a representation and warranty by the Loan Parties that all conditions precedent to the making of any Revolving Loans or other financial accommodations set forth in Sections 12.1 (in the case of the initial Revolving Loans to be made or Letter of Credit to be issued hereunder) and 12.2 have been satisfied as of the date of such request, notice or borrowing hereunder.

2.2.3Conversion and Continuation Procedures.

(a)Subject to Section 2.2.1, the Borrowers may, upon irrevocable written notice to the Administrative Agent in accordance with clause (b) below:

(i)elect, as of any Business Day, to convert any Revolving Loans of one type or any part thereof into Revolving Loans of the other type (provided, in the case of any conversion to a LIBOR Loan, such part thereof is in an aggregate amount not less than $500,000 or a higher integral multiple of $100,000); or

(ii)elect, as of the last day of the applicable Interest Period thereof, to continue any LIBOR Loans having Interest Periods expiring on such day (or any part thereof in an aggregate amount not less than $500,000 or a higher integral multiple of $100,000) for a new Interest Period or convert such LIBOR Loans to Base Rate Loans;

provided that after giving effect to any conversion or continuation, the aggregate principal amount of each Group of LIBOR Loans shall be at least $500,000 or an integral multiple of $100,000 in excess thereof.

(b)The Loan Party Representative shall give written notice (each such written notice, a “Notice of Conversion/Continuation”) substantially in the form of Exhibit F or telephonic notice (followed immediately by a Notice of Conversion/Continuation) to the Administrative Agent of each proposed conversion or continuation not later than (i) in the case of conversion into Base Rate Loans, 11:00 A.M., Chicago time, on the proposed date of such conversion and (ii) in the case of conversion into or continuation of LIBOR Loans, 11:00 A.M., Chicago time, at least three (3) Business Days prior to the proposed date of such conversion or continuation, specifying in each case:

(i)the proposed date of conversion or continuation;

(ii)the aggregate amount of Revolving Loans to be converted or continued;

(iii)the type of Revolving Loans resulting from the proposed conversion or continuation; and

(iv)in the case of conversion into, or continuation of, LIBOR Loans, the duration of the requested Interest Period therefor.

33

(c)If upon the expiration of any Interest Period applicable to LIBOR Loans, the Loan Party Representative has failed to select timely a new Interest Period to be applicable to such LIBOR Loans, the Loan Party Representative shall be deemed to have elected to convert such LIBOR Loans into Base Rate Loans effective on the last day of such Interest Period.

(d)The Administrative Agent will promptly notify each Lender of its receipt of a notice of conversion or continuation pursuant to this Section 2.2.3 or, if no timely notice is provided by the Loan Party Representative, of the details of any automatic conversion.

(e)Any conversion of a LIBOR Loan on a day other than the last day of an Interest Period therefor shall be subject to Section 8.4.

2.2.4Borrowing Representations and Warranties. Each and every request (or deemed request) by the Borrowers (through the Loan Party Representative) for, and acceptance by the Borrowers of, a Revolving Loan or Letter of Credit shall, in each case, constitute the Borrowers’ representation and warranty that (and the Administrative Agents’ and the Lenders’ obligation to make any such Revolving Loan or issue or participate in any Letter of Credit shall be subject to the conditions precedent that), both on the date of such request for such Revolving Loan and/or Letter of Credit and on the date any such Revolving Loan is made or Letter of Credit is issued, (i) no Unmatured Event of Default or Event of Default has occurred and is continuing, (ii) the Borrowers’ representations and warranties set forth in this Agreement, as supplemented from time to time, are true and correct in all material respects (or, if such representations and warranties are qualified by materiality or Material Adverse Effect, in all respects) except to the extent any such representation and warranty expressly speaks to an earlier date, and (iii) after giving effect to such Revolving Loan and/or Letter of Credit, no violation of Section 11.13.1 would then exist or result therefrom.

2.3Letter of Credit Procedures.

2.3.1L/C Applications. The Borrowers shall execute and deliver to the Issuing Bank the Master Letter of Credit Agreement on the Closing Date. The Loan Party Representative shall give notice to the Administrative Agent and the Issuing Bank of the requested issuance of each Letter of Credit on a Business Day which is at least three (3) Business Days (or such lesser number of days as the Administrative Agent and the Issuing Bank shall agree in any particular instance in their sole discretion) prior to the proposed date of issuance of such Letter of Credit. Each such notice shall be accompanied by an L/C Application, duly executed by the Loan Party Representative and in all respects satisfactory to the Administrative Agent and the Issuing Bank, together with such other documentation as the Administrative Agent or the Issuing Bank may reasonably request in support thereof, it being understood that each L/C Application shall specify, among other things, the date on which the proposed Letter of Credit is to be issued, the expiration date of such Letter of Credit (which shall not be later than thirty (30) days prior to the Scheduled Termination Date (unless such Letter of Credit is Cash Collateralized) and shall in no event exceed more than one (1) year from the date of issuance, provided such Letter of Credit may provide for annual renewals subject to Issuing Bank consent thereto) and whether such Letter of Credit is to be transferable in whole or in part. Any Letter of Credit outstanding after the Scheduled Termination Date which is Cash Collateralized for the benefit of the Issuing Bank shall be the sole responsibility of the Issuing Bank and the Issuing

34

Bank shall be solely entitled to the benefits of such Cash Collateral. The Issuing Bank shall promptly advise the Administrative Agent of the issuance of each Letter of Credit and of any amendment thereto, extension thereof or event or circumstance changing the amount available for drawing thereunder. In the event of any inconsistency between the terms of the Master Letter of Credit Agreement, any L/C Application and the terms of this Agreement, the terms of this Agreement shall control.

2.3.2Participations in Letters of Credit. Concurrently with the issuance of each Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred to each Lender, and each such Lender (which term shall not, for purposes of this Section 2.3.2, include the Issuing Bank) shall be deemed irrevocably and unconditionally to have purchased and received from the Issuing Bank, without recourse or warranty, an undivided interest and participation, to the extent of such Lender’s Pro Rata Share (aggregating to 100% as among all such Lenders), in such Letter of Credit and the Borrowers’ reimbursement obligations with respect thereto. Upon the incurrence of any reimbursement obligation under any Letter of Credit, the Borrowers shall be deemed to have immediately requested that the Lenders make a Revolving Loan which is a Base Rate Loan in a principal amount equal to such reimbursement obligations. The Administrative Agent shall promptly notify such Lenders of such deemed request and, without the necessity of compliance with the requirements of Section 2.2.2, 12.2 or otherwise such Lender shall make available to the Administrative Agent its Pro Rata Share of such Revolving Loan. The proceeds of such Revolving Loan shall be paid over by the Administrative Agent to the Issuing Bank for the account of the Borrowers in satisfaction of such reimbursement obligations. The Issuing Bank hereby agrees, upon request of the Administrative Agent, to deliver to the Administrative Agent or Lender a list of all outstanding Letters of Credit issued by the Issuing Bank, together with such information related thereto as the Administrative Agent or any Lender may reasonably request.

2.3.3Reimbursement Obligations.

(a)Each of the Borrowers hereby jointly and severally unconditionally and irrevocably agrees to reimburse the Issuing Bank for each payment or disbursement made by the Issuing Bank under any Letter of Credit honoring any demand for payment made by the beneficiary thereunder, in each case on the date that such payment or disbursement is made. If any such amounts can not be reimbursed by the making of a Revolving Loan for any reason, any amount not reimbursed on the date of such payment or disbursement shall bear interest from the date of such payment or disbursement to the date that the Issuing Bank is reimbursed by any Borrower therefor, payable on demand, at a rate per annum equal to the Base Rate from time to time in effect plus the Base Rate Margin from time to time in effect plus, beginning on the third Business Day after receipt of notice from the Issuing Bank of such payment or disbursement, 2%. The Issuing Bank shall notify the Loan Party Representative and the Administrative Agent whenever any demand for payment is made under any Letter of Credit by the beneficiary thereunder; provided that the failure of the Issuing Bank to so notify the Loan Party Representative or the Administrative Agent shall not affect the rights of the Issuing Bank or the Lenders in any manner whatsoever.

(b)The Borrowers’ reimbursement obligations hereunder shall be irrevocable and unconditional under all circumstances, including (a) any lack of validity or enforceability of any

35

Letter of Credit, this Agreement or any other Loan Document, (b) the existence of any claim, set-off, defense or other right which any Loan Party may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, the Issuing Bank, any Lender or any other Person, whether in connection with any Letter of Credit, this Agreement, any other Loan Document, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between any Loan Party and the beneficiary named in any Letter of Credit), (c) the validity, sufficiency or genuineness of any document which the Issuing Bank has determined complies on its face with the terms of the applicable Letter of Credit, even if such document should later prove to have been forged, fraudulent, invalid or insufficient in any respect or any statement therein shall have been untrue or inaccurate in any respect, or (d) the surrender or impairment of any security for the performance or observance of any of the terms hereof. Without limiting the foregoing, no action or omission whatsoever by the Administrative Agent or any Lender (excluding, for purposes hereof, the Issuing Bank) under or in connection with any Letter of Credit or any related matters shall, absent gross negligence or willful misconduct, result in any liability of the Administrative Agent or any Lender to any Loan Party, or relieve any Loan Party of any of its obligations hereunder to any such Person.

2.3.4Funding by the Lenders to Issuing Bank. If the Issuing Bank makes any payment or disbursement under any Letter of Credit and (a) (i) a Revolving Loan may not be made in accordance with Section 2.3.2 and (ii) the Loan Parties have not reimbursed the Issuing Bank in full for such payment or disbursement by 11:00 A.M., Chicago time on the date of such payment or disbursement or (b) any reimbursement that was received by the Issuing Bank from a Loan Party or any other Person on behalf of the Loan Parties is or must be returned or rescinded upon or during any bankruptcy or reorganization of any Loan Party, such other Person or otherwise, each Lender with a Commitment shall be obligated to pay to the Administrative Agent for the account of the Issuing Bank, in full or partial payment of the purchase price of its participation in such Letter of Credit, its Pro Rata Share (aggregating to 100% as among all such Lenders (exclusive of the Issuing Bank)) of such payment or disbursement (but no such payment shall diminish the obligations of the Borrowers under Section 2.3.3), and, upon notice from the Issuing Bank, the Administrative Agent shall promptly notify each Lender thereof. Each Lender irrevocably and unconditionally agrees to so pay to the Administrative Agent in immediately available funds for the Issuing Bank’s account the amount of such Lender’s Pro Rata Share of such payment or disbursement. If and to the extent any Lender shall not have made such amount available to the Administrative Agent by 2:00 P.M., Chicago time, on the Business Day on which such Lender receives notice from the Administrative Agent of such payment or disbursement (it being understood that any such notice received after noon, Chicago time, on any Business Day shall be deemed to have been received on the next following Business Day), such Lender agrees to pay interest on such amount to the Administrative Agent for the Issuing Bank’s account forthwith on demand, for each day from the date such amount was to have been delivered to the Administrative Agent to the date such amount is paid, at a rate per annum equal to (a) for the first three (3) days after demand, the Federal Funds Rate from time to time in effect and (b) thereafter, the Base Rate from time to time in effect. Any Lender’s failure to make available to the Administrative Agent its Pro Rata Share of any such payment or disbursement shall not relieve the Borrowers or any other Lender of its obligation hereunder to make available to the Administrative Agent, the Borrowers’ or such other Lender’s Pro Rata Share of such payment, but no Lender shall be responsible for the failure of any other Lender to make available

36

to the Administrative Agent such other Lender’s Pro Rata Share of any such payment or disbursement.

2.4Commitments Several. The failure of any Lender to make a requested Revolving Loan on any date shall not relieve any other Lender of its obligation (if any) to make a Revolving Loan on such date, but no Lender shall be responsible for the failure of any other Lender to make any Revolving Loan to be made by such other Lender.

2.5Certain Conditions. Except with respect to the making of Revolving Loans in Sections 2.3.2 and 2.3.4 of this Agreement, no Lender shall have an obligation to make any Revolving Loan, or to permit the continuation of or any conversion into any LIBOR Loan, and the Issuing Bank shall not have any obligation to issue any Letter of Credit, if an Event of Default or Unmatured Event of Default exists or would result therefrom.

2.6Loan Party Representative. Each Loan Party hereby designates the Company as its representative and agent on its behalf (in such capacity, the “Loan Party Representative”) to act as specified herein. Each Loan Party hereby authorizes the Loan Party Representative to take such actions on its behalf under the terms of this Agreement and the other Loan Documents and to exercise such powers and perform such duties hereunder and thereunder as are specified in such agreements or are reasonably incidental thereto, including issuing Notices of Borrowing and Notices of Conversion/Continuation, acceptance of amounts borrowed hereunder, giving instructions with respect to the disbursement of the proceeds of the Revolving Loans, selecting interest rate options, requesting Letters of Credit, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants), in each case, on behalf of the Borrowers and the Loan Parties under the Loan Documents. The Loan Party Representative hereby accepts such appointment. The Administrative Agent and the Lenders shall be entitled to rely on all notices, requests, consents, certifications and/or authorizations or other similar acts delivered or taken by the Loan Party Representative for or on behalf of any Borrower pursuant hereto or the other Loan Documents without inquiry and as if such notices, requests, consents, certifications and/or authorizations or other similar acts were delivered by such Borrower. Each warranty, covenant, agreement and undertaking made on its behalf by the Loan Party Representative shall be deemed for all purposes to have been made by all Borrowers and Loan Parties (or any of the them, as applicable) and shall be binding upon and enforceable against such Borrower or Loan Party to the same extent as it if the same had been made directly by such Borrower or Loan Party. The Company shall not be permitted to resign as the Loan Party Representative and the Borrowers shall not be permitted to remove the Company as Loan Party Representative without the consent of the Administrative Agent; provided that if the Company notifies the Administrative Agent in writing that it (or any successor Loan Party Representative) shall no longer be able to act as Loan Party Representative in accordance with the terms hereof, the Administrative Agent and the Borrowers shall appoint a successor to act as Loan Party Representative, which successor shall be a Borrower designated by the Administrative Agent therefor (and the Borrowers hereby agree that such Person thereafter shall be vested with all rights, powers, privileges and authority of the Loan Party Representative hereunder).

2.7Increase in Commitments. Upon the request of the Loan Party Representative made at any time (a) prior to the Termination Date and (b) indicating that any existing Lender

37

has agreed to increase its Commitment or that any other Eligible Assignee approved by the Loan Party Representative, the Administrative Agent and the Issuing Bank, has become a party hereto as a Lender and has agreed to accept an additional Commitment (in each case, pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent), then, provided that no Unmatured Event of Default or Event of Default then exists and is continuing and without the consent of any other Lender, upon payment of any applicable fees in the Agent Fee Letter relating to such increase, the aggregate Commitments shall be increased by the amount of the additional or supplemental Commitment(s) of such Lender(s). Upon the increase in the aggregate Commitments, the respective Pro Rata Shares of each Lender in respect of the Commitments shall be adjusted automatically to reflect the increase in the aggregate Commitments and such Lender’s new or supplemental Commitment.

SECTION 3.   EVIDENCING OF REVOLVING LOANS.

3.1Notes. The Revolving Loans of each Lender shall be evidenced by a Note in the form set forth as Exhibit A, (each, a “Note”, and collectively, the “Notes”). Each such Note shall have appropriate insertions and shall be payable to the order of such Lender in a face principal amount equal to such Lender’s Commitment. However, if such Revolving Loans are not so evidenced, such Revolving Loans may be evidenced solely by entries upon the books and records maintained by the Administrative Agent, which books and records shall be conclusively presumed correct absent manifest error.

3.2Recordkeeping. The Administrative Agent, on behalf of each Lender, shall record in its records, the date and amount of each Revolving Loan made by each Lender, each repayment or conversion thereof and, in the case of each LIBOR Loan, the dates on which each Interest Period for such Revolving Loan shall begin and end. The aggregate unpaid principal amount so recorded shall be rebuttably presumptive evidence of the principal amount of the Revolving Loans owing and unpaid. The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the Obligations of the Borrowers hereunder or under any Note to repay the principal amount of the Revolving Loans hereunder, together with all interest accruing thereon.

SECTION 4.   INTEREST.

4.1Interest Rates. The Borrowers hereby jointly and severally promise to pay interest on the unpaid principal amount of each Revolving Loan for the period commencing on the date of such Revolving Loan until such Revolving Loan is paid in full as follows:

(a)at all times while such Revolving Loan is a Base Rate Loan, at a rate per annum equal to the sum of the Base Rate from time to time in effect plus the Base Rate Margin; and

(b)at all times while such Revolving Loan is a LIBOR Loan, at a rate per annum equal to the sum of the LIBOR Rate applicable to each Interest Period for such Revolving Loan plus the LIBOR Margin;

provided that any time an Event of Default exists, at the Required Lenders’ election, the interest rate applicable to each such Revolving Loan shall be increased by two percent (2%); and provided, further, that any such increase may thereafter be rescinded by the Required Lenders

38

notwithstanding Section 15.1. Notwithstanding the foregoing, upon the occurrence of an Event of Default under Section 13.1.1 or 13.1.4, such increase shall occur automatically.

4.2Interest Payment Dates. Accrued interest on each Base Rate Loan shall be payable in arrears on the last day of each calendar month and at maturity. Accrued interest on each LIBOR Loan shall be payable on the last day of each Interest Period relating to such Revolving Loan, upon a prepayment of such Revolving Loan (and, in the case of a LIBOR Loan with an Interest Period in excess of three (3) months, on the three-month anniversary of the first day of such Interest Period), and at maturity. After maturity, and at any time an Event of Default exists, accrued interest on all Revolving Loans shall be payable on demand.

4.3Setting and Notice of LIBOR Rates. The applicable LIBOR Rate for each Interest Period shall be determined by the Administrative Agent, and notice thereof shall be given by the Administrative Agent promptly to the Loan Party Representative and each applicable Lender. Each determination of the applicable LIBOR Rate by the Administrative Agent shall be conclusive and binding upon the parties hereto, in the absence of demonstrable error. The Administrative Agent shall, upon written request of the Loan Party Representative or any Lender, promptly deliver to the Loan Party Representative or such Lender a statement showing the computations used by the Administrative Agent in determining any applicable LIBOR Rate hereunder.

4.4Computation of Interest. Interest shall be computed for the actual number of days elapsed on the basis of a year of three hundred sixty (360) days. The applicable interest rate for each Base Rate Loan shall change simultaneously with each change in the Base Rate.

SECTION 5.   FEES.

5.1Non-Use Fee. The Borrowers hereby jointly and severally agree to pay to the Administrative Agent, for the account of each Lender, a non-use fee, for the period from the Closing Date to the Termination Date, at the Non-Use Fee Rate in effect from time to time of such Lender’s Pro Rata Share (as adjusted from time to time) of the daily average of the unused amount of the Maximum Revolving Commitment. For purposes of calculating usage under this Section, the Maximum Revolving Commitment shall be deemed used to the extent of Revolving Outstandings. Such non-use fee shall be payable in arrears on the last day of each calendar month and on the Termination Date for any period then ending for which such non-use fee shall not have previously been paid. The non-use fee shall be computed for the actual number of days elapsed on the basis of a year of three hundred sixty (360) days.

5.2Letter of Credit Fees.

(a)The Borrowers hereby jointly and severally agree to pay to the Administrative Agent, for the account of each Lender, a letter of credit fee for each Letter of Credit equal to the L/C Fee Rate in effect from time to time of such Lender’s Pro Rata Share (as adjusted from time to time) of the undrawn amount of such Letter of Credit (computed for the actual number of days elapsed on the basis of a year of three hundred sixty (360) days); provided that, upon the election of the Required Lenders (or automatically upon the occurrence of an Event of Default under Section 13.1.1 or 13.1.4), the rate applicable to each Letter of Credit shall be increased by two

39

percent (2%) at any time that an Event of Default exists. Such letter of credit fee shall be payable in arrears on the last day of each calendar month and on the Termination Date (or such later date on which such Letter of Credit expires or is terminated) for the period from the date of the issuance of each Letter of Credit (or the last day on which the letter of credit fee was paid with respect thereto) to the date such payment is due or, if earlier, the date on which such Letter of Credit expired or was terminated.

(b)In addition, with respect to each Letter of Credit, the Borrowers hereby jointly and severally agree to pay to the Issuing Bank, for its own account, (i) such fees and expenses as the Issuing Bank customarily requires in connection with the issuance, negotiation, processing and/or administration of letters of credit in similar situations, and (ii) letter of credit fronting fee in the amount and at the time agreed to by the Borrowers and the Issuing Bank.

5.3Administrative Agent’s Fees. The Borrowers hereby jointly and severally agree to pay to the Administrative Agent such agent’s fees as are set forth in the Agent Fee Letter.

5.4Termination Fee. In the event that the Termination Date shall occur at any time prior to the first year anniversary of the Closing Date for any reason whatsoever, the Borrowers hereby jointly and severally hereby agree to pay to the Administrative Agent, for the ratable benefit of each of the Lenders, a termination fee (the “Termination Fee”) equal to one percent (1.00%) of the highest Maximum Revolving Commitment that had been in effect at any time prior to such termination. For clarification purposes, it is hereby acknowledged that no Termination Fee shall be due as a result of the Revolving Outstandings being reduced to zero from time to time.

SECTION 6.REDUCTION OR TERMINATION OF THE REVOLVING COMMITMENT LIMIT AND THE REVOLVING COMMITMENT; PREPAYMENTS.

6.1Reduction or Termination of the Revolving Commitment.

6.1.1Voluntary Reduction or Termination of the Revolving Commitment. The Loan Party Representative may from time to time on at least three (3) Business Days’ prior written notice received by the Administrative Agent (which shall promptly advise each Lender thereof) permanently reduce the Revolving Commitment Limit to an amount not less than the Revolving Outstandings plus the required Excess Revolving Loan Availability pursuant to Section 11.13.1. Any such reduction shall be in an amount not less than $1,000,000 or a higher integral multiple of $1,000,000 and such reduction shall be applied Pro Rata as a reduction to each Lender’s Commitment such that the sum of such Commitments equal the Revolving Commitment Limit. Concurrently with any reduction of the Revolving Commitment Limit to zero, the Termination Date shall be deemed to have occurred, and the Borrowers shall be required to repay all Obligations and shall terminate or Cash Collateralize in full all outstanding Letters of Credit. Any such termination of the Revolving Commitment Limit occurring on or prior to the first year anniversary of the Closing Date shall be accompanied by the Termination Fee required pursuant to Section 5.4.

6.1.2[Intentionally Omitted].

40

6.1.3All Reductions of the Revolving Commitment. All reductions of the Commitments shall reduce the Revolving Commitment Limit and shall reduce the Commitments ratably among the Lenders according to their respective Pro Rata Shares.

6.2Prepayments.

6.2.1Voluntary Prepayments. Revolving Loans may be prepaid at any time and, subject to the terms and conditions hereof, reborrowed. Any such prepayment shall be applied first to accrued but unpaid interest owing on the Revolving Loans.

6.2.2Mandatory Prepayments.

(a)The Borrowers shall make a prepayment of the Obligations until paid in full upon the occurrence of any of the following (each a “Mandatory Prepayment Event”) at the following times and in the following amounts, which amounts shall be applied in accordance with this Section 6.2.2 and Section 6.3 as follows (such proceeds being the “Designated Proceeds”):

(i)Subject to Section 10.3.2, concurrently with the receipt by any Loan Party of any Net Cash Proceeds from any Asset Disposition (or financing or refinancing of any Obligations with Debt permitted under Section 11.1(b)), in an amount equal to 100% of such Net Cash Proceeds therefrom, which amounts shall be applied (1) first, to the Revolving Outstandings until paid in full (including the Cash Collateralization of all outstanding Letters of Credit), (2) second, against all Bank Products Obligations due and owing to any  Lender or its Affiliates, pro-rata, until paid in full, (3) third, to all other Obligations due and owing to each Lender and the Administrative Agent, pro-rata, until paid in full, (4) fourth, to the payment of any Specified Hedging Obligations due and owing to any Lenders, pro-rata, until paid in full, and (5) fifth, any amounts remaining thereafter, shall be delivered to the Loan Party Representative for remittance to the Borrowers; and

(ii)Within three (3) Business Days after its receipt by any Loan Party of any Net Cash Proceeds from any issuance of Capital Securities of any Loan Party (excluding (x) any issuance of Capital Securities to employees or directors of any Borrower or their Subsidiaries with respect to their compensation or benefits, whether pursuant to a formal stock and/or option plan, benefit program or otherwise and (y) any such issuance by a Subsidiary of a Borrower to its parent) or the issuance of any Debt of any Loan Party (excluding Debt permitted by clauses (a) - (m) of Section 11.1), in an amount equal to 100% of such Net Cash Proceeds therefrom, which amounts shall be applied as set forth in clause (i) immediately above.

Nothing in this Section 6.2.2(a) shall be deemed to authorize any Asset Disposition or the sale or issuance of any Capital Securities or Debt not otherwise permitted hereunder.

(b)In addition to the payments required pursuant to clause (a) immediately above, the outstanding principal balance of the Revolving Loans shall be repaid daily from available funds in the Agent Account as determined in accordance with Section 7.1.1 and Section 10.11 hereof. In addition, subject to Section 2.1.1(b) and without limiting any of the other rights and remedies of the Administrative Agent and the Lenders in respect thereof, if on any day the Revolving

41

Outstandings exceeds the Revolving Loan Availability on such day or a violation of Section 11.13.1 then exists, the Borrowers shall immediately prepay the Revolving Loans and/or Cash Collateralize the outstanding Letters of Credit, or do a combination of the foregoing, in an amount sufficient to eliminate such excess or violation.

(c)Nothing in this Section 6.2.2 shall be deemed to authorize the taking of any action by any Loan Party which is not otherwise permitted hereunder.

6.3Manner of Prepayments. Any partial prepayment of a Group of LIBOR Loans shall be subject to the proviso to Section 2.2.3(a). Any prepayment of a LIBOR Loan on a day other than the last day of an Interest Period therefor shall include interest on the principal amount being repaid and shall be subject to Section 8.4. Except as otherwise provided by this Agreement, all principal payments in respect of the Revolving Loans shall be applied first, to repay outstanding Base Rate Loans, if any, and then to repay outstanding LIBOR Rate Loans in direct order of Interest Period maturities.

6.4Repayments.

6.4.1All Obligations. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, ALL OBLIGATIONS (OTHER THAN UNASSERTED CONTINGENT INDEMNIFICATION OBLIGATIONS) SHALL BE AND BECOME IMMEDIATELY DUE AND PAYABLE AND ALL LETTERS OF CREDIT SHALL IMMEDIATELY BE REQUIRED TO BE TERMINATED OR CASH COLLATERALIZED UPON THE OCCURRENCE OF THE TERMINATION DATE FOR ANY REASON WHATSOEVER.

6.4.2Revolving Loans. The Revolving Loans shall be paid in full and the Commitment of each Lender shall terminate on the Termination Date.

SECTION 7.MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.

7.1Making of Payments.

7.1.1Manner of Payment; Application of Payment. All payments of principal or interest on the Notes, and of all fees, shall be made by the Borrowers to the Administrative Agent in immediately available funds at the office specified by the Administrative Agent not later than 1:00 p.m., Chicago time, on the date due; and funds received after that hour shall be deemed to have been received by the Administrative Agent on the following Business Day. For purposes of calculating interest and fees, the Administrative Agent shall, within one and one-quarter (1-1/4) Business Days after its receipt (as set forth above) in the Agent Account of any items of payment or proceeds of any Collateral (other than cash or other immediately available funds, which amounts shall be credited immediately upon the Administrative Agent’s receipt (as set forth above) in the Agent Account) to be applied against the Obligations in accordance with the terms hereof, apply the whole or any part of such collections or proceeds against the Obligations in such order as is specified in this Agreement and the other Loan Documents. For purposes of determining Revolving Loan Availability and Excess Revolving Loan Availability for borrowing purposes, the Administrative Agent shall, immediately upon its receipt thereof in the Agent Account, credit any items of payment or

42

proceeds of any Collateral to be applied against the Obligations in accordance with the terms hereof, against the Obligations in such order as is specified in this Agreement, subject to actual collection. The Administrative Agent shall remit to each Lender its share of all such payments received in collected funds by the Administrative Agent for the account of such Lender entitled thereto in the manner and at the times set forth in Section 7.1.3 below. All payments shall be made by the Borrowers directly to the Administrative Agent without setoff, counterclaim, deduction, withholding or other defense.

7.1.2Payment Authorization. The Borrowers hereby authorize the Administrative Agent, in its sole discretion, to charge any of the Borrowers’ accounts or advance Revolving Loans to make any payments of principal, interest, fees, costs or expenses required to be made under this Agreement or the other Loan Documents.

7.1.3Settlement. On a weekly basis (or more frequently if requested by the Administrative Agent (a “Settlement Date”), the Administrative Agent shall provide each Lender with a statement of the outstanding balance of the Obligations as of the end of the Business Day immediately preceding the Settlement Date (the “Pre-Settlement Determination Date”) and the current balance of the Revolving Loans funded by such Lender (whether made directly by such Lender to any Borrower or constituting a settlement by such Lender of a previous Disproportionate Advance made by the Administrative Agent on behalf of such Lender to any Borrower). If such statement discloses that such Lender’s current balance of the Revolving Loans as of the Pre-Settlement Determination Date exceeds such Lender’s Pro Rata Share of the applicable Obligations outstanding as of the Pre-Settlement Determination Date, then the Administrative Agent shall, on the Settlement Date, transfer, by wire transfer, the net amount due to such Lender in accordance with such Lender’s instructions, and if such statement discloses that such Lender’s current balance of the Revolving Loans as of the Pre-Settlement Determination Date is less than such Lender’s Pro Rata Share of the applicable Obligations outstanding as of the Pre-Settlement Determination Date, then such Lender shall, on the Settlement Date, transfer, by wire transfer the net amount due to the Administrative Agent in accordance with the Administrative Agent’s instructions. In addition, payments actually received by the Administrative Agent with respect to the following items shall be distributed by the Administrative Agent to the Lenders as follows:

(a)Within one (1) Business Day of receipt thereof by the Administrative Agent, payments to be applied to interest on the Revolving Loans shall be paid to each Lender in proportion to its Pro Rata Share of the Revolving Loans in respect of which such interest is being paid, subject to any adjustments for any Disproportionate Advances as provided in Section 2.2.2, so that the Administrative Agent shall receive interest on the Disproportion Advances and each Lender shall only receive interest on the amount of funds actually advanced by such Lender;

(b)Within one (1) Business Day of receipt thereof by the Administrative Agent, payments to be applied to the Non-Use Fee as provided in Section 5.1 shall be paid to each Lender in proportion to its Pro Rata Share of the daily average of the unused amount of the Commitments; and

(c)Within one (1) Business Day of receipt thereof by the Administrative Agent, payments to be applied to the Letter of Credit Fee for each Letter of Credit as provided in

43

Section 5.2 shall be paid to each Lender in proportion to its Pro Rata Share of the undrawn amount of such Letter of Credit.

Notwithstanding the foregoing, the Administrative Agent shall not be obligated to transfer to any Defaulting Lender any payment made by any Borrower to the Administrative Agent, nor shall such Defaulting Lender be entitled to share any interest, fees or other payment hereunder, until payment is made by such Defaulting Lender to the Administrative Agent as required in this Agreement.

7.2Application of Certain Payments. So long as no Event of Default has occurred and is continuing, (a) payments matching specific scheduled payments then due shall be applied to those scheduled payments and (b) voluntary and mandatory prepayments shall be applied as set forth in Sections 6.2 and 6.3. After the occurrence and during the continuance of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender as proceeds from the sale of, or other realization upon, all or any part of the Collateral shall, be applied as the Administrative Agent shall determine in its reasonable discretion or, in the absence of a specific determination by the Administrative Agent, as set forth in the Guaranty and Collateral Agreement. Concurrently with each remittance to any Lender of its share of any such payment, the Administrative Agent shall advise such Lender as to the application of such payment.

7.3Due Date Extension. If any payment of principal or interest with respect to any of the Revolving Loans, or of any fees, falls due on a day which is not a Business Day, then such due date shall be extended to the immediately following Business Day (unless, in the case of a LIBOR Loan, such immediately following Business Day is the first Business Day of a calendar month, in which case such due date shall be the immediately preceding Business Day) and, in the case of principal, additional interest shall accrue and be payable for the period of any such extension.

7.4Setoff. The Borrowers and the other Loan Parties each agree that the Administrative Agent and each Lender have all rights of set-off and bankers’ lien provided by applicable law, and in addition thereto, the Borrowers and each other Loan Party agrees that at any time any Event of Default exists and is continuing, the Administrative Agent and each Lender may apply to the payment of any Obligations of the Borrowers and each other Loan Party hereunder, whether or not then due, any and all balances, credits, deposits, accounts or moneys of the Borrowers and each other Loan Party then or thereafter with the Administrative Agent or such Lender.

7.5Proration of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise, on account of (a) principal of or interest on any Revolving Loan (but excluding (i) any payment pursuant to Section 8.7 or 15.6 and (ii) payments of interest on any Affected Loan) or (b) its participation in any Letter of Credit) in excess of its applicable Pro Rata Share of those payments and other recoveries obtained by all other applicable Lenders on account of principal of and interest on the respective Revolving Loans (or such participation) then held by them, then such Lender shall purchase from the other applicable Lenders such participations in the respective affected Revolving Loans (or sub-participations in Letters of Credit) held by them as shall be necessary to

44

cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and the purchase price restored to the extent of such recovery.

7.6Taxes.

(a)Except as expressly otherwise provided in this Section 7.6, all payments made by each Loan Party hereunder or under any Loan Documents (including any payment of principal, interest, or fees) to, or for the benefit, of any person (i) shall be made without setoff, counterclaim, or other defense and (ii) shall be made by each Loan Party free and clear of and without deduction or withholding for, or account of, any Taxes now or hereinafter imposed by any taxing authority.

(b)If any Borrower makes any payment hereunder or under any Loan Document in respect of which it is required by applicable law to deduct or withhold any Taxes, such Loan Party shall increase the payment hereunder or under any such Loan Document such that after the reduction for the amount of Taxes withheld (and any Taxes withheld or imposed with respect to the additional payments required under this Section 7.6(b)), the amount paid to the Lenders, the Issuing Bank or the Administrative Agent equals the amount that was payable hereunder or under any such Loan Document without regard to this Section 7.6(b). To the extent any Loan Party withholds any Taxes on payments hereunder or under any Loan Document, such Loan Party shall pay the full amount deducted to the relevant taxing authority within the time allowed for payment under applicable law and shall deliver to the Administrative Agent within thirty (30) days after it has made payment to such authority a receipt issued by such authority (or other evidence satisfactory to the Administrative Agent) evidencing the payment of all amounts so required to be deducted or withheld from such payment.

(c)If any Lender, the Issuing Bank or the Administrative Agent is required by law to make any payments of any Taxes on or in relation to any amounts received or receivable hereunder or under any other Loan Document, or any Tax is assessed against a Lender, the Issuing Bank or the Administrative Agent with respect to amounts received or receivable hereunder or under any other Loan Document, each Borrower hereby jointly and severally agrees to indemnify such person against (i) such Tax (and any reasonable counsel fees and expenses associated with such Tax) and (ii) any Taxes imposed as a result of the receipt of the payment under this Section 7.6(c). A certificate prepared in good faith as to the amount of such payment by such Lender, the Issuing Bank or the Administrative Agent shall, absent manifest error, be final, conclusive, and binding on all parties.

(d)(i)Each Lender that is not a United States person within the meaning of Code Section 7701(a)(30) (a “Non-U.S. Participant”) shall deliver to the Loan Party Representative and the Administrative Agent on or prior to the Closing Date (or in the case of a change in the funding office or a Lender that is an Assignee, on the date of such change in funding office or assignment to such Lender) two (2) accurate and complete original signed copies of Internal Revenue Service (“IRS”) Form W-8BEN, W-8ECI, or W-8IMY (or any successor or other applicable form prescribed by the IRS) certifying to such Lender’s entitlement to a complete exemption from United States withholding tax on payments to be made hereunder or any

45

Revolving Loan. If a Lender that is a Non-U.S. Participant is claiming a complete exemption from withholding on interest pursuant to Code Sections 871(h) or 881(c), such Lender shall deliver (along with two (2) accurate and complete original signed copies of IRS Form W-8BEN) a certificate in form and substance reasonably acceptable to Administrative Agent (any such certificate, a “Withholding Certificate”). In addition, each Lender that is a Non-U.S. Participant agrees that, from time to time after the Closing Date (or in the case of a Lender that is an Assignee, after the date of the assignment to such Lender), when a lapse in time (or change in circumstances or in any applicable law, rule or regulation by any governmental authority, or compliance by any Lender with any request or directive (whether or not having force of law) of any such authority occurs) renders the prior certificates hereunder obsolete or inaccurate in any material respect, such Lender shall promptly deliver to the Loan Party Representative and the Administrative Agent two (2) new and accurate and complete original signed copies of an IRS Form W-8BEN, W-8ECI, or W-8IMY (or any successor or other applicable forms prescribed by the IRS) and, if applicable, a new Withholding Certificate, to confirm or establish the entitlement of such Lender or the Administrative Agent to an exemption from, or reduction in, United States withholding tax on payments to be made hereunder or any Revolving Loan but only to the extent permitted at the time by applicable law.

(ii)Each Lender that is not a Non-U.S. Participant (other than any such Lender which is taxed as a corporation for U.S. Federal income tax purposes) shall provide two (2) properly completed and duly executed copies of IRS Form W-9 (or any successor or other applicable form) to the Loan Party Representative and the Administrative Agent certifying that such Lender is exempt from United States backup withholding tax. Thereafter, from time to time, to the extent that a form provided pursuant to this Section 7.6(d)(ii) is rendered obsolete or inaccurate in any material respects as result of change in circumstances with respect to the status of a Lender, such Lender shall promptly deliver to the Loan Party Representative and the Administrative Agent revised forms necessary to confirm or establish the entitlement to such Lender’s or Administrative Agent’s exemption from United States backup withholding tax.

(iii)No Borrower shall be required to pay additional amounts to a Lender (or under Section 7.6(b)), or indemnify any Lender, under this Section 7.6 to the extent that such obligations would not have arisen but for the failure of such Lender to comply with Section 7.6(d).

(e)Each Lender agrees to indemnify the Administrative Agent and hold the Administrative Agent harmless for the full amount of any and all present or future Taxes and related liabilities (including penalties, interest, additions to tax and expenses, and any Taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this Section 7.6) which are imposed on or with respect to principal, interest or fees payable to such Lender hereunder and which are not paid by the Borrower pursuant to this Section 7.6, whether or not such Taxes or related liabilities were correctly or legally asserted. This indemnification shall be made within thirty (30) days from the date the Administrative Agent makes written demand therefor.

46

SECTION 8.INCREASED COSTS; SPECIAL PROVISIONS FOR LIBOR LOANS.

8.1           Increased Costs.

(a)           If, after the date hereof, the adoption of, or any change in, any applicable law, rule or regulation, or any change in the interpretation or administration of any applicable law, rule or regulation by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:  (i) shall impose, modify or deem applicable any reserve (including any reserve imposed by the FRB, but excluding any reserve included in the determination of the LIBOR Rate pursuant to the definition thereof or Section 4), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by any Lender; or (ii) shall impose on any Lender any other condition affecting its LIBOR Loans, its Notes or its obligation to make LIBOR Loans; and the result of anything described in clauses (i) and (ii) above is to increase the cost to (or to impose a cost on) such Lender (or any LIBOR Office of such Lender) of making or maintaining any LIBOR Loan, or to reduce the amount of any sum received or receivable by such Lender (or its LIBOR Office) under this Agreement or under its Notes with respect thereto (other than any such increased cost or reduction on account of taxes of any kind, including Excluded Taxes and Taxes, as to which Section 7.6 shall govern), then upon demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to the Administrative Agent), the Borrowers hereby jointly and severally agree to pay directly to such Lender such additional amount as will compensate such Lender for such increased cost or such reduction, so long as such amounts have accrued on or after the day which is one hundred eighty (180) days prior to the date on which such Lender first made demand therefor.

(b)           If any Lender or the Issuing Bank shall reasonably determine that any change in, or the adoption or phase-in of, any applicable law, rule or regulation regarding capital adequacy, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or the compliance by any Lender or the Issuing Bank, or any Person controlling such Lender or the Issuing Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender’s, the Issuing Bank’s or such controlling Person’s capital as a consequence of such Person’s obligations hereunder or under any Letter of Credit to a level below that which such Lender, or the Issuing Bank or such controlling Person could have achieved but for such change, adoption, phase-in or compliance (taking into consideration such Lender’s, or the Issuing Bank’s or such controlling Person’s policies with respect to capital adequacy) by an amount deemed by such Lender, or the Issuing Bank or such controlling Person to be material, then from time to time, upon demand by such Lender or the Issuing Bank (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to the Administrative Agent), the Borrowers hereby jointly and severally agree to pay to such Lender or the Issuing Bank, as applicable, such additional amount as will compensate such Lender, or the Issuing Bank, or such controlling Person for such reduction so long as such

47

amounts have accrued on or after the day which is one hundred eighty (180) days prior to the date on which such Lender or the Issuing Bank, as applicable, first made demand therefor.

8.2           Basis for Determining Interest Rate Inadequate or Unfair. If:

(a)           the Administrative Agent reasonably determines (which determination shall be binding and conclusive on each Borrower) absent manifest error that by reason of circumstances affecting the interbank LIBOR market, adequate and reasonable means do not exist for ascertaining the applicable LIBOR Rate; or

(b)           the Required Lenders advise the Administrative Agent that the LIBOR Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Lenders of maintaining or funding LIBOR Loans for the relevant Interest Period (taking into account any amount to which such Lenders may be entitled under Section 8.1) or that the making or funding of LIBOR Loans has become impracticable as a result of an event occurring after the date of this Agreement which in the opinion of such Lenders materially affects such Revolving Loans; then the Administrative Agent shall promptly notify the other parties thereof and, so long as such circumstances shall continue, (i) no Lender shall be under any obligation to make or convert any Base Rate Loans into LIBOR Loans and (ii) on the last day of the current Interest Period for each LIBOR Loan, such Revolving Loan shall, unless then repaid in full, automatically convert to a Base Rate Loan.

8.3           Changes in Law Rendering LIBOR Loans Unlawful. If any change in, or the adoption of any new, law or regulation, or any change in the interpretation of any applicable law or regulation by any governmental or other regulatory body charged with the administration thereof, should make it (or in the good faith judgment of any Lender cause a substantial question as to whether it is) unlawful for any Lender to make, maintain or fund LIBOR Loans, then such Lender shall promptly notify each of the other parties hereto and, so long as such circumstances shall continue, (a) no such Lender shall have any obligation to make or convert any Base Rate Loan into a LIBOR Loan (but shall make Base Rate Loans concurrently with the making of or conversion of Base Rate Loans into LIBOR Loans by the Lenders which are not so affected, in each case in an amount equal to the amount of LIBOR Loans which would be made or converted into by such Lender at such time in the absence of such circumstances) and (b) on the last day of the current Interest Period for each LIBOR Loan of such Lender (or, in any event, on such earlier date as may be required by the relevant law, regulation or interpretation), such LIBOR Loan shall, unless then repaid in full, automatically convert to a Base Rate Loan. Each Base Rate Loan made by a Lender which, but for the circumstances described in the foregoing sentence, would be a LIBOR Loan (an “Affected Loan”) shall remain outstanding for the period corresponding to the Group of LIBOR Loans of which such Affected Loan would be a part absent such circumstances.

8.4           Funding Losses. The Borrowers hereby jointly and severally agrees that upon written demand by any Lender (which demand shall be accompanied by a statement setting forth in reasonable detail the basis for the amount being claimed, a copy of which shall be furnished to the Administrative Agent), each Borrower will indemnify such Lender against any net loss or expense which such Lender may sustain or incur (including any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to

48

fund or maintain any LIBOR Loan), as reasonably determined by such Lender, as a result of (a) any payment, prepayment or conversion of any LIBOR Loan of such Lender on a date other than the last day of an Interest Period for such Revolving Loan (including any conversion pursuant to Section 8.3) or (b) any failure of any Borrower to borrow, convert or continue any Revolving Loan on a date specified therefor in a notice of borrowing, conversion or continuation pursuant to this Agreement. For this purpose, all such notices to the Administrative Agent pursuant to this Agreement shall be deemed irrevocable.

8.5           Right of Lenders to Fund through Other Offices. Each Lender may, if it so elects, fulfill its commitment as to any LIBOR Loan by causing a foreign branch or Affiliate of such Lender to make such Revolving Loan; provided that in such event for the purposes of this Agreement such Revolving Loan shall be deemed to have been made by such Lender and the obligation of the Borrowers to repay such Revolving Loan shall nevertheless be to such Lender and shall be deemed held by it, to the extent of such Revolving Loan, for the account of such branch or Affiliate.

8.6           Discretion of Lenders as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of its Revolving Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Lender had actually funded and maintained each LIBOR Loan during each Interest Period for such Revolving Loan through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the LIBOR Rate for such Interest Period.

8.7           Mitigation of Circumstances; Replacement of Lenders.

(a)           Each Lender or the Issuing Bank, as applicable, shall promptly notify the Loan Party Representative and the Administrative Agent of any event of which it has knowledge which will or is likely to result in, and will use reasonable commercial efforts available to it (other than the taking of any such action which, in such Lender’s or the Issuing Bank’s sole judgment, imposes any expense upon or is otherwise disadvantageous to such Lender or the Issuing Bank, as applicable) to mitigate or avoid, (i) any obligation by the Borrowers to pay any amount pursuant to Section 7.6 or 8.1 or (ii) the occurrence of any circumstances described in Section 8.2 or 8.3 (and, if any Lender or the Issuing Bank has given notice of any such event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender or the Issuing Bank, as applicable, shall promptly so notify the Loan Party Representative and the Administrative Agent); provided that the failure by any Lender to provide prospective notice of any such possible event shall not reduce or diminish such Lender’s remedies or the Loan Parties’ obligations hereunder. Without limiting the foregoing, each Lender or the Issuing Bank, as applicable, will designate a different funding office if such designation will avoid (or reduce the cost to the Borrowers of) any event described in clause (i) or (ii) above and such designation will not, in such Lender’s sole judgment, impose aggregate expenses in excess of $1,000 on such Lender or be otherwise disadvantageous to such Lender.

(b)           If any Borrower becomes obligated to pay additional amounts to any Lender pursuant to Section 7.6 or 8.1, any Lender gives notice of the occurrence of any circumstances

49

described in Section 8.2 or 8.3, or any Defaulting Lender pursuant to Section 2.1.1(c) does not make payment to the Administrative Agent of such amounts giving rise to its becoming a Defaulting Lender within fifteen (15) days of the date such payment is required under this Agreement, the Loan Party Representative may designate another bank which is acceptable to the Administrative Agent and the Issuing Bank in their reasonable discretion (such other bank being called a “Replacement Lender”) to purchase the Revolving Loans of such Lender and such Lender’s rights hereunder, without recourse to or warranty by, or expense to, such Lender, for a purchase price equal to the outstanding principal amount of the Revolving Loans payable to such Lender plus any accrued but unpaid interest on such Revolving Loans and all accrued but unpaid fees owed to such Lender and any other amounts payable to such Lender under this Agreement, and to assume all the obligations of such Lender hereunder, and, upon such purchase and assumption (pursuant to an Assignment Agreement), such Lender shall no longer be a party hereto or have any rights hereunder (other than rights with respect to indemnities and similar rights applicable to such Lender prior to the date of such purchase and assumption) and shall be relieved from all obligations to the Borrowers hereunder, and the Replacement Lender shall succeed to the rights and obligations of such Lender hereunder.

8.8           Conclusiveness of Statements; Survival of Provisions. Determinations and statements of any Lender or the Issuing Bank pursuant to Section 7.6, 8.1, 8.2, 8.3 or 8.4 shall be conclusive absent demonstrable error. Lenders and the Issuing Bank may use reasonable averaging and attribution methods in determining compensation under Sections 7.6, 8.1 and 8.4, and the provisions of such Sections shall survive repayment of the Obligations (other than unasserted contingent indemnification obligations), cancellation of any Notes, expiration or termination of the Letters of Credit and termination of this Agreement.

SECTION 9.   REPRESENTATIONS AND WARRANTIES.

To induce the Administrative Agent, the Lenders and the Issuing Bank to enter into this Agreement and to induce the Issuing Bank to issue Letters of Credit and the Lenders to make Revolving Loans and to participate in Letters of Credit hereunder, the Loan Parties hereby jointly and severally represent and warrant to the Administrative Agent, the Lenders and the Issuing Bank that:

9.1           Organization. The Company and each other Loan Party is validly existing and in good standing under the laws of its jurisdiction of organization and each is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except for such jurisdictions where the failure to so qualify would not have or could not reasonably be expected to have a Material Adverse Effect.

9.2           Authorization; No Conflict. The Company and each other Loan Party is duly authorized to execute and deliver each Loan Document to which it is a party, each Borrower is duly authorized to borrow monies hereunder and the Company and each other Loan Party is duly authorized to perform its obligations under each Loan Document to which it is a party. The execution, delivery and performance by the Company and each other Loan Party of each Loan Document to which it is a party, and the borrowings by each Borrower hereunder, do not and will not (a) require any consent or approval of any governmental agency or authority (other than any consent or approval which has been obtained and is in full force and effect, except such as

50

would not have and reasonably could not be expected to have a Material Adverse Effect), (b) conflict with (i) any provision of law, (ii) the charter, by-laws or other organizational documents of the Company or any other Loan Party or (iii) any material agreement, indenture, instrument or other material document, or any judgment, order or decree, which is binding upon the Company, any other Loan Party or any of their respective properties or (c) require, or result in, the creation or imposition of any Lien on any asset of the Company or any other Loan Party (other than Permitted Liens and Liens in favor of the Administrative Agent created pursuant to the Collateral Documents).

9.3           Validity and Binding Nature. Each of this Agreement and each other Loan Document to which the Company or any other Loan Party is a party is the legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors’ rights generally and to general principles of equity regardless of whether considered in a proceeding in equity or law.

9.4           Financial Condition. The unaudited consolidated financial statements of the Company and its Subsidiaries for the Fiscal Years 2002, 2003 and 2004 and the unaudited consolidated financial statements of the Company and its Subsidiaries as at the fiscal months and Fiscal Quarters ended after Fiscal Year 2004, copies of each of which have been delivered to the Administrative Agent, were prepared in accordance with GAAP (subject, in the case of such unaudited statements, to the absence of footnotes and to normal year-end adjustments) and present fairly in all material respects the consolidated financial condition of the Company and its Subsidiaries as at such dates and the results of their operations for the periods then ended.

9.5           No Material Adverse Change. Since December 31, 2004, no event or circumstance exists and/or has occurred that has had or could reasonably be expected to have, either alone or in conjunction with any other circumstances, events or occurrences, a Material Adverse Effect; it being agreed, however, that the consolidated results of operations of the Company and its Subsidiaries for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005, as reported on the 10-Qs of the Company filed with the SEC on or about May 10, 2005, August 9, 2005 and November 9, 2005 shall not, in and of themselves, be deemed a Material Adverse Effect.

9.6           Litigation and Contingent Liabilities. No litigation (including derivative actions), arbitration proceeding or governmental investigation or proceeding is pending or, to the such Loan Party’s knowledge, threatened against any Loan Party or any Subsidiary of the Company or any Loan Party which has had or could reasonably be expected to have, a Material Adverse Effect. Other than any liability incident to such litigation or proceedings, no Loan Party has any material Contingent Liabilities not listed on Schedule 9.6 or permitted by Section 11.1.

9.7           Ownership of Properties; Liens. Each Loan Party owns good and, in the case of real property, marketable title to all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights) material to its business free and clear of all Liens, charges and claims (including infringement claims with respect to patents, trademarks, service marks, copyrights and the like) other than Permitted Liens. The Company owns good title to the Capital Securities of the

51

Borrowers, free and clear of all Liens, charges and claims other than Liens in favor of the Administrative Agent pursuant to the Pledge Agreement and Liens permitted under Section 11.2(h).

9.8           Equity Ownership; Subsidiaries. All issued and outstanding Capital Securities of each Loan Party and each of their Subsidiaries are duly authorized and validly issued, fully paid, non-assessable, and free and clear of all Liens other than Permitted Liens, and such securities were issued in compliance with all applicable state and federal laws concerning the issuance of securities. Schedule 9.8 sets forth the authorized Capital Securities of each Loan Party and each of their Subsidiaries as of the Closing Date. All of the issued and outstanding Capital Securities of each Loan Party and each of their Subsidiaries are owned as set forth on Schedule 9.8 as of the Closing Date, and all of the issued and outstanding Capital Securities of each Wholly-Owned Subsidiary is, directly or indirectly, owned by such Loan Party. As of the Closing Date, except as set forth on Schedule 9.8, there are no pre-emptive or other outstanding rights, options, warrants, conversion rights or other similar agreements or understandings for the purchase or acquisition of any Capital Securities of any Loan Party or any of their Subsidiaries.

9.9           Pension Plans.

(a)           There is no Unfunded Liability which would have or could reasonably be expected to have a Material Adverse Effect. Each Pension Plan complies in all material respects with its terms and all applicable requirements of law and regulations. No contribution failure under Section 412 of the Code, Section 302 of ERISA, any other applicable law or the terms of any Pension Plan has occurred with respect to any Pension Plan, sufficient to give rise to a Lien under Section 302(f) of ERISA, or otherwise would have or could reasonably be expected to have a Material Adverse Effect. There are no pending or, to the knowledge of any Loan Party, threatened, claims, actions, investigations or lawsuits against any Pension Plan, any fiduciary of any Pension Plan, or Loan Party or any other member of the Controlled Group with respect to a Pension Plan or a Multiemployer Pension Plan which would have or could reasonably be expected to have a Material Adverse Effect. No Loan Party nor any other member of the Controlled Group has engaged in any prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Pension Plan or any Multiemployer Pension Plan which would subject any Loan Party or any other member of the Controlled Group to any material liability. Within the past five years, no Loan Party nor any other member of the Controlled Group has engaged in a transaction which resulted in a Pension Plan with an Unfunded Liability being transferred out of the Controlled Group which would have or could reasonably be expected to have a Material Adverse Effect. No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan which would have or could reasonably be expected to have a Material Adverse Effect.

(b)           All contributions (if any) have been made to any Multiemployer Pension Plan that are required to be made by the Loan Parties or any other member of the Controlled Group under the terms of the plan or of any collective bargaining agreement or by applicable law; no Loan Party nor any other member of the Controlled Group has withdrawn or partially withdrawn from any Multiemployer Pension Plan, incurred any material withdrawal liability with respect to any such plan or received notice of any claim or demand for withdrawal liability or partial withdrawal liability from any such plan, and no condition has occurred which, if continued,

52

could result in a withdrawal or partial withdrawal from any such plan; and no Loan Party nor any other member of the Controlled Group has received any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent.

(c)           All Other Plans. All other “pension plans,” as such term is defined in Section 3(2) of ERISA, maintained by any Loan Party or any member of the Controlled Group that are not Pension Plans and all other non-qualified deferred compensation plans comply in all respects with their terms and with all applicable requirements of law and regulations, except to the extent that any failure to comply could not be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect.

(d)           Disclosure. Except as set forth on Schedule 9.9 (as the same may be updated from time to time to reflect changes occurring after the Closing Date), no Loan Party maintains or contributes to a Pension Plan that is a defined benefit plan or Multiemployer Pension Plan that is governed by United States law.

9.10         Investment Company Act. No Loan Party or any of their Subsidiaries or, to the best knowledge of the Loan Parties, the Company is an “investment company” or a company “controlled” by an “investment company” or a “subsidiary” of an “investment company,” within the meaning of the Investment Company Act of 1940.

9.11         Public Utility Holding Company Act. No Loan Party or any of their Subsidiaries or, to the best knowledge of the Loan Parties, the Company, is a “holding company”, or a “subsidiary company” of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of 1935.

9.12         Regulation U. No Loan Party nor any of their Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock.

9.13         Taxes. The Company, each other Loan Party and each Subsidiary of each of the foregoing has timely filed all federal and state income and all other material tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges due and payable with respect to such return, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books and in respect of which no Lien has been filed against the assets of the Company, any other Loan Party or any Subsidiary of the foregoing. The Company has, for all periods, and commencing with the financial statements of the Borrowers for the Fiscal Quarter ending March 31, 2006 and continuing thereafter, the other Loan Parties and each Subsidiary of each of the foregoing have, in each case, made adequate reserves on their books and records in accordance with GAAP for all federal and state income and all other material taxes that have accrued but which are not yet due and payable. Neither the Company nor any other Loan Party or any Subsidiary of the foregoing has participated in any

53

transaction that relates to a year of the taxpayer (which is still open under the applicable statute of limitations) which is a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2) (irrespective of the date when the transaction was entered into).

9.14         Solvency, etc. (a)  On the Closing Date, both immediately before and after giving effect to the Spin-Off and the other Related Transactions contemplated hereby and by the other Loan Documents and the Related Agreements, the fair value of the assets of the Company and its Subsidiaries on a consolidated basis, at a fair valuation on a going concern basis, will exceed the debts and liabilities, as determined in accordance with GAAP, of the Company and its Subsidiaries on a consolidated basis; the present fair saleable value of the assets of the Company and its Subsidiaries on a consolidated basis on a going concern basis will be greater than the amount that will be required to pay the probable liability of the Company and its Subsidiaries on a consolidated basis on their debts and other liabilities, as determined in accordance with GAAP, as such debts and other liabilities become absolute and matured; the Company and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, as determined in accordance with GAAP, as such debts and liabilities become absolute and matured; and the Company and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof.

(b)           On the Closing Date, both immediately before and after giving effect to the Spin-Off and the other Related Transactions contemplated hereby and by the other Loan Documents and the Related Agreements, and thereafter immediately prior to and after giving effect to the issuance of each Letter of Credit and each borrowing hereunder and the use of the proceeds thereof, the fair value of the assets of the Loan Parties and their Subsidiaries on a consolidated basis, at a fair valuation on a going concern basis, will exceed the debts and liabilities, as determined in accordance with GAAP, of the Loan Parties and their Subsidiaries on a consolidated basis; the present fair saleable value of the assets of the Loan Parties and their Subsidiaries on a consolidated basis on a going concern basis will be greater than the amount that will be required to pay the probable liability of the Loan Parties and their Subsidiaries on a consolidated basis on their debts and other liabilities, as determined in accordance with GAAP, as such debts and other liabilities become absolute and matured; the Loan Parties and their Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, as determined in accordance with GAAP, as such debts and liabilities become absolute and matured; and the Loan Parties and their Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof.

9.15         Environmental Matters. The on-going operations of each Loan Party and each Subsidiary comply in all respects with all Environmental Laws, except such non-compliance which has not had, and could not (if enforced in accordance with applicable law) reasonably be expected to result in, either individually or in the aggregate, a Material Adverse Effect. Each Loan Party and each of their Subsidiaries has obtained, and maintained in good standing, all licenses, permits, authorizations, registrations and other approvals required under any Environmental Law for their respective ordinary course operations, and for their reasonably anticipated future operations, and each Loan Party and each of their Subsidiaries is in compliance with all terms and conditions thereof, except where the failure to do so has not had

54

and could not reasonably be expected to result in a material liability to any Loan Party or Subsidiary and has not had, and could not reasonably be expected to result in, either individually or in the aggregate, a Material Adverse Effect. Except as set forth on Schedule 9.15, no Loan Party nor any of their Subsidiaries nor any of their properties or operations is subject to, or reasonably anticipates the issuance of, any written order from or agreement with any Federal, state or local governmental authority, nor subject to any judicial or docketed administrative or other proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Substance any of which has had, or could reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect. There are no Hazardous Substances or other conditions or circumstances existing with respect to any property, arising from operations prior to the Closing Date, or relating to any waste disposal, of any Loan Party or of their Subsidiaries that has had, or could reasonably be expected to result in, either individually or in the aggregate, a Material Adverse Effect. No Loan Party nor any of their Subsidiaries has any underground storage tanks that are not properly registered or permitted under applicable Environmental Laws or that at any time have released, leaked, disposed of or otherwise discharged Hazardous Substances any of which has had, or could reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect.

9.16         Insurance. Set forth on Schedule 9.16 is a complete and accurate summary of the property and casualty insurance program of the Loan Parties as of the Closing Date (including the names of all insurers, policy numbers, expiration dates, amounts and types of coverage, annual premiums, exclusions, deductibles, self-insured retention, and a description in reasonable detail of any self-insurance program, retrospective rating plan, fronting arrangement or other risk assumption arrangement involving any Loan Party or their Subsidiaries). Each Loan Party and each of their Subsidiaries and their respective properties are insured with financially sound and reputable insurance companies which are not Affiliates of the Loan Parties, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where any such Loan Party and/or such Subsidiary operates.

9.17         Real Property. Set forth on Schedule 9.17 is a complete and accurate list, as of the Closing Date, of the address of all real property owned or leased by any Loan Party, together with, in the case of leased property, the name and mailing address of the lessor of such property.

9.18         Information. None of the representations or warranties made by the Company or any Loan Party in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in each exhibit, report, statement or certificate furnished by or on behalf of any Loan Party in connection with the Loan Documents (including the offering and disclosure materials, if any, delivered by the Company or such Loan Party to the Administrative Agent prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. It being recognized by the Administrative Agent and the Lenders that any projections and forecasts provided by the Borrowers, any other Loan Party or the Company (relating to the Borrowers or the Loan Parties) are subject to uncertainties and contingencies, are based on good faith estimates and assumptions believed by the Borrowers and

55

the other Loan Parties or the Company to be reasonable as of the date of the applicable projections or forecasts and upon the best information then reasonably available to the Borrowers and the other Loan Parties or the Company and that actual results during the period or periods covered by any such projections and forecasts may differ materially from projected or forecasted results; provided however that if, during the period or periods covered by any such projections and forecasts, management of the Borrowers, any other Loan Party or the Company (relating to the Borrowers or the Loan Parties) determines that the projections and forecasts no longer accurately reflect in any material respect the projected financial results for such period or periods, as the case may be the Chief Financial Officer shall, as soon as reasonably practicable, provide to the Administrative Agent revised projections and forecasts for such period or periods).

9.19         Intellectual Property. Each Loan Party and each of their Subsidiaries owns and possesses or has a license or other right to use all patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights and copyrights as are necessary for the conduct of the businesses of such Loan Party or of their Subsidiaries as currently conducted, except for the failure to so own or license which would not have or could not reasonably be expected to have a Material Adverse Effect, as applicable, without any infringement upon rights of others which would have or could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 9.19, or with respect to any such licensing or distribution agreements entered into after the date hereof, as otherwise disclosed to the Administrative Agent promptly after its written request (including by way of updating and replacing such Schedule), no Loan Party is party to any licensing agreement or distribution agreement relating to any Inventory which contains any restrictions or prohibitions on the Administrative Agent (or its agents) from selling or disposing such Inventory on substantially the same terms as the Loan Party to such license agreement or distribution agreement or which contains a right in favor of the licensor or distributor to repurchase such Inventory (other than for non-payment of invoices related to the purchase by the Loan Party thereof).

9.20         Burdensome Obligations. No Loan Party or any of their Subsidiaries is a party to or bound by any agreement or contract or subject to any restriction contained in its organizational documents which could reasonably be expected to have a Material Adverse Effect.

9.21         Labor Matters. Except as set forth on Schedule 9.21, no Loan Party or any of their Subsidiaries is subject to any labor or collective bargaining agreement. Except as set forth on Schedule 9.21, there are no existing or, to the knowledge of any Loan Party or any of their Subsidiaries, threatened strikes, lockouts or other labor disputes involving any Loan Party or any of their Subsidiaries. Hours worked by and payment made to employees of the Loan Parties or their Subsidiaries are not in violation in any material respect of the Fair Labor Standards Act or any other applicable law, rule or regulation dealing with such matters, except such violations which would not have, and which could not reasonably be expected to have, a Material Adverse Effect.

9.22         No Default. No Event of Default or Unmatured Event of Default exists or would result from the execution, delivery or performance hereof or of the other Loan

56

Documents, including as a result of the Related Transactions and/or the incurrence by any Loan Party or any of their Subsidiaries of any Debt hereunder or under any other Loan Document.

9.23         Related Agreements, etc. The Loan Party Representative has heretofore furnished the Administrative Agent a true and correct copy of each of the Related Agreements and the Restricted Agreements, in each case, as in effect as of the date of this Agreement. The Company and Russ Gift have received all governmental and third party consents and approvals necessary for the Spin-Off (including to effect the transfers of rights related to real property, related to Intellectual Property, and otherwise under any licensing or distribution agreements) and the continuing activities of the Company and the Loan Parties, and such consents and approvals are in full force and effect, except for the consents and approvals listed on Schedule 9.23 the failure to obtain any of which, individually or in the aggregate, (x) with respect to each of the Company’s current real property leases of premises located at 2520 Route 130, South Brunswick, New Jersey 08512 and 111 Bauer Drive, Oakland, New Jersey 07436, which are being assigned to Russ Gift pursuant to the Related Agreements, will not result in any material liability or restrict any of the Loan Parties’ ability to do business in any material respect, (y) other than in the case of governmental approvals or consents (or the consents set forth in clause (x) immediately above), would not and could not reasonably be expected to result in any material liability or restrict any of the Loan Parties’ ability to do business in any material respect and (z) in the case of governmental approvals or consents, would not and could not reasonably be expected to result in any material liability, would not and could not reasonably be expected to render the validity of the transfers of any material portion of such assets by the Company to Russ Gift as contemplated by the Related Agreements invalid, and would not adversely effect the creation and validity of the Liens granted by Russ Gift to the Administrative Agent under the Collateral Documents.

9.24         [Intentionally Omitted].

9.25         Eligible Accounts and Eligible Inventory. All Accounts and Inventory represented by the Borrowers or the Loan Party Representative at any time as being eligible for lending purposes hereunder including, upon each borrowing hereunder, shall constitute Eligible Accounts and Eligible Inventory, respectively.

9.26         Other Debt. Except as otherwise set forth on Schedule 9.26 or permitted pursuant to Section 11.1, no Loan Party is now obligated for any Debt other than the Obligations.

9.27         Inactive Subsidiaries. None of the Inactive Subsidiaries owns any material properties or assets, has any Investments, Debt or other material liabilities or conducts any operations or businesses; provided, that BOA Done, Inc. currently holds and may continue to hold the Bright of America Note. As of the Closing Date, the only Inactive Subsidiaries of the Company and the Loan Parties are Fluf N’ Stuf, Inc., P/F Done, Inc., RBTACQ, Inc., BOA Done, Inc. and RBCACQ, Inc.

SECTION 10. AFFIRMATIVE COVENANTS.

Until the expiration or termination of the Commitments and thereafter until all Obligations (other than unasserted contingent indemnification obligations) hereunder and under

57

the other Loan Documents are paid in full in cash and all Letters of Credit have been terminated (or Cash Collateralized), each of the Loan Parties agrees that, unless at any time the Required Lenders shall otherwise expressly consent in writing, it will:

10.1         Reports, Certificates and Other Information. Deliver to the Administrative Agent (whereupon, in the cases of Sections 10.1.1, 10.1.2, 10.1.3, 10.1.5(a), 10.1.6, 10.1.8 and 10.1.9, the Administrative Agent shall deliver copies thereof to the Lenders):

10.1.1      Annual Report. Promptly when available and in any event within 90 days after the close of each Fiscal Year (or such earlier or later date as Form 10-Ks are required to be filed with the SEC taking into account any extension granted by the SEC, provided the Company gives the Administrative Agent prompt written notice of such extension): (a) a copy of the annual audit report of the Company and its Subsidiaries for such Fiscal Year, including therein consolidated balance sheets and statements of earnings and cash flows of the Company and its Subsidiaries as at the end of such Fiscal Year, certified without adverse reference to going concern value and without qualification by independent auditors of recognized standing selected by the Company and reasonably acceptable to the Administrative Agent, together with (i) a written statement from such accountants to the effect that in making the examination necessary for the signing of such annual audit report by such accountants, nothing came to their attention that caused them to believe that the Loan Parties were not in compliance with any provision of Section 11.13 of this Agreement insofar as such provision relates to accounting matters or, if something has come to their attention that caused them to believe that the Loan Parties were not in compliance with such provision, describing such non-compliance in reasonable detail and (ii) a comparison with the budget for such Fiscal Year and a comparison with the previous Fiscal Year; and (b) a consolidating balance sheet of the Company, the Borrowers and their Subsidiaries as of the end of such Fiscal Year and consolidating statement of earnings and cash flows for the Company, the Borrowers and their Subsidiaries for such Fiscal Year, in each case, prepared in accordance with GAAP (other than with respect to the absence of footnotes) certified by the Chief Financial Officer as fairly and accurately presenting in all material respects the financial condition and results of such entities as at the date and for the period covered; provided that to the extent the Company’s annual report on Form 10-K shall satisfy the requirements of this Section 10.1.1, the Administrative Agent will accept such Form 10-K in lieu of such item.

10.1.2      Interim Reports. (a)  Promptly when available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year (or such earlier or later date as Form 10-Qs are required to be filed with the SEC taking into account any extension granted by the SEC, provided the Company gives the Administrative Agent prompt written notice of such extension), unaudited consolidated financial statements of the Company and its Subsidiaries for such Fiscal Quarter, including therein consolidated balance sheets and statements of earnings and cash flows as of the end of such Fiscal Quarter and for the period beginning with the first day of such Fiscal Year and ending on the last day of such Fiscal Quarter, in each case, prepared in accordance with GAAP, consistently applied and certified by the Chief Financial Officer as fairly presenting in all material respects the financial condition of the Company and its Subsidiaries as at the date thereof, together with (i) a comparison with the corresponding period of the previous Fiscal Year and a comparison with the budget for such period of the current Fiscal Year and (ii) a consolidating balance sheet of the Company, the Borrowers and their Subsidiaries as of the end of such Fiscal Quarter and consolidating statement

58

of earnings and cash flows for the Company, the Borrowers and their Subsidiaries for such Fiscal Quarter, in each case, prepared in accordance with GAAP (other than with respect to the absence of footnotes and normal year end audit adjustments) certified by the Chief Financial Officer as fairly presenting in all material respects the financial condition of such entities as at the date and for the period covered; provided that to the extent that the Company’s quarterly report on Form 10-Q shall satisfy the requirement of this Section 10.1.2(a), the Administrative Agent will accept such Form 10-Q in lieu of such item; and

(b)           promptly when available and in any event within 30 days after the end of each fiscal month of the Company (other than the end of a fiscal month which is also a Fiscal Quarter or Fiscal Year end), unaudited consolidated financial statements of the Company and its Subsidiaries for such fiscal month, including therein consolidated balance sheets and statements of earnings and cash flows as of the end of such fiscal month and for the period beginning with the first day of such Fiscal Year and ending on the last day of such fiscal month, in each case, prepared in accordance with GAAP, consistently applied and certified by the Chief Financial Officer as fairly presenting in all material respects the financial condition of the Company and its Subsidiaries as at the date thereof, together with (i) a comparison with the corresponding period of the previous Fiscal Year and a comparison with the budget for such period of the current Fiscal Year and (ii) a consolidating balance sheet of the Company, the Borrowers and their Subsidiaries as of the end of such month and consolidating statement of earnings and cash flows for the Company, the Borrowers and their Subsidiaries for such month, in each case, prepared in accordance with GAAP (other than with respect to the absence of footnotes and normal year-end audit adjustments) certified by the Chief Financial Officer as fairly presenting in all material respects the financial condition of such entities as at the date and for the period covered.

10.1.3      Compliance Certificates. Contemporaneously with the furnishing of a copy of each annual audit report pursuant to Section 10.1.1 and each set of quarterly statements pursuant to Section 10.1.2(a), a duly completed compliance certificate in the form of Exhibit B, with appropriate insertions, dated the date of such annual report or such quarterly statements and signed by a Senior Officer of the Company, containing (i) if required pursuant to the terms hereof, a computation of each of the financial ratios and restrictions set forth in Section 11.13 and to the effect that such officer has not become aware of any Event of Default or Unmatured Event of Default that has occurred and is continuing or, if there is any such event, describing it and the steps, if any, taken or being taken to cure it and (ii) a written statement of each Borrower’s management setting forth a discussion of the financial condition of the Borrowers and their Subsidiaries and any material changes in their financial condition and/or results of operations; provided that to the extent that the Company’s annual report on Form 10-K or its quarterly report on Form 10-Q shall satisfy the requirement of this Section 10.1.3(ii), the Administrative Agent will accept such Form 10-K or Form 10-Q in lieu of such item.

10.1.4      Reports to the SEC and to Shareholders. Promptly upon the filing or sending thereof, without duplication, copies of all regular, periodic or special reports, if any, of the Company or any Loan Party filed with the SEC; copies of all registration statements of the Company or any Loan Party or their Subsidiaries filed with the SEC (other than on Form S-8), if any; and copies of all proxy statements, reports or other communications made to security holders generally.

59

10.1.5      Notice of Default, Litigation and ERISA Matters. Promptly upon becoming aware of any of the following, written notice describing the same and the steps being taken by the Loan Party or its Subsidiaries affected thereby with respect thereto:

(a)           the occurrence of an Event of Default or an Unmatured Event of Default;

(b)           any litigation, arbitration or governmental investigation or proceeding not previously disclosed by any Loan Party or Subsidiary to the Administrative Agent which has been instituted or, to the knowledge of any Loan Party or Subsidiary, is threatened against the Company, any Loan Party, any Subsidiary of the foregoing or to which any of the properties of any thereof is subject which would have or could reasonably be expected to have a Material Adverse Effect;

(c)           the institution of any steps by any member of the Controlled Group or any other Person to terminate any Pension Plan, or the failure of any member of the Controlled Group to make a required contribution to any Pension Plan (if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the taking of any action with respect to a Pension Plan which could result in the requirement that the any Loan Party or any other member of the Controlled Group furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan or Multiemployer Pension Plan which could result in the incurrence by any member of the Controlled Group of any material liability, fine or penalty (including any claim or demand for withdrawal liability or partial withdrawal from any Multiemployer Pension Plan), or any material increase in the contingent liability of any Loan Party or any other member of the Controlled Group with respect to any post-retirement welfare benefit plan or other employee benefit plan of any Loan Party or any other member of the Controlled Group which would have or could reasonably be expected to have a Material Adverse Effect, or any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of an excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent;

(d)           any other event, circumstance or occurrence (including (i) any violation of any Environmental Law or the assertion of any Environmental Claim or (ii) the enactment or effectiveness of any law, rule or regulation) which would have or could reasonably be expected to have a Material Adverse Effect; or

(e)           any cancellation, material change or any material increase (or any increase as a result of the deterioration of the risk profile of any Loan Party or any of their Subsidiaries) in the deductible in any insurance policy or coverage maintained by any Loan Party or any of their Subsidiaries.

10.1.6      Borrowing Base Certificates. (a) By Wednesday of each calendar week for the immediately preceding  calendar week, a Borrowing Base Certificate executed by a Senior Officer of the Loan Party Representative on behalf of the Borrowers (provided that (i) the Loan Party Representative may deliver a Borrowing Base Certificate more frequently if it chooses and (ii) after the occurrence and during the continuance of an Event of Default, the

60

Administrative Agent may require the Loan Party Representative to deliver Borrowing Base Certificates more frequently upon its request. Upon the request by the Administrative Agent, the Loan Parties (at their sole expense) shall provide the Administrative Agent with full access to copies of the Borrowers’ sales journals, cash receipts journals and credit memo journals for the relevant period and shall provide the Administrative Agent with such other additional information concerning Accounts and Inventory as may be reasonably requested by the Administrative Agent from time to time. Each Borrowing Base Certificate shall reflect the actual, aggregate Account balance and book Inventory balance as of such date.

10.1.7      Management Reports. Promptly upon receipt thereof, copies of all detailed financial and management reports submitted to the Company or any Loan Party by its independent auditors in connection with each annual or interim audit made by such auditors of the books of the Company and its Subsidiaries.

10.1.8      Projections. As soon as practicable, and in any event not later than 45 days after the commencement of each Fiscal Year (commencing with Fiscal Year 2007), financial projections for the Borrowers and their Subsidiaries for such Fiscal Year (including monthly operating and cash flow budgets) prepared in a manner consistent with the projections delivered by the Borrowers to the Administrative Agent prior to the Closing Date or otherwise in a manner reasonably satisfactory to the Administrative Agent, accompanied by a certificate of the Chief Financial Officer on behalf of the Borrowers and their Subsidiaries to the effect that (a) such projections were prepared by the Borrowers and their Subsidiaries in good faith, (b) the Borrowers and their Subsidiaries had a reasonable basis for the assumptions contained in such projections and (c) such projections have been prepared in accordance with such assumptions (it being recognized that any projections provided hereunder by the Borrowers or any other Loan Party are subject to uncertainties and contingencies, are based on good faith estimates and assumptions believed by the Borrowers to be reasonable as of the date of the applicable projections and upon the best information then reasonably available to the Borrowers and the Loan Parties and that actual results during the period or periods covered by any such projections may differ materially from projected results; provided however that if, during the period or periods covered by any such projections, management of the Borrowers or any other Loan Party determines that the projections no longer accurately reflect in any material respect the projected financial results for such period or periods, as the case may be, the Chief Financial Officer shall, as soon as practicable, provide to the Administrative Agent revised projections for such period or periods.

10.1.9      Material Notices. Promptly following receipt, copies of any notices of default, termination or acceleration or any other material notices (including, in the case of the EDA Bonds, any notice of default under the Berrie Commitment, any termination, cancellation or rescission of the EDA Bond Redemption or any release of the monies deposited by Angelica Berrie with the EDA Bond Trustee in accordance with the Berrie Commitment to effect such EDA Bond Redemption) received from any holder or trustee of, under or with respect to any Subordinated Debt, the EDA Documents, the Related Agreements, the Restricted Debt Agreements or any other material agreement.

10.1.10    Asset Dispositions. Promptly upon learning thereof, notice of any Asset Disposition.

61

10.1.11    Other Information. Promptly from time to time, such other information concerning the Loan Parties (or any of them), any of their Subsidiaries or, to the extent obtainable by the Loan Parties, the Company and its Subsidiaries (other than the Loan Parties and their Subsidiaries) as any Lender or the Administrative Agent may reasonably request.

10.2         Books, Records and Inspections. Keep, and cause the Company and each other Loan Party and their Subsidiaries to keep, their books and records in accordance with sound business practices sufficient to allow the preparation of financial statements in accordance with GAAP; permit, and cause the Company, each Loan Party and their Subsidiaries to permit, the Administrative Agent, any Lender or any representative thereof to inspect the properties and operations of the Company, the Loan Parties and their Subsidiaries during regular business hours and with reasonable prior notice (or any time without notice if an Event of Default exists); and permit, and cause the Company, each Loan Party and their Subsidiaries to permit, during regular business hours and with reasonable prior notice (or at any time without notice if an Event of Default exists) provided that any Lender’s inspection must be coordinated with an inspection by the Administrative Agent or one of its representatives, the Administrative Agent or any representative thereof to visit any or all of its offices, to discuss its financial matters with its officers and its independent auditors (and the Loan Parties each hereby authorizes such independent auditors to discuss such financial matters with any Lender or the Administrative Agent or any representative thereof), and to examine (and, at the expense of the Loan Parties) photocopy extracts from any of its books or other records; and permit, and cause the Company and each Loan Party to permit, during regular business hours and with reasonable prior notice (or at any time without notice if an Event of Default exists), the Administrative Agent and its representatives to inspect the Collateral and other tangible assets of the Loan Parties, to perform appraisals of the Collateral and real property of the Loan Parties, and to inspect, audit, check and make copies of and extracts from the books, records, computer data, computer programs, journals, orders, receipts, correspondence and other data relating to Inventory, Accounts and any other Collateral. The Loan Parties shall be jointly and severally liable for all reasonable expenses of the Administrative Agent incurred in connection with such inspections or audits, including the reasonable fees and expenses of its representatives and/or agents (it being agreed that any Lender may accompany the Administrative Agent at its own expense); provided, however, that other than with respect to audits, inspections and appraisals conducted at any time that an Event of Default exists, the Loan Parties shall not be required to reimburse the Administrative Agent for more than two (2) inspections and/or audits and more than two (2) appraisals in any Fiscal Year (including the audit and/or inspection conducted for the completion of this Agreement); it being acknowledged that a single inspection, audit and/or appraisal may entail visits to the multiple locations of books, records and assets of the Loan Parties; and it being further agreed that the costs for each inspection/audit shall not exceed $25,000, in aggregate, and the costs for each appraisal shall not exceed $15,000, in aggregate, in each case, plus reasonable out of pocket expenses and disbursements (and, in each case, inclusive of any such amounts expended in connection with audits or appraisals of the Canadian Borrower pursuant to the Canadian Loan Agreement and the other Canadian Loan Documents).

62

10.3         Maintenance of Property; Insurance.

10.3.1      Obligation to Maintain Properties. Keep, and cause each other Loan Party and their Subsidiaries to keep, all Collateral and all other property useful and necessary in the business of the Loan Parties and their Subsidiaries in good working order and condition, ordinary wear and tear excepted and shall make all necessary replacements of, and repairs to, the equipment so that the operating efficiency and the value thereof shall at all times be preserved and maintained.

10.3.2      Property Insurance. Keep, and cause each other Loan Party and their Subsidiaries to keep, the Collateral and all other property insured for the full insurable value thereof against loss or damage by fire, theft, explosion, sprinklers, collision and such other risks as are customarily insured against by Persons engaged in businesses similar to that of the Loan Parties, with such companies, in such amounts, with such deductibles, and under policies in such form, as shall be reasonably satisfactory to the Administrative Agent. Copies of all such policies of insurance covering the property and operations of the Loan Parties have been and shall promptly hereafter be delivered to the Administrative Agent, together with evidence of payment of all premiums therefor, and shall contain an endorsement, in form and substance reasonably acceptable to the Administrative Agent, showing loss under such insurance policies (other than losses with respect to properties subject to prior Permitted Liens of the type described in Section 11.2(d) in favor of Persons other than the Administrative Agent or the Lenders) payable to the Administrative Agent, for the benefit of the Administrative Agent and the Lenders. Such endorsement, or an independent instrument furnished to the Administrative Agent, shall provide that the insurance company shall give the Administrative Agent at least thirty (30) days’ prior written notice before any such policy of insurance is altered or canceled (or ten (10) days’ prior written notice in the event of cancellation for non-payment of premiums) and that no act, whether willful or negligent, or default of any Loan Party or any other Person shall affect the right of the Administrative Agent to recover under such policy of insurance in case of loss or damage. In addition, the Loan Parties shall cause to be executed and delivered to the Administrative Agent an assignment of proceeds of its business interruption insurance policies. Each Loan Party hereby directs all insurers under all policies of property insurance to pay all proceeds payable thereunder directly to the Administrative Agent; provided that, so long as no Event of Default or Unmatured Event of Default then exists or thereafter occurs, if the Loan Party Representative notifies the Administrative Agent within 20 days after a casualty event with respect to equipment or real property of any Loan Party that results in Net Cash Proceeds of less than $1,000,000, that it intends to repair, rebuild or replace any such damaged or destroyed equipment or real property with other property of comparable quality, value and use within 180 days after any such casualty event, then the Administrative Agent shall hold such proceeds received by it in a non-interest bearing account at LaSalle Bank and, subject to its receipt of plans, specifications and budgets reasonably acceptable to it, will agree to disburse such proceeds as needed to effect such repair,  reconstruction or replacement; it being agreed that (i) funds paid to and held by the Administrative Agent as aforesaid shall not be deemed to reduce the outstanding Obligations; and (ii) if such repairs, reconstruction or replacement have not been substantially completed within such 180 day period (or such earlier time as the Administrative Agent reasonably determines that such repair, reconstruction or replacement is no longer being diligently pursued), the Administrative Agent shall have the right to apply all such funds being held by it to the Obligations as provided herein. Each Loan Party irrevocably makes, constitutes and appoints the Administrative Agent (and all officers, employees or agents designated by the Administrative Agent) as such Loan Party’s true and lawful attorney (and agent-in-fact) for the

63

purpose of, following the occurrence and during the continuance of an Event of Default, making, settling and adjusting claims under such policies of property and/or business interruption insurance, endorsing the name of such Loan Party on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and making all determinations and decisions with respect to such policies of insurance.

10.3.3      Liability Insurance. Maintain, and cause each other Loan Party and their Subsidiaries to maintain, at its expense, such public liability and third party property damage insurance as is customary for Persons engaged in businesses similar to that of the Loan Parties and such Subsidiaries with such companies and in such amounts, with such deductibles and under policies in such form as shall be reasonably satisfactory to the Administrative Agent and copies of all such policies have been and shall promptly hereafter be delivered to the Administrative Agent, together with evidence of payment of all premiums therefor; each such policy relating to the Loan Parties shall contain an endorsement showing the Administrative Agent as an additional insured thereunder and providing that the insurance company shall give the Administrative Agent at least thirty (30) days’ prior written notice before any such policy shall be altered or canceled (or ten (10) days in the case of cancellation for non-payment of premiums).

10.3.4      Forced Place Coverage. UNLESS THE BORROWERS PROVIDE THE ADMINISTRATIVE AGENT WITH EVIDENCE OF THE INSURANCE COVERAGE REQUIRED BY THIS AGREEMENT AND AFTER THE ADMINISTRATIVE AGENT’S WRITTEN DEMAND THEREFOR, THE ADMINISTRATIVE AGENT MAY (BUT SHALL HAVE NO OBLIGATION TO) PURCHASE INSURANCE AT THE BORROWERS’ EXPENSE TO PROTECT THE ADMINISTRATIVE AGENT’S AND THE LENDERS’ INTERESTS IN THE COLLATERAL. THIS INSURANCE MAY, BUT NEED NOT, PROTECT ANY LOAN PARTY’S INTERESTS. THE COVERAGE THAT THE ADMINISTRATIVE AGENT PURCHASES MAY NOT PAY ANY CLAIM THAT IS MADE AGAINST ANY LOAN PARTY IN CONNECTION WITH THE COLLATERAL. THE BORROWERS MAY LATER CANCEL ANY INSURANCE PURCHASED BY THE ADMINISTRATIVE AGENT, BUT ONLY AFTER PROVIDING THE ADMINISTRATIVE AGENT WITH EVIDENCE THAT THE BORROWERS HAVE OBTAINED INSURANCE AS REQUIRED BY THIS AGREEMENT. IF THE ADMINISTRATIVE AGENT PURCHASES INSURANCE FOR THE COLLATERAL, THE BORROWERS WILL BE JOINTLY AND SEVERALLY RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING INTEREST AND ANY OTHER CHARGES THAT MAY BE IMPOSED WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE MAY BE ADDED TO THE PRINCIPAL AMOUNT OF THE REVOLVING LOANS OWING HEREUNDER. THE COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF THE INSURANCE THE LOAN PARTIES MAY BE ABLE TO OBTAIN ON THEIR OWN.

10.4         Compliance with Laws; Payment of Taxes and Liabilities. (a) Comply, and cause the Company and each Loan Party and their Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations, decrees, orders, judgments, licenses, except where the failure to comply would not or could not reasonably be expected to have a Material Adverse

64

Effect; (b) without limiting clause (a) above, ensure, and cause the Company and each Loan Party and Subsidiary of the foregoing to ensure, that no person who owns a controlling interest in or otherwise controls the Company, any other  Loan Party or a Subsidiary of the foregoing is or shall be (i) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (ii) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders, (c) without limiting clause (a) above, comply, and cause the Company and each Loan Party and Subsidiary to comply in all material respects with all applicable Bank Secrecy Act (“BSA”) and anti-money laundering laws and regulations and (d) file all required tax returns and pay, and cause the Company and each  Loan Party to pay, prior to delinquency, all federal and state income taxes and all other material taxes and other governmental charges against it or any Collateral, as well as claims of any kind which, if unpaid, could become a Lien (other than a Permitted Lien) on any of its property; provided that the foregoing clause (d) shall not require the Company, any Loan Party or Subsidiary to pay any such tax or charge so long as it shall contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto in accordance with GAAP and, in the case of a claim which could become a Lien on any Collateral, such contest proceedings shall stay the foreclosure of such Lien or the sale of any portion of the Collateral to satisfy such claim.

10.5         Maintenance of Existence, etc. Maintain and preserve, and (subject to Section 11.4) cause the Company and each Loan Party and their Subsidiaries to maintain and preserve, (a) its existence and good standing in the jurisdiction of its organization and (b) its qualification to do business and good standing in each jurisdiction where the nature of its business makes such qualification necessary (other than such jurisdictions in which the failure to be qualified or in good standing would not have or could not reasonably be expected to have a Material Adverse Effect); provided that the Company and the Loan Parties shall be entitled to dissolve the Inactive Subsidiaries.

10.6         [Intentionally Omitted].

10.7         Use of Proceeds. Use the proceeds of the Revolving Loans, and the Letters of Credit, solely to refinance the Debt to be Repaid, for working capital purposes. In no event shall any of the Revolving Loans or the Letters of Credit be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of “purchasing or carrying” any Margin Stock.

10.8         Employee Benefit Plans. (a)  Maintain, and cause each other member of the Controlled Group to maintain, each Pension Plan in substantial compliance with all applicable requirements of law and regulations.

(b)           Make, and cause each other member of the Controlled Group to make, on a timely basis, all required contributions to any Multiemployer Pension Plan.

(c)           Not, and not permit any other member of the Controlled Group to (i) seek a waiver of the minimum funding standards of ERISA, (ii) terminate or withdraw from any

65

Pension Plan or Multiemployer Pension Plan or (iii) take any other action with respect to any Pension Plan that would, or could reasonably be expected to, entitle the PBGC to terminate, impose liability in respect of, or cause a trustee to be appointed to administer, any Pension Plan, unless the actions or events described in clauses (i), (ii) and (iii) above individually or in the aggregate would not or could not reasonably be expected to have a Material Adverse Effect.

10.9         Environmental Matters. (a)  If any release or threatened release or other disposal of Hazardous Substances shall occur or shall have occurred on any real property or any other assets of any Loan Party or Subsidiary, each Loan Party and Subsidiary shall, or shall cause the applicable Loan Party or Subsidiary to, cause the prompt containment and removal of such Hazardous Substances and the remediation of such real property or other assets as necessary to comply with all Environmental Laws and to preserve the material value of such real property or other assets. Without limiting the generality of the foregoing, each Loan Party shall, and shall cause each other Loan Party and Subsidiary to, comply with any Federal or state judicial or administrative order requiring the performance at any real property of any Loan Party of activities in response to the release or threatened release of a Hazardous Substance. To the extent that the transportation of Hazardous Substances is permitted by this Agreement, each Loan Party shall, and shall cause each of its Subsidiaries to, dispose of such Hazardous Substances, or of any other wastes, only at licensed disposal facilities operating to its knowledge in compliance with Environmental Laws.

(b)           The Loan Parties shall promptly notify the Administrative Agent in writing upon learning there is or are, in each case, which are reasonably likely to result in material liability to a Loan Party under any applicable Environmental Law (i) any Hazardous Substances other than those used by the Loan Parties or tenants under leases at any real property of any Loan Party or Subsidiary in the ordinary course of their businesses and in compliance with all Environmental Laws, present on such real property; (ii) any Release of Hazardous Substances in, on, under, from or migrating towards such real property; (iii) any material non-compliance with Environmental Laws related in any way to such real property; (iv) any actual or reasonably likely Liens and other encumbrances imposed pursuant to any Environmental Law; (v) any investigation or action or claim, whether threatened or pending, by any governmental agency or third party pertaining to the release of Hazardous Substances in, on, under, from, or migrating towards such real property; and (vi) any installation of wells, piping, or other equipment at such real property to investigate, remediate or otherwise address any release of Hazardous Substances at, on, in or in the vicinity of such real property.

10.10       New Subsidiaries. If, after the Closing Date, any Loan Party creates, either directly or indirectly, any Subsidiary in accordance with Section 11.4 or 11.15, it will upon such creation thereof:

(a)           if such Subsidiary is a Domestic Subsidiary (x) cause such Subsidiary to become either a Borrower or a Guarantor; provided, that such Subsidiary may become a Borrower hereunder only if such Subsidiary is a Wholly-Owned Subsidiary and the Administrative Agent has provided its prior written approval of such Subsidiary becoming a Borrower (upon its review of such Subsidiary including, without limitation, its review of such field examinations, audits, appraisals and other due diligence as the Administrative Agent shall reasonably require) and, if such Subsidiary is not a Wholly-Owned Subsidiary or in the event such approval is not provided

66

for a Wholly-Owned Subsidiary to become a Borrower, such Subsidiary shall become a Guarantor, and (y) cause such Subsidiary to execute and deliver to the Administrative Agent (1) a Joinder Agreement in the form of Exhibit G hereto, in its capacity as a Borrower or a Guarantor, as applicable, and (2) any further documents, instruments or agreements as the Administrative Agent may reasonably require in order to grant the Administrative Agent a perfected first priority security interest (subject only to Permitted Liens) in substantially all of the assets of such Subsidiary; or

(b)           if such Subsidiary is a Domestic Subsidiary or a First-Tier Foreign Subsidiary, cause to be pledged to the Administrative Agent (pursuant to the Guaranty and Collateral Agreement) a security interest in the Capital Securities of such Subsidiary owned by such Loan Party (provided, that with respect to any such First-Tier Foreign Subsidiary, such Loan Party shall only be required to grant to the Administrative Agent a first-priority security interest in the Capital Securities thereof to the extent owned by any such Loan Party and not exceeding sixty-five percent (65%), in the aggregate, of the issued and outstanding Capital Securities of such Subsidiary); and

(c)           in either of the cases in (a) or (b) above, (i) deliver to the Administrative Agent (1) revised schedules to the Loan Documents reflecting such Loan Party’s ownership interest in such Subsidiary and (2) the certificates, if any, representing the Capital Securities of such Subsidiary required to be pledged hereunder, together with undated stock powers and an irrevocable proxy (or equivalent instruments, as applicable), or if such interest is uncertificated, evidence of the registration of the Administrative Agent’s lien on and security interest in such interest on the books and records of such entity and (ii) execute and deliver all such other instruments, documents and agreements and take such other actions, and cause all Subsidiaries to execute and deliver all such other instruments, documents and agreements and to take such other actions, as in either case, the Administrative Agent may reasonably request or require to fully evidence and consummate the transactions contemplated in clauses (a) and (b) above and to ensure the enforceability, perfection and first-priority (subject only to Permitted Liens) of the interests and undertakings thereunder, including, without limitation, (i) the execution and delivery of guaranties, security agreements, pledge agreements, mortgages, deeds of trust, financing statements and other documents, and the filing or recording of any of the foregoing, (ii) the delivery of certificated securities and other Collateral with respect to which perfection is obtained by possession and (iii) legal opinions in form and substance and from such counsel reasonably satisfactory to the Administrative Agent to be addressed to (or permit reliance upon by) the Administrative Agent and the Lenders.

Without limiting the foregoing, the Loan Parties shall have no obligations pursuant to this Section 10.10 with respect to any Second-Tier Foreign Subsidiary.

10.11       Deposit Accounts. (a)  Unless the Administrative Agent otherwise consents in writing and as described in clause (b) below, in order to facilitate the Administrative Agent’s and the Lenders’ maintenance and monitoring of their security interests in the Collateral, maintain all of their lock-boxes, collection accounts, deposit accounts, securities accounts, operating accounts, checking accounts, disbursement accounts and other accounts (other than payroll accounts and accounts maintained by the Borrowers for the sole benefit of its employees as listed on Schedule 10.11 attached hereto) (collectively, the “Subject Accounts”) with LaSalle Bank.

67

With respect to any Subject Accounts maintained with LaSalle Bank, although no compensating balance will be required, the Borrowers and Loan Parties shall keep monthly balances in order to merit earnings credits which will cover LaSalle Bank’s service charges for Bank Products. With respect to any such Subject Accounts with LaSalle Bank, each Loan Party shall enter into Bank Product Agreements relating thereto. The Borrowers and the Loan Parties shall be responsible for nominal charges assessed thereon.

(b)           With respect to any Subject Accounts maintained by the Borrowers (or by the Company for and on behalf of the Borrowers (which the Borrowers represent are currently limited to account number 610-045-1067 maintained with The Bank of New York and the JPMorgan Account referred to below)) at financial institutions other than LaSalle Bank on the Closing Date, the Borrowers agree to, and to cause the Company to agree to, cooperate with the Administrative Agent to transition such accounts and cash management services to LaSalle Bank and, as soon as reasonably practicable after the Closing Date, to notify all Account Debtors to remit all payments on Accounts to a collection account maintained at LaSalle Bank and, within one hundred twenty (120) days after the Closing Date, close any such other Subject Accounts maintained at financial institutions other than LaSalle Bank. With respect to the Borrowers’ (or, to the extent maintained by or on behalf of the Borrowers (or any of them), the Company’s) existing Subject Accounts (other than that certain disbursement account no. 00302177 maintained by the Company with JPMorgan Chase Bank the balance of which is hereby represented to at no time exceed $150,000, the “JPMorgan Account”), the Borrowers shall, or shall cause the Company (with respect to any such account maintained by or on behalf of the Borrowers (or any of them)) to, deliver, on or prior to the Closing Date, Account Control Agreements executed by the applicable Borrowers or the Company, the applicable financial institution and the Administrative Agent relating to each such Subject Account. No Borrower shall open any new Subject Accounts other than with LaSalle Bank. No Borrower shall, nor shall it permit the Company to, make any further deposits to the JPMorgan Account. The Borrowers shall deliver to the Administrative Agent a revised schedule showing any changes to its or (solely with respect to any such accounts maintained by the Company for or on behalf of the Borrowers (or any of them)) the Company’s Subject Accounts within five (5) Business Days of any changes to the Subject Accounts. Each Borrower hereby authorizes, and shall cause the Company (solely with respect to any such accounts maintained by the Company for or on behalf of the Borrowers (or any of them)) to authorize, the financial institutions at which such Borrower or the Company, as applicable, maintains a Subject Account to provide the Administrative Agent with a copy of such financial institution’s regular statements and such other more frequent statements or advices as the Administrative Agent may reasonably request, in each case, covering the remittances, deposits, and withdrawals from and balances of such account, and each Borrower hereby consents, and will cause the Company (solely with respect to any such accounts maintained by the Company for or on behalf of the Borrowers (or any of them)) to consent, to such information being provided to the Administrative Agent. Each Borrower shall, and shall cause the Company (solely with respect to any such accounts maintained by the Company for or on behalf of the Borrowers (or any of them)) to, cause each financial institution at which such Borrower or the Company, as applicable, maintains a Subject Account (other than the JPMorgan Account) to enter into an Account Control Agreement in order to give the Administrative Agent “control” thereof (as defined in the UCC) for perfection purposes. Notwithstanding anything contained herein or in any other Loan Document to the contrary, with respect to any Subject Account to which Accounts are remitted, collected or deposited, the financial institutions at

68

which any such accounts are maintained shall, on a daily basis, remit all amounts on deposit in or remittance to such accounts to accounts designated by the Administrative Agent for application to the Obligations in accordance with the terms hereof.

10.12       [Intentionally Omitted].

10.13       Appraisal of Inventory. Within thirty (30) days after the Closing Date, the Borrowers shall deliver to the Administrative Agent an appraisal of the Borrowers’ Inventory and the orderly liquidation value thereof, net of costs, fees and expenses arising in connection with such orderly liquidation thereof, prepared for the Administrative Agent by Hilco Appraisal Services, LLC (or other auditor or appraiser reasonably acceptable to the Administrative Agent).

10.14       Post-Closing Spin-Off Consents. The Borrowers shall use commercially reasonable efforts to obtain within 120 days after the Closing Date, all governmental and third party consents and approvals related to the Spin-Off that were not obtained on or before the Closing Date, including each consent listed on Schedule 9.23, and shall deliver to the Administrative Agent evidence reasonably satisfactory to the Administrative Agent, of such approvals and consents obtained.

SECTION 11.  NEGATIVE COVENANTS.

Until the expiration or termination of the Commitments and thereafter until all Obligations (other than unasserted contingent indemnification obligations) hereunder and under the other Loan Documents are paid in full in cash and all Letters of Credit have been terminated, each Loan Party agrees that, unless at any time the Required Lenders shall otherwise expressly consent in writing, it will:

11.1         Debt. Not, and not permit any other Loan Party to, create, incur, assume or suffer to exist any Debt, except:

(a)           Obligations under this Agreement and the other Loan Documents;

(b)           Debt secured by Liens permitted by Section 11.2(d); provided that the aggregate amount of all such Debt at any time outstanding shall not exceed $500,000;

(c)           (i) unsecured Debt owing by any Borrower to any other Loan Party, (ii) unsecured Debt owing by any Guarantor (that is a Wholly-Owned Subsidiary) to any other Loan Party, and (iii) unsecured Debt owing by any Loan Party to a First-Tier Foreign Subsidiary of any Loan Party; provided that in each of the cases of clause (i) and (ii) any such Debt shall be evidenced by a demand note in the form of Exhibit H attached hereto and pledged and delivered to the Administrative Agent pursuant to the Collateral Documents as additional collateral security for the Obligations; provided, further that in each of the cases of clause (i), (ii) and (iii) any such Debt shall be subordinated to the Obligations of the Loan Parties hereunder in a manner reasonably satisfactory to the Administrative Agent (it being agreed that the subordination provisions set forth in the demand note referred to above shall be deemed to be reasonably satisfactory to the Administrative Agent);

69

(d)           unsecured Subordinated Debt  (other than Debt described in clause (c) above) in an amount at any time outstanding not to exceed $2,000,000;

(e)           unsecured Hedging Obligations for bona fide hedging purposes and not for speculation;

(f)            Debt existing on the date hereof described on Schedule 9.26 and any extension, renewal or refinancing thereof so long as neither the principal amount thereof is increased, the weighted average life to maturity decreased or, if secured, any additional collateral is granted as security therefor;

(g)           the Debt to be Repaid (so long as such Debt is repaid on the Closing Date with the proceeds of the initial Revolving Loans hereunder);

(h)           unsecured Contingent Liabilities arising with respect to customary indemnification obligations in favor of purchasers in connection with dispositions permitted under Section 11.4;

(i)            [Intentionally Omitted];

(j)            unsecured Debt in respect of bid, performance or surety, appeal or similar bonds issued for the account of and completion guarantees provided by the Loan Parties in the ordinary course of business;

(k)           Debt arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business; provided, however,  that such Debt is extinguished within five (5) Business Days of incurrence;

(l)            Debt arising in connection with endorsement of instruments for deposit in the ordinary course of business; and

(m)          unsecured guaranties by any Loan Party of the obligations of any Borrower under any license and/or distribution agreement entered into by such Borrower in the ordinary course of its business.

11.2         Liens. Not, and not permit any other Loan Party, to create or permit to exist any Lien on any of its real or personal properties, assets or rights of whatsoever nature (whether now owned or hereafter acquired), except:

(a)           Liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves;

(b)           Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law and (ii) Liens in the form of deposits or pledges incurred in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under

70

ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any advances or borrowed money or the deferred purchase price of property or services and, in each case, for which it maintains adequate reserves;

(c)           Liens described on Schedule 11.2 existing as of the Closing Date;

(d)           subject to the dollar limitation set forth in Section 11.1(b), (i) Liens (including Liens having priority over the Liens pursuant to the Loan Documents) arising in connection with Capital Leases (and attaching only to the property being leased), (ii) Liens (including Liens having priority over the Liens pursuant to the Loan Documents) that constitute purchase money security interests on any capital asset securing Debt incurred for the purpose of financing all or any part of the cost of acquiring such capital asset, provided that any such Lien attaches solely to the capital asset so acquired and secures no more than the purchase price (or portion) thereof financed thereby;

(e)           easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of any Loan Party;

(f)            Liens in favor of the Administrative Agent under the Loan Documents;

(g)           the EDA Lien, but only to the extent of the EDA Reserve;

(h)           [Intentionally Omitted];

(i)            Liens on deposit accounts granted or arising in the ordinary course of business in favor of depositary banks maintaining such deposit accounts solely to secure customary account fees and charges payable in respect of such deposit accounts and overdrafts;

(j)            Liens in favor of custom brokers for taxes, assessments and governmental charges the payment of which is not required under Section 10.4 payable in connection with the importation of Inventory in the ordinary course of business of the Borrowers or any other Loan Party;

(k)           leases or subleases granted to other Persons (as lessee thereof) not materially interfering with the conduct of the business of the Borrowers or any other Loan Party;

(l)            precautionary UCC financing statement filings regarding operating leases;

(m)          Liens arising out of the existence of judgment or awards not giving rise to an Event of Default; provided that the Loan Parties shall promptly seek the stay of, or otherwise satisfy any such Lien not being contested in good faith;

(n)           inchoate statutory and common law landlords’ liens under leases to which any Borrower or any other Loan Party is a party;

71

(o)           the replacement, extension or renewal of any Lien permitted by clauses (c) or (d) above upon or in the same property subject thereto arising out of the extension, renewal or replacement of the Debt secured thereby (without increase in the amount or priority thereof or security or collateral therefor or decrease in the weighted average life to maturity thereof); and

(p)           any other Liens in an aggregate amount not exceeding $100,000 at any time.

11.3         Restricted Payments. Except as permitted pursuant to the following sentence, not, and not permit any other Loan Party or Subsidiary thereof to (a) make any distribution to any holders of its Capital Securities, (b) purchase or redeem any of its Capital Securities, (c) pay any management fees or similar fees to any of its direct or indirect equityholders or any Affiliate thereof, (d) pay, redeem, prepay, defease, purchase, repurchase or make any other payment on or in respect of Restricted Debt, or (e) set aside funds for any of the foregoing. Notwithstanding the foregoing:

(i)            any Subsidiary of a Loan Party may pay dividends or make other distributions in respect of its Capital Securities to the Borrowers or its parent company (including, without limitation, to enable the recipient to pay taxes);

(ii)           (1) so long as no Event of Default or Unmatured Event of Default exists or would result therefrom, the Loan Parties may make regularly scheduled payments of interest in respect of Subordinated Debt (other than Subordinated Debt owing to any Affiliate) to the extent permitted under the subordination provisions thereof, and (2) the Loan Parties shall be permitted to accrue all non-cash interest (i.e., PIK interest) on its Subordinated Debt and non-cash dividends on its Capital Securities consisting of preferred stock;

(iii)          the Borrowers may pay dividends or make other distributions to the Company for the sole purpose of permitting the Company to (and upon receipt by the Company of such funds the Company shall promptly use such funds for such purpose) pay income tax liabilities allocable to the Borrowers’ and their Subsidiaries’ operations, to the extent any such taxes are due and owing by the Company and its Subsidiaries on a consolidated basis with the Loan Parties;

(iv)          any Loan Party (other than a domestic Subsidiary which is not a Wholly-Owned Subsidiary) or a Wholly-Owned Subsidiary may pay dividends or make other distributions in respect of its common stock payable solely in its common stock;

(v)           so long as both before and immediately after giving effect to the payments described in this clause (v), (x) no Event of Default or Unmatured Event of Default exists or would result therefrom and (y) no violation of the financial covenants set forth in Section 11.13 would then exist or would, on a pro forma basis, result therefrom (compliance with such conditions to be demonstrated by a certificate of the Chief Financial Officer to be delivered to the Administrative Agent by the 10^th Business Day of the month following the month in which any such dividend or distribution is made, in each case, certifying that no Event of Default or Unmatured Event of Default then exists or would result from the proposed distribution and setting forth the

72

calculations of pro forma Excess Revolving Loan Availability and the pro forma calculations of such financial covenants (after giving effect to such payments) in detail reasonably acceptable to the Administrative Agent), the Borrowers may pay dividends or make other distributions to the Company, out of legally available funds, for the sole purpose of permitting the Company to (and upon receipt by the Company of such funds the Company shall promptly use such funds for such purpose) pay corporate overhead expenses incurred in the ordinary course of business in an amount not to exceed (x) $4,500,000 in each of Fiscal Years 2006 and 2007 and (y) $5,000,000 in any Fiscal Year thereafter (it being agreed that this provision shall not be deemed to limit the ability of any Loan Party to reimburse the Company or any Subsidiary thereof for the payment by the Company or such Subsidiary of business expenses incurred by the Company or such Subsidiary for and on behalf of the Loan Parties, which business expenses (1) are of a type typically incurred by the Loan Party on its own behalf in the ordinary course of its business operations and (2) when reimbursed by the Loan Parties are included as expenses on the books and records of the Loan Parties);

(vi)          [Intentionally Omitted]; and

(vii)         so long as the Earnout Consideration has been paid in full, and both before and immediately after giving effect to the payments described in this clause (vii), (w) no Event of Default or Unmatured Event of Default exists or would result therefrom, (x) Excess Revolving Loan Availability will equal or exceed $8,000,000, (y) the Fixed Charge Coverage Ratio equals or exceeds 1.25:1.00 and (z) no violation of the financial covenants set forth in Sections 11.13 would then exist or would, on a pro forma basis result therefrom, upon no less than 10 days prior written notice to the Administrative Agent, accompanied by a certificate of the Chief Financial Officer delivered to the Administrative Agent setting forth the calculations of pro forma Excess Revolving Loan Availability and the pro forma calculations of such financial covenants (after giving effect to such payments), in detail reasonably acceptable to the Administrative Agent, the Borrowers may pay dividends or make other distributions to the Company, out of legally available funds, for the sole purpose of permitting the Company to (and upon receipt by the Company of such funds the Company shall promptly use such funds for such purpose), pay a regular quarterly dividend payment payable out of legally available funds on the outstanding common stock of the Company.

11.4         Mergers, Consolidations, Sales and Other Transactions Outside the Ordinary Course of Business. Not, and not permit any other Loan Party to:

(a)           sell, transfer, convey or lease any of its assets or Capital Securities (including the sale of Capital Securities of any First-Tier Foreign Subsidiary of a Loan Party) except for (i) sales of Inventory in the ordinary course of business, (ii) sales of obsolete and unusable Equipment and other assets in the ordinary course of business, (iii) subject to Section 6.2.2(a), so long as no Event of Default then exists, the disposition of other property having a fair market value not to exceed $200,000 in the aggregate in any Fiscal Year for a cash purchase price payable at closing of not less than the fair market value thereof (unless the Administrative Agent consents otherwise), (iv) in the case of its Capital Securities, as permitted pursuant Section 11.9

73

or clause (f) of this Section, and (v) subject to Section 6.2.2(a), sale/leaseback transactions not to exceed $1,000,000 in any Fiscal Year;

(b)sell or assign with or without recourse any receivables (other than receivables of any Foreign Subsidiaries);

(c)prepay any Debt (other than the Obligations);

(d)enter into any transaction whereby such Loan Party leases any property previously owned and sold by any other Loan Party or any Subsidiary of  any Loan Party;

(e)except as expressly otherwise permitted hereunder, enter into any other transaction outside the ordinary course of such Loan Party’s business; or

(f)be a party to any merger or consolidation or, except as otherwise permitted pursuant to this Section, Section 11.10(a), or Section 11.10(f), purchase or otherwise acquire the assets or the Capital Securities of any class of any other Person; except for (i) the merger or consolidation of any Borrower into any other Borrower or the sale, assignment or conveyances of any, all or substantially all of the assets of one Borrower to another Borrower or (ii) the merger or consolidation of any Guarantor into any other Guarantor which is a Wholly-Owned Subsidiary, provided that the Wholly-Owned Subsidiary is the surviving entity of such merger or consolidation, or the sale, assignment or conveyances of any, all or substantially all of the assets of one Guarantor to another Guarantor which is a Wholly-Owned Subsidiary, provided that the Wholly-Owned Subsidiary is the surviving entity of such sale, assignment or conveyances.

11.5Modification of Organizational Documents. Not permit the charter, by-laws or other organizational documents of any Loan Party or Subsidiary thereof to be amended or modified in any way which could reasonably be expected to materially adversely affect the interests of the Lenders. Not change, or allow any other Loan Party to change, its state of formation or its organizational form unless it gives the Administrative Agent at least thirty (30) days (or such lesser amount of time as consented to by the Administrative Agent) prior written notice thereof and takes actions reasonably requested by Agent to maintain the perfection or priority of any Lien or security interest granted hereunder.

11.6Transactions with Affiliates. Not, and not permit any other Loan Party to, enter into, or cause, suffer or permit to exist any transaction, arrangement or contract with any of its other Affiliates (including any Subsidiary thereof) which is on terms, which are less favorable than are obtainable from any Person which is not one of its Affiliates, other than (i) customary and reasonable employment arrangements with employees (including without limitation, incentive compensation arrangements) and benefit programs and entered into in the ordinary course of business and pursuant to the reasonable requirements of such Loan Party’s business and, in the case of any senior officers or directors of any Loan Party, approved by the Board of Directors of such Loan Party and permissible under law, (ii) customary indemnification agreements and insurance arrangements entered into for the benefit of any Loan Party’s directors or officers entered into in the ordinary course of business consistent with past practices and pursuant to the reasonable requirements of such Loan Party’s business, (iii) as permitted pursuant to clauses (a), (g), (j) and (k) of Section 11.10, (iv) transactions with officers or directors of a

74

Borrower or its Subsidiaries providing for the payment of customary and reasonable fees, and indemnification and reimbursement of expenses, upon customary and reasonable terms, and (v) to the extent not otherwise prohibited hereunder, transactions between Loan Parties and their respective Wholly-Owned Subsidiaries.

11.7Unconditional Purchase Obligations. Not, and not permit any other Loan Party to, enter into, guaranty or be a party to any material contract for the purchase of materials, supplies or other property or services if such contract requires that payment be made by it regardless of whether delivery is ever made of such materials, supplies or other property or services.

11.8Inconsistent Agreements. Not, and not permit any other Loan Party or, any Domestic Wholly-Owned Subsidiary thereof to, enter into any agreement containing any provision which would (a) be violated or breached by any borrowing by the Borrowers hereunder or by the performance by any Loan Party or Subsidiary thereof of any of its Obligations hereunder or under any other Loan Document, (b) prohibit any Loan Party from granting to the Administrative Agent and the Lenders, a Lien on any of its assets (other than distribution agreements or license agreements, provided that with respect to any such distribution agreements or license agreement that prohibit any Loan Party from granting to the Administrative Agent Liens on the right to receive payments and other proceeds from the sale of products licensed or distributed under such agreements, the Borrowers shall use their commercially reasonable efforts (it being agreed that this shall not include the payment of any monies) to obtain the consent of the counterparties thereto to permit the Liens of the Administrative Agent under the Loan Documents and the Borrowers further agree to, and to cause the other Loan Parties to, disclose and schedule such agreements in accordance with the terms of the Guaranty and Collateral Agreement) or (c) create or permit to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of any Loan Party to (i) pay dividends or make other distributions to any Loan Party or any other Subsidiary of any Loan Party, or pay any Debt owed to any Loan Party or any other Subsidiary of any Loan Party, (ii) make loans or advances to any Loan Party or (iii) transfer any of its assets or properties to any Loan Party, other than (A) customary restrictions and conditions contained in agreements relating to the sale of all or a substantial part of the assets of any Subsidiary of any Loan Party pending such sale, provided that such restrictions and conditions apply only to the Subsidiary to be sold and such sale is permitted hereunder, (B) restrictions or conditions permitted under this Agreement imposed by any agreement relating to purchase money Debt, Capital Leases and other secured Debt permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Debt, (C) customary provisions in leases and other contracts restricting the assignment or other transfer thereof, (D) customary provisions in organizational documents of any Foreign Subsidiary of any Loan Party that restrict the transfer of Capital Securities of such Subsidiaries, and (E) any applicable law, rule or regulation (including, without limitation, applicable currency control laws and applicable state corporate statutes restricting the payment of dividends in certain circumstances).

11.9Business Activities; Issuance of Equity. Not, and not permit any other Loan Party or Subsidiary thereof, to engage in any line of business other than the businesses of the Borrowers engaged in on the date hereof and businesses reasonably related, incidental or

75

complementary thereto. Not, and not permit any other Loan Party or their Subsidiaries to, issue any Capital Securities.

11.10Investments. Not, and not permit any other Loan Party or Subsidiary thereof to, make or permit to exist any Investment in any other Person, except the following; it being agreed that to be permitted hereunder, any such Investment, if evidenced by Capital Securities of the Person being invested in, the provisions of Section 10.10 must be complied with and, if evidenced by Debt, the provision of Section 11.1(c) relating to evidencing and pledging as Collateral of such Debt from a Loan Party and, where appropriate, subordination thereof to the Obligations must be complied with:

(a)contributions by First Tier Foreign Subsidiaries of such Loan Party and Second Tier Foreign Subsidiaries of such Loan Party in other First Tier Foreign Subsidiaries of such Loan Party and Second Tier Foreign Subsidiaries;

(b)Investments constituting Debt permitted by Section 11.1;

(c)Contingent Liabilities constituting Debt permitted by Section 11.1 or Liens permitted by Section 11.2;

(d)Cash Equivalent Investments and, in the case of Foreign Subsidiaries of a Loan Party, Investments made locally of a type comparable to those described in the definition of Cash Equivalent Investments;

(e)bank deposits in the ordinary course of business, provided that the Loan Parties and their Domestic Wholly-Owned Subsidiaries shall at no time have deposits or investments of more than $500,000 in the aggregate maintained in any accounts which are not subject to an Account Control Agreement among the Administrative Agent, such financial institutions at which such accounts are maintained and the applicable Loan Party which is in form and substance reasonably acceptable to the Administrative Agent;

(f)Investments in securities of Account Debtors received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such account debtors;

(g)loans or advances to employees, officers or directors of the Loan Parties or any Subsidiary thereof incurred in the ordinary course of business (including for travel, entertainment and relocation expenses), in an aggregate amount not to exceed $200,000 at any one time outstanding;

(h)[Intentionally Omitted];

(i)Investments listed on Schedule 11.10 existing as of the Closing Date;

(j)loans and advances permitted pursuant to Section 11.1(c);

(k)Investments in accordance with past business practices in life insurance plans of certain employees, officers, and directors of the Borrowers relating to their deferred

76

compensation which insurance plans name the Borrowers as the beneficiary thereunder (it being agreed that, (1) the Borrowers have granted a Lien to the Administrative Agent in such Investments and the proceeds of such policies, and (2) absent an Event of Default under Section 13.1.4, or the attempted enforcement of any claim by any other creditor of the Loan Parties or their respective Subsidiaries against such assets, the Administrative Agent shall not assert its interest in any such proceeds of such policies);

(l)subject to the limitations in Section 11.6, customary security deposits paid to landlords of real property leased by the Loan Parties in the ordinary course of business and in accordance with the lease to which such Loan Party is a party; and

(m)other Investments in an aggregate amount not to exceed $50,000 at any time;

provided that (x) any Investment which when made complies with the requirements of the definition of the term “Cash Equivalent Investment” may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; (y) no Investment otherwise permitted by clause (b) or (c) shall be permitted to be made if, immediately before or after giving effect thereto, any Event of Default or Unmatured Event of Default exists or would result therefrom.

11.11Restriction of Amendments to Certain Documents. Not amend or otherwise modify, or waive any rights under the Related Agreements, the EDA Documents, the Restricted Debt Agreements or any other agreement, document or instrument evidencing any other Subordinated Debt, if, in any case, such amendment, modification or waiver would be or would reasonably be likely to be adverse to the interests of the Administrative Agent and the Lenders.

11.12Fiscal Year. Not change its current determination of its Fiscal Year.

11.13Financial Covenants.

11.13.1Excess Revolving Loan Availability; Maximum Revolving Outstandings. Not permit (a) Excess Revolving Loan Availability at any time to be less than Five Million Dollars ($5,000,000) or (b) without limiting Sections 13.1 and 13.2 hereof, at any time after December 31, 2007 in respect of which the Fixed Charge Coverage Ratio for the Computation Period ending as of the Fiscal Quarter end most recently preceding such date was less than 1.00 to 1.00, Revolving Outstandings plus the sum of the aggregate principal amount of all “Loans,” all “Specified Hedging Obligations” and the “Stated Amount” of all “Letters of Credit” outstanding under (and, in each case, as such terms are defined in) the Canadian Loan Agreement, to exceed $10,000,000.

11.13.2Minimum EBITDA. Not permit EBITDA, measured: (a) for each of the following Fiscal Quarters, for the one Fiscal Quarter period ending on each of the following dates, to be less than the amount set forth below:

77

Period ending:	Minimum Quarterly EBITDA
March 31, 2006	$	(7,800,000	)
June 30, 2006	$	(7,700,000	)
September 30, 2006	$	3,200,000
December 31, 2006	$	0

and (b) for any Fiscal Quarter, as of the end of the following periods ending at the end of such Fiscal Quarter, to be less than the applicable amount set forth below:

Period ending:	Minimum EBITDA
Two Fiscal Quarter period ending June 30, 2006	$	(15,500,000	)
Three Fiscal Quarter period ending September 30, 2006	$	(12,300,000	)
Computation Periods ending as of the last day of each of the following Fiscal Quarters:   December 31, 2006	$	(12,300,000	)
March 31, 2007	$	(7,800,000	)
June 30, 2007	$	(4,800,000	)
September 30, 2007	$	(3,000,000	)
December 31, 2007	$	1,500,000
March 31, 2008 and each Fiscal Quarter ending thereafter	$	4,000,000

11.13.3Capital Expenditures. Not permit Capital Expenditures of the Borrowers and their Subsidiaries, on a consolidated basis, in any Fiscal Year, to exceed $3,000,000. If the Loan Parties do not utilize the entire amount of the Capital Expenditure Limitation permitted in any Fiscal Year, the Loan Parties may carry forward, to the immediately succeeding Fiscal Year only, up to one hundred percent (100%) of such unutilized amount. All Capital Expenditures in any Fiscal Year shall first be applied to reduce the applicable Capital Expenditure Limitation for such Fiscal Year and then to reduce the carry-forward from the previous Fiscal Year, if any.

11.13.4Fixed Charge Coverage Ratio. Beginning with Computation Period relating to the Fiscal Quarter ending on March 31, 2008 and thereafter for each Computation Period relating to each Fiscal Quarter ending thereafter, not permit the Fixed Charge Coverage Ratio (calculated as of the last day of each Fiscal Quarter) to be less than 1.00:1.00.

78

11.14Cancellation of Debt. Not, and not permit any other Loan Party to, cancel any claim or Debt owing to it, other than (i) in connection with trade discounts or allowances granted in the ordinary course of its business consistent with past practices, and (ii) so long as no Event of Default or Unmatured Event of Default is then outstanding, the cancellation of Debts or claims not to exceed $500,000 in any Fiscal Year in connection with the resolution of good faith disputes relating thereto.

11.15Creation of Subsidiaries. Not, and not permit any other Loan Party or Domestic Subsidiary to, create any Subsidiary or enter into any joint venture other than, so long as no Event of Default or Unmatured Event of Default then exists or would result therefrom, Subsidiaries in respect of which the provisions of Section 10.10 shall have been satisfied.

11.16Inactive Subsidiaries. Not permit any Inactive Subsidiary to own any properties or assets in excess of Fifty Thousand Dollars ($50,000), in each case; incur any Debt or other material liabilities (other than immaterial contingent obligations not to exceed Fifty Thousand Dollars ($50,000) with respect to each such Inactive Subsidiary); have any Investments; or conduct any operations or business; provided, that notwithstanding any of the foregoing, it is acknowledged and agreed that BOA Done, Inc. currently holds and may continue to hold the Bright of America Note.

11.17Commingling of Funds. Not, and not permit the Company or any other Loan Party to, commingle any of such Person’s cash or cash equivalents with the cash or cash equivalents of any of Kids Line or Sassy or any Subsidiary thereof.

SECTION 12.EFFECTIVENESS; CONDITIONS OF LENDING, ETC.

The obligation of each Lender to make its Revolving Loans and of the Issuing Bank to issue Letters of Credit is subject to the following conditions precedent:

12.1Initial Credit Extension. The obligation of the Lenders to make the initial Revolving Loans and the obligation of the Issuing Bank to issue its initial Letter of Credit (whichever first occurs) is, in addition to the conditions precedent specified in Section 12.2, subject to the conditions precedent that (a) all Debt to be Repaid has been (or concurrently with the initial borrowing will be) paid in full in cash, and that all agreements and instruments governing the Debt to be Repaid and that all Liens securing such Debt to be Repaid have been (or concurrently with the initial borrowing will be) terminated and (b) the Administrative Agent shall have received or determined the satisfaction of all of the following, which, in the case of any delivery, shall be duly executed and dated the Closing Date (or such earlier date as shall be satisfactory to the Administrative Agent), in form and substance reasonably satisfactory to the Administrative Agent (and the date on which all such conditions precedent have been satisfied or waived in writing by the Administrative Agent and the Lenders is called the “Closing Date”):

12.1.1List of Closing Documents. All instruments, documents, certificates and agreements, set forth on the List of Closing Documents attached hereto as Schedule 12.1.1.

12.1.2Consents, etc. Evidence, reasonably satisfactory to the Administrative Agent, that the Company and the Loan Parties have received all governmental and third party approvals necessary for the Spin-Off and the continuing activities of the Company and the Loan

79

Parties and such approvals shall be on terms reasonably satisfactory to the Administrative Agent and shall be in full force and effect, except for such approvals, the failure to obtain which, individually or in the aggregate, would not have or could not reasonably be expected to have, a Material Adverse Effect.

12.1.3Payment of Fees. Receipt by the Administrative Agent of payment by the Loan Parties of all accrued and unpaid fees and expenses to the extent then due and payable to the Administrative Agent and/or the Lenders on the Closing Date (including, without limitation, pursuant to the Agent Fee Letter), together with all Attorney Costs of the Administrative Agent to the extent invoiced prior to the Closing Date, plus such additional amounts of Attorney Costs as shall constitute the Administrative Agent’s reasonable estimate of Attorney Costs incurred or to be incurred by the Administrative Agent through the closing proceedings (provided, that such estimate shall not thereafter preclude final settling of accounts between the Borrowers and the Administrative Agent).

12.1.4Excess Revolving Loan Availability. Excess Revolving Loan Availability shall not be less than Ten Million Dollars ($10,000,000) on the Closing Date.

12.1.5Independent Collateral Field Audit Examination Documents. A collateral field examination shall have been conducted by an independent third party appraiser acceptable to the Administrative Agent, and the written results of such examination shall be satisfactory to the Administrative Agent, in its sole and absolute discretion. To the extent that the Administrative Agent requested any appraisals of any of the assets of the Loan Parties, such appraisals shall have been conducted by independent third party appraisers acceptable to the Administrative Agent, provide that they may be relied upon by the Administrative Agent and the Lenders (subject, if applicable, to reasonable confidentiality restrictions) and the written results of such appraisals shall be satisfactory to the Administrative Agent, in its sole and absolute discretion.

12.1.6Material Adverse Effect. Since December 31, 2004, no event shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect; it being agreed, however, that the consolidated results of operations of the Company and its Subsidiaries for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005, as reported on the 10-Qs of the Company filed with the SEC on or about May 10, 2005, August 9, 2005 and November 9, 2005 shall not, in and of themselves, be deemed a Material Adverse Effect.

12.1.7Due Diligence. The Administrative Agent shall have completed its legal and business due diligence with respect to each Loan Party and the results thereof shall be acceptable to the Administrative Agent, in its reasonable discretion.

12.1.8Litigation. The Administrative Agent shall have received evidence, satisfactory to the Administrative Agent, that no litigation (including derivative actions), arbitration proceeding or governmental investigation or proceeding is pending or, to the knowledge of any Loan Party, threatened challenging the validity, permissibility or legality of the transactions contemplated by the Loan Documents.

80

12.1.9Projections. The Administrative Agent shall have received consolidating projected income statements, balance sheets and statements of cash flow of the Borrowers and their Subsidiaries on a consolidated basis after giving effect to the making of the initial Revolving Loans and the issuance of the initial Letters of Credit on a quarterly basis for Fiscal Year 2006 and on an annual basis for Fiscal Year 2007, 2008, 2009, 2010 and 2011.

12.1.10Financial Statements. (i) Audited consolidated and unaudited consolidating financial statements (including balance sheets, statements of earnings and cash flows) of the Company and its Subsidiaries for the 2002, 2003 and 2004 Fiscal Years and (ii) unaudited interim consolidated and consolidating financial statements (including balance sheets, statements of earnings and cash flows) of the Company and its Subsidiaries for each fiscal month and quarter ended after the latest period for which financial statements have been delivered in accordance with the immediately preceding clause (i).

12.1.11Filings, Registrations and Recordings. The Administrative Agent shall have received (i) the results of recent tax judgment and UCC lien searches in each relevant jurisdiction with respect to each Loan Party and (ii) each document (including Uniform Commercial Code financing statements) required by the Collateral Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Lenders, a perfected Lien on the collateral described therein, prior to any other Liens (other than prior Liens permitted pursuant to Section 11.2), in proper form for filing, registration or recording, including without limitation, UCC financing statements, mortgages, deeds of trust, account control agreements, title policies.

12.1.12Insurance. The Administrative Agent shall be reasonably satisfied with the insurance program to be maintained by the Loan Parties and shall have received, if requested by the Administrative Agent, copies of Borrowers’ and the other Loan Parties’ insurance policies.

12.1.13EDA Documents. The Administrative Agent shall have received fully-executed copies of each of the following: (i) the EDA Standby L/C Reimbursement Agreement Modification Letter from The Bank of New York, (ii) the Berrie Commitment and (iii) the BNY/Administrative Agent Commitment, in each case, in form and substance reasonably satisfactory to the Administrative Agent. Furthermore, there shall have been no draw on the EDA Standby L/C (other than for scheduled installments of interest in accordance with the terms of the EDA Standby L/C Reimbursement Agreement, which installments shall have been reimbursed by the Company within the required time periods set forth therefor in such agreement).

12.1.14Capitalization and Structure. The capitalization and structure of the Borrowers and their Subsidiaries after giving effect to the transaction contemplated hereunder shall be reasonably satisfactory to the Administrative Agent.

12.1.15Related Transactions. The Administrative Agent shall have received evidence, reasonably satisfactory to the Administrative Agent, that the Company has completed the Related Transactions in accordance with applicable law and on terms consistent with the

81

Related Agreements (with no provisions waived without the written consent of the Administrative Agent).

12.1.16Debt. The Administrative Agent shall have received evidence, reasonably satisfactory to the Administrative Agent, that Kids Line and Sassy, each a wholly-owned Subsidiary of Parent, has closed, or concurrently with the initial credit extension hereunder will close, a credit facility of up to $95,000,000 with LaSalle Bank National Association.

12.1.17Sources and Uses of Funds. The sources and uses of cash for the transactions contemplated under this Agreement shall be consistent in all material respects with the sources and uses of cash previously described by the Borrowers to the Administrative Agent.

12.1.18Other. Such other documents, instruments or agreements as the Administrative Agent or any Lender may reasonably request.

12.2Conditions to Loans and Increase in Commitments. The obligation (a) of each Lender to make each Revolving Loan, (b) of each Lender to increase its Commitment pursuant to Section 2.7, and (c) of the Issuing Bank to issue each Letter of Credit is subject to the following further conditions precedent that:

12.2.1Compliance with Warranties, No Default, etc. Both before and after giving effect to the making, continuation or conversion of any Revolving Loan or the issuance of any Letter of Credit, the following statements shall be true and correct:

(a)the representations and warranties of each Loan Party set forth in this Agreement and the other Loan Documents shall be true and correct in all material respects with the same effect as if then made (or, if such representations and warranties are qualified by materiality or Material Adverse Effect, in all respects) except to the extent stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date (or, if such representations and warranties are qualified by materiality or Material Adverse Effect, in all respects); and

(b)no Event of Default or Unmatured Event of Default shall have then occurred and be continuing.

12.3Confirmatory Certificate. If requested by the Administrative Agent or any Lender, the Administrative Agent shall have received (in sufficient counterparts to provide one to each Lender) a certificate dated the date of such requested Revolving Loan or Letter of Credit and signed by a duly authorized representative of each of the Loan Parties as to the matters set out in Section 12.2.1 (it being understood that each request by the Borrowers for the making of a Revolving Loan or the issuance of a Letter of Credit shall be deemed to constitute a representation and warranty by the Loan Parties that the conditions precedent set forth in Section 12.2.1 will be satisfied at the time of the making of such Revolving Loan or the issuance of such Letter of Credit).

82

SECTION 13.  EVENTS OF DEFAULT AND THEIR EFFECT.

13.1Events of Default. Each of the following shall constitute an Event of Default under this Agreement:

13.1.1Non-Payment of the Revolving Loans, etc. Default in the payment when due of the principal of any Revolving Loan; or default, and continuance thereof for five (5) days, in the payment when due of any interest, fee, reimbursement obligation with respect to any Letter of Credit or other amount payable by any Loan Party hereunder or under any other Loan Document.

13.1.2Non-Payment of Other Debt. Any default shall occur under the terms applicable to any Debt of any Loan Party in an aggregate amount exceeding $500,000 and such default shall (a) consist of the failure to pay such Debt when due, whether by acceleration or otherwise, and including any such failure as a result of any prohibition under Section 11.3, or (b) accelerate the maturity of such Debt or permit the holder or holders thereof, or any trustee or agent for such holder or holders, to cause such Debt to become due and payable (or require any Loan Party to purchase or redeem such Debt or post cash collateral in respect thereof) prior to its expressed maturity.

13.1.3Pledge Agreement Default. An “Event of Default” occurs and is continuing under (and as defined in) the Pledge Agreement.

13.1.4Bankruptcy, Insolvency, etc. The Company or any Loan Party becomes insolvent or generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; or the Company or any Loan Party applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for the Company or such Loan Party or any property thereof, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for the Company or any Loan Party or for a substantial part of the property of any thereof and is not discharged within sixty (60)days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of the Company or any Loan Party, and if such case or proceeding is not commenced by such Loan Party, it is consented to or acquiesced in by the Company or such Loan Party, or remains for sixty (60) days undismissed; or any Loan Party takes any action to authorize, or in furtherance of, any of the foregoing.

13.1.5Non-Compliance with Loan Documents. (a) Failure by any Loan Party to comply with or to perform any covenant set forth in Sections 10.1.5(a), 10.1.5(d), 10.3.2, 10.3.3, 10.5, 10.11, 10.12 or 11 of this Agreement or Section 5.2 of the Guaranty and Collateral Agreement; provided that the mere failure to deliver insurance certificates or proof of insurance (as distinguished from the failure to maintain any such insurance in effect) as required pursuant to Sections 10.3.2 or 10.3.3 will not cause an Event of Default to immediately occur pursuant to this clause (a), (b) failure by any Loan Party to comply with or to perform any covenant set forth in Sections 10.1.1, 10.1.2, 10.1.3, 10.1.5 (other than clauses (a) or (d) thereof), 10.1.6, 10.1.8, 10.1.13 or to deliver insurance certificates or proof of insurance (as distinguished

83

from the failure to maintain any such insurance in effect) as required pursuant to Sections 10.3.2 or 10.3.3, and continuance of such failure described in this clause (b) for twenty (20) days, or (c) failure by the Company or any Loan Party to comply with or to perform any other provision of this Agreement or any other Loan Document (and not constituting an Event of Default under any other provision of this Section 13) and continuance of such failure described in this clause (c) for thirty (30) days.

13.1.6Representations; Warranties. Any representation or warranty made by the Company or any other Loan Party herein or any other Loan Document is breached or is false or misleading in any material respect when made or deemed to have been made, or any schedule, certificate, financial statement, report, notice or other writing furnished by the Company or any other Loan Party to the Administrative Agent or any Lender in connection herewith is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified.

13.1.7Pension Plans. (a) A Termination Event occurs which has or could reasonably be expected to result in liability to any of the Loan Parties or any other member of the Controlled Group in excess of $1,000,000 in the aggregate; (b) there arises or exists an Unfunded Liability which would or could reasonably be expected to have a Material Adverse Effect or (c) there shall occur any withdrawal or partial withdrawal from a Multiemployer Pension Plan which would or could reasonably be expected to result in a liability to any Loan Party or other member of the Controlled Group in excess of $1,000,000 in the aggregate.

13.1.8Judgments. Final judgments which (i) in the case of monetary judgments, exceed $2,500,000, in aggregate, for all such judgments, in excess of any applicable insurance with respect to which the insurer has not denied liability or coverage and (ii) in the case of non-monetary judgments, would have or could reasonably be expected to have a Material Adverse Effect, shall be rendered against the Company or any other Loan Party and, in each of the cases of clause (i) and (ii) above, shall not have been paid, discharged or vacated or had execution thereof stayed pending appeal within thirty (30) days after entry or filing of such judgments.

13.1.9Loss of Collateral. Any loss, theft, damage or destruction of any Collateral in excess of $750,000 to the extent not fully covered (subject to such deductibles and self-insurance retentions as the Administrative Agent shall have permitted) by insurance or if and to the extent the insurance company has denied or asserted a denial of coverage therefor.

13.1.10Levy, Seizure or Attachment. The making by any Person of a levy, seizure or attachment upon any Collateral in excess of $750,000, except to the extent that such proceedings are being diligently contested in good faith by appropriate proceedings and the enforcement thereof is stayed (and the terms of such stay do not adversely affect in any material respect the Administrative Agent’s Liens or other rights on such Collateral or its ability to accept and retain payment hereunder).

13.1.11Invalidity of Collateral Documents, etc. Any Collateral Document shall cease to be in full force and effect (other than in accordance with its terms) or any Loan Party (or any Person by, through or on behalf of the Company or any other Loan Party) shall

84

contest in any manner the validity, binding nature or enforceability of any Collateral Document or the Liens purported to be granted therein or any court or any governmental authority shall issue a judgment, order, decree or ruling to the effect that any of the obligations of any party to any Collateral Document are illegal, invalid or unenforceable.

13.1.12Invalidity of Subordination Provisions, etc. Any subordination provision in any document or instrument governing Subordinated Debt, or any subordination provision in any guaranty by any Loan Party of any Subordinated Debt shall, in any such case, cease to be in full force and effect; or any Loan Party, any subordinating party or any governmental authority having jurisdiction over any of them or over the Administrative Agent and/or the Lenders shall contest in any judicial or administrative proceeding the validity, binding nature or enforceability of any such provision or agreement.

13.1.13Change of Control. A Change of Control shall occur.

13.1.14EDA Matters. (i)  Any drawing is made under the EDA Standby L/C, other than any such drawing, made in accordance with the terms and procedures set forth in the EDA Standby L/C solely in the amount of and for the payment of regularly scheduled monthly payments of interest due and owing under the EDA Bonds, which drawing is reimbursed within the time set forth therefor pursuant to the EDA Bond Indenture; (ii) any drawing is made on the Back-Stop L/C or the Standby L/C Issuer demands additional collateral (in excess of that currently pledged as of the Closing Date) for the obligations under the EDA Standby L/C Reimbursement Agreement, (iii) at any time prior to the EDA Release Date, Angelica Berrie shall become the subject of a proceeding of the type described in Section 13.1.4; (iv) at any time prior to the EDA Release Date, Angelica Berrie shall contest in any judicial or administrative proceeding the validity, binding nature or enforceability of the Berrie Commitment, (v) Angelica Berrie fails to comply with any material term of the Berrie Commitment, (vi) unless the EDA Release Date shall have previously occurred, Angelica Berrie shall fail to deposit in escrow with the EDA Bond Trustee the full amount of available monies required to effect the EDA Bond Redemption and pay all associated fees, in each case, in accordance with the terms of the EDA Bond Indenture on or prior to March 20, 2006, (vii) any funds are removed or withdrawn from such escrow prior to the EDA Release Date, (viii) unless the EDA Release Date shall have previously occurred, Angelica Berrie shall fail to initiate the EDA Bond Redemption (including the giving of any notices thereof required pursuant to the EDA Bond Indenture) by the date required to complete the EDA Bond Redemption by May 5, 2006 (notwithstanding that, in the event an acceptable bankruptcy preference opinion can not be delivered to the EDA Bond Trustee by such date, the completion of the EDA Bond Redemption may be deferred until August 5, 2006), (ix) the EDA Bond Redemption, once commenced in accordance with the foregoing, shall be terminated, rescinded or cancelled prior to the EDA Release Date, or (x) the EDA Release Date shall not have occurred prior to August 15, 2006.

13.1.15Triggering Event. A Triggering Event shall occur.

13.2Effect of Event of Default. If any Event of Default described in Section 13.1.4 shall occur in respect of any Loan Party, the Commitments shall immediately terminate and the Revolving Loans and all other Obligations hereunder shall become immediately due and payable and the Loan Parties shall become immediately obligated to Cash Collateralize all

85

Letters of Credit, all without presentment, demand, protest or notice of any kind; and, if any other Event of Default shall occur and be continuing, the Administrative Agent may (and, upon the written request of the Required Lenders, shall) declare the Commitments to be terminated in whole or in part and/or declare all or any part of the Revolving Loans and all other Obligations hereunder to be due and payable and/or demand that the Loan Parties immediately Cash Collateralize all or any Letters of Credit, whereupon the Commitments shall immediately terminate (or be reduced, as applicable) and/or the Revolving Loans and other Obligations hereunder shall become immediately due and payable (in whole or in part, as applicable) and/or the Loan Parties shall immediately become obligated to Cash Collateralize the Letters of Credit (all or any, as applicable), all without presentment, demand, protest or notice of any kind. The Administrative Agent shall promptly advise the Loan Party Representative of any such declaration, but failure to do so shall not impair the effect of such declaration. Any cash collateral delivered hereunder shall be held by the Administrative Agent (without liability for interest thereon) and applied to the Obligations arising in connection with any drawing under a Letter of Credit. After the expiration or termination of all Letters of Credit, such cash collateral shall be applied by the Administrative Agent to any remaining Obligations hereunder and any excess shall be delivered to the Loan Party Representative, on behalf of the Loan Parties, or as a court of competent jurisdiction may elect.

SECTION 14.  THE ADMINISTRATIVE AGENT.

14.1Appointment and Authorization. Each Lender hereby irrevocably (subject to Section 14.10) appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duty or responsibility except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein and in other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

14.2Issuing Bank. The Issuing Bank shall act on behalf of the Lenders (according to their Pro Rata Shares relating to the Revolving Loans) with respect to any Letters of Credit issued by it and the documents associated therewith. The Issuing Bank shall have all of the benefits and immunities (a) provided to the Administrative Agent in this Section 14 with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and the applications and agreements for letters of credit pertaining to such Letters of Credit as fully as if the term “Administrative Agent”, as used in this Section 14, included the Issuing Bank with respect to such acts or omissions and (b) as additionally provided in this Agreement with respect to the Issuing Bank.

86

14.3Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys in fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney in fact that it selects in the absence of gross negligence or willful misconduct.

14.4Exculpation of Administrative Agent. None of the Administrative Agent nor any of its directors, officers, employees or agents shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except to the extent resulting from its own gross negligence or willful misconduct in connection with its duties expressly set forth herein as determined by a final, nonappealable judgment by a court of competent jurisdiction), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by any Loan Party or Affiliate of any Loan Party or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document (or the creation, perfection or priority of any Lien or security interest therein), or for any failure of any Loan Party or any other party to any Loan Document to perform its Obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party or its Affiliates.

14.5Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, electronic mail message, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Loan Parties), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, confirmation from the Lenders (or any of them) of their obligation to indemnify the Administrative Agent against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon each Lender. For purposes of determining compliance with the conditions specified in Section 12, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have

87

received written notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

14.6Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Unmatured Event of Default except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or the Loan Party Representative referring to this Agreement, describing such Event of Default or Unmatured Event of Default and stating that such notice is a “notice of default”. The Administrative Agent will notify the Lenders of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Event of Default or Unmatured Event of Default as may be requested by the Required Lenders in accordance with Section 13.2; provided that unless and until the Administrative Agent has received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or Unmatured Event of Default as it shall deem advisable or in the best interest of the Lenders.

14.7Credit Decision. Each Lender acknowledges that the Administrative Agent has not made any representation or warranty to it, and that no act by the Administrative Agent hereafter taken, including any consent and acceptance of any assignment or review of the affairs of the Loan Parties, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender as to any matter, including whether the Administrative Agent has disclosed material information in its possession. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties, and made its own decision to enter into this Agreement and to extend credit to the Borrowers hereunder. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial or other condition or creditworthiness of the Loan Parties which may come into the possession of the Administrative Agent.

14.8Indemnification. Whether or not the transactions contemplated hereby are consummated, each Lender shall indemnify upon demand the Administrative Agent and its directors, officers, employees and agents (to the extent not reimbursed by or on behalf of the Loan Parties and without limiting the obligation of the Loan Parties to do so), according to its applicable Pro Rata Share, from and against any and all Indemnified Liabilities (as hereinafter defined); provided that no Lender shall be liable for any payment to any such Person of any portion of the Indemnified Liabilities to the extent such Indemnified Liabilities resulted from the

88

applicable Person’s own gross negligence or willful misconduct. No action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out of pocket expenses (including Attorney Costs and Taxes) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Loan Parties. The undertaking in this Section shall survive repayment of the Revolving Loans, cancellation of the Notes, expiration or termination of the Letters of Credit, any foreclosure under, or modification, release or discharge of, any or all of the Collateral Documents, termination of this Agreement and the resignation or replacement of the Administrative Agent.

14.9Administrative Agent in Individual Capacity. LaSalle and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Loan Parties and Affiliates as though LaSalle were not the Administrative Agent hereunder and without notice to or consent of any Lender. Each Lender acknowledges that, pursuant to such activities, LaSalle or its Affiliates may receive information regarding the Loan Parties or their Affiliates (including information that may be subject to confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to their Revolving Loans (if any),  LaSalle and its Affiliates shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though LaSalle were not the Administrative Agent, and the terms “Lender” and “Lenders” include LaSalle and its Affiliates, to the extent applicable, in their individual capacities.

14.10Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon thirty (30) days’ notice to the Lenders and the Loan Party Representative. If the Administrative Agent resigns under this Agreement, the Required Lenders shall, with (so long as no Event of Default exists) the consent of the Loan Party Representative (which shall not be unreasonably withheld or delayed), appoint from among the Lenders a successor agent for the Lenders. If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Loan Party Representative, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term “Administrative Agent” shall mean such successor agent, and the retiring Administrative Agent’s appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Section 14 and Sections 15.5 and 15.17 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. If no successor agent has accepted appointment as Administrative Agent by the date which is thirty (30) days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective and

89

the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above.

14.11Collateral Matters. The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, (a) to release any Lien granted to or held by the Administrative Agent under any Collateral Document (i) upon termination of the Commitments and payment in full of all Revolving Loans and all other obligations of the Loan Parties hereunder and the expiration or termination of all Letters of Credit; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; or (iii) subject to Section 15.1, if approved, authorized or ratified in writing by the Required Lenders; or (b) to subordinate its interest in any Collateral to any holder of a Lien on such Collateral which is permitted by Section 11.2(d)(i) (it being understood that the Administrative Agent may conclusively rely on a certificate from the Loan Party Representative, on behalf of the Loan Parties, in determining whether the Debt secured by any such Lien is permitted by Section 11.1(b)). Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent’s authority to release, or subordinate its interest in, particular types or items of Collateral pursuant to this Section 14.11. Each Lender hereby authorizes the Administrative Agent to give blockage notices in connection with any Subordinated Debt at the direction of the Required Lenders, and agrees that it will not act unilaterally to deliver such notices.

14.12Administrative Agent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Revolving Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Loan Party Representative, on behalf of the Loan Parties) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a)to file and prove one or more claims for the whole amount of the principal and interest owing and unpaid in respect of the Revolving Loans, and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 5, 15.5 and 15.17) allowed in such judicial proceedings; and

(b)to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent

90

and its agents and counsel, and any other amounts due the Administrative Agent under Sections 5, 15.5 and 15.17.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

14.13Other Agents; Arrangers and Managers. None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a “syndication agent,” “documentation agent,” “co-agent,” “book manager,” “lead manager,” “arranger,” “lead arranger” or “co-arranger”, if any, shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.

SECTION 15. GENERAL.

15.1Waiver; Amendments. Except as set forth in clauses (a) through (d) below, no amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents shall in any event be effective unless the same shall be in writing and acknowledged by the Administrative Agent, the Required Lenders, the Issuing Bank and the Borrowers, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

(a)Without the consent of each Lender (including the Issuing Bank) directly affected thereby, no amendment, modification, waiver or consent shall (i) extend or increase the Commitment of any Lender, (ii) extend the date scheduled for payment of any principal (excluding mandatory prepayments) of or interest on the Revolving Loans or any fees payable hereunder or waive an Event of Default for non-payment thereof, (iii) reduce the principal amount of any Revolving Loan, the rate of interest thereon or any fees payable hereunder (except for changes resulting from the imposition or rescission of the Default Rate), or (iv) reduce such Lender’s Pro Rata Share.

(b)Without the consent of all Lenders, no amendment, modification, waiver or consent shall (i) release any Loan Party from its obligations hereunder, under any other Loan Document or under any guaranty of the Obligations or release all or any substantial portion of the Collateral, (ii) amend the definition of Required Lenders, (iii) amend the provisions of this Section 15.1; (iv) increase the advance rates used in calculating the Borrowing Base, (v) amend the definition of Pro Rata Share or (vi) modify the definition of Maximum Revolving Commitment.

91

(c)No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the other Loan Documents affecting either the Administrative Agent (including each and every provision of Section 14 hereof) or the Issuing Bank, in each case, in such Person’s capacity as such, shall be effective without the consent of the Administrative Agent and/or the Issuing Bank, as applicable.

(d)Notwithstanding any of the foregoing to the contrary, for purposes of voting or consenting to matters with respect to this Agreement and the other Loan Documents, a Defaulting Lender shall not be considered a Lender and such Defaulting Lender’s Pro Rata Share of the Obligations shall each be deemed to be $0 until such Defaulting Lender makes the payments required in this Agreement.

15.2Confirmations. The Loan Party Representative and each holder of a Note agree from time to time, upon written request received by it from the other, to confirm to the other in writing (with a copy of each such confirmation to the Administrative Agent) the aggregate unpaid principal amount of the Revolving Loans then outstanding under such Note.

15.3Notices. Except as otherwise provided in Sections 2.2.2 and 2.2.3, all notices hereunder shall be in writing (including facsimile transmission) and shall be sent to the applicable party at its address shown on Annex B or at such other address as such party may, by written notice received by the other parties, have designated as its address for such purpose. Notices sent by facsimile transmission shall be deemed to have been given when sent; notices sent by mail shall be deemed to have been given three Business Days after the date when sent by registered or certified mail, postage prepaid; and notices sent by hand delivery or overnight courier service shall be deemed to have been given when received. For purposes of Sections 2.2.2 and 2.2.3, the Administrative Agent shall be entitled to rely on telephonic instructions from any person that the Administrative Agent in good faith believes is an authorized officer or employee of the Loan Party Representative, and the Loan Party Representative and each Loan Party shall hold the Administrative Agent and each other Lender harmless from any loss, cost or expense resulting from any such reliance. The Administrative Agent agrees to use commercially reasonable efforts give the Loan Party Representative prompt notice of any amendment or modification to the Canadian Intercreditor Agreement; provided that any failure to do so will not result in any liability of the Administrative Agent or any Lender to any Loan Party, or relieve any Loan Party of any of its obligations hereunder to any such Person.

15.4Computations. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with GAAP, consistently applied; provided that if the Loan Party Representative notifies the Administrative Agent that the Loan Parties wish to amend any covenant in Section 11.13 (or any related definition) to eliminate or to take into account the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Loan Party Representative that the Required Lenders wish to amend Section 11.13 (or any related definition) for such purpose), then the Loan Parties’ compliance with such covenant shall continue to be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such

92

covenant (or related definition) is amended in a manner satisfactory to the Loan Parties and the Required Lenders.

15.5Costs, Expenses and Taxes. Without duplication of any other provision of this Agreement, the Borrowers each hereby jointly and severally agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Administrative Agent (including Attorney Costs, all field examination and appraisal costs and any Taxes in connection with the preparation, execution, syndication, delivery and administration (including perfection and protection of any Collateral and the costs of Intralinks (or other similar service), if applicable) of this Agreement, the other Loan Documents (including any amendment, supplement or waiver to any Loan Document), whether or not the transactions contemplated hereby or thereby shall be consummated, and all reasonable out-of-pocket costs and expenses (including Attorney Costs (including the fees and disbursements) of not more than one counsel for the Administrative Agent and the Lenders) together with any local counsel reasonably required to realize or exercise their rights in and upon Collateral in various locations, all field examination and appraisal costs and any Taxes incurred by the Administrative Agent and each Lender after an Event of Default in connection with the collection of the Obligations or the enforcement of this Agreement, the other Loan Documents or any such other documents or during any workout, restructuring or negotiations in respect thereof. In addition, each of the Loan Parties hereby jointly and severally agrees to pay, and to save the Administrative Agent and the Lenders harmless from all liability for, any fees of the Loan Parties’ auditors in connection with any reasonable exercise by the Administrative Agent and the Lenders of their rights pursuant to Section 10.2. All Obligations provided for in this Section 15.5 shall survive repayment of the Revolving Loans, cancellation of the Notes, expiration or termination of the Letters of Credit and termination of this Agreement.

15.6Assignments; Participations.

15.6.1Assignments.

(a)Any Lender may at any time assign to one or more Eligible Assignees all or any portion of such Lender’s Revolving Loans and Commitments, with the prior written consent of the Administrative Agent, the Issuing Bank (for an assignment of the Revolving Loans and the Commitment) and, so long as no Event of Default exists, the Loan Party Representative (which consents shall not be unreasonably withheld, delayed or conditioned and shall not be required for an assignment by a Lender to a Lender or an Affiliate of a Lender). Any such assignment shall be in a minimum aggregate amount equal to $3,000,000 or, if less, the remaining Commitment and Revolving Loans held by the assigning Lender. The Loan Parties and the Loan Party Representative shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned to an Eligible Assignee until the Administrative Agent shall have received and accepted an effective assignment agreement in substantially the form of Exhibit D hereto (an “Assignment Agreement”) executed, delivered and fully completed by the applicable parties thereto and a processing fee of $3500. No assignment may be made to any Person if at the time of such assignment the Loan Parties would be obligated to pay any greater amount under Section 7.6 or 8 to the Eligible Assignee than the Loan Parties are then obligated to pay to the assigning Lender under such Sections (and if any assignment is made in violation of the foregoing, the Loan Parties will not be required to pay such greater amounts). In addition, no Eligible Assignee shall be entitled to the benefits of Section 7.6 unless such Eligible Assignee

93

has complied and will comply with the requirements of Section 7.6 as though it were a Lender. Any attempted assignment not made in accordance with this Section 15.6.1 shall be treated as the sale of a participation under Section 15.6.2. The Loan Parties shall be deemed to have granted its consent to any assignment requiring its consent hereunder unless the Loan Parties have expressly objected to such assignment in writing within five (5) Business Days after their receipt of written notice thereof.

(b)From and after the date on which the conditions described above have been met, (i) such Eligible Assignee shall be deemed automatically to have become a party hereto and, to the extent that rights and obligations hereunder have been assigned to such Eligible Assignee pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (ii) the assigning Lender, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, shall be released from its rights (other than its indemnification rights) and obligations hereunder. Upon the request of the Eligible Assignee (and, as applicable, the assigning Lender) pursuant to an effective Assignment Agreement, the Borrowers shall execute and deliver to the Administrative Agent for delivery to the Assignee (and, as applicable, the assigning Lender) Note(s) in the applicable principal amounts of the Assignee’s Pro Rata Share of the Commitments (and, as applicable, Notes in the principal amount of the Pro Rata Share of the Commitments retained by the assigning Lender). Each such Note shall be dated the effective date of such assignment. Upon receipt by the assigning Lender of such Note(s), the assigning Lender shall return to the Loan Party Representative, on behalf of the Borrowers, any prior Note(s) held by it.

(c)Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

15.6.2Participations. Any Lender may at any time sell to one or more Persons participating interests in its Revolving Loans, Commitments or other interests hereunder (any such Person, a “Participant”). In the event of a sale by a Lender of a participating interest to a Participant, (a) such Lender’s obligations hereunder shall remain unchanged for all purposes, (b) the Loan Parties, the Loan Party Representative and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations hereunder and (c) all amounts payable by the Loan Parties shall be determined as if such Lender had not sold such participation and shall be paid directly to such Lender. No Participant shall have any direct or indirect voting rights hereunder except with respect to any event described in Section 15.1 expressly requiring the unanimous vote of all Lenders or, as applicable, all affected Lenders. Each Lender agrees to incorporate the requirements of the preceding sentence into each participation agreement which such Lender enters into with any Participant. The Loan Parties each hereby agrees that if amounts outstanding under this Agreement are due and payable (as a result of acceleration or otherwise), each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and with respect to any Letter of Credit to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement; provided

94

that such right of set-off shall be further subject to the obligation of each Participant to share with the Lenders, and the Lenders agree to share with each Participant, as provided in Section 7.5. The Loan Parties also each hereby agrees that each Participant shall be entitled to the benefits (and subject to the requirements) of Section 7.6 or 8 as if it were a Lender (provided that on the date of the participation no Participant shall be entitled to any greater compensation pursuant to Section 7.6 or 8 than would have been paid to the participating Lender on such date if no participation had been sold and provided that such Participant shall not be entitled to the benefits of Section 7.6 unless such Participant has complied and will comply with Section 7.6(d) as if it were Lender).

15.7Register. The Administrative Agent shall maintain a copy of each Assignment Agreement delivered and accepted by it and register (the “Register”) for the recordation of names and addresses of the Lenders and the Commitment of each Lender from time to time and whether such Lender is the original Lender or the Assignee. No assignment shall be effective unless and until the Assignment Agreement is accepted and registered in the Register. All records of transfer of a Lender’s interest in the Register shall be conclusive, absent manifest error, as to the ownership of the interests in the Revolving Loans. The Administrative Agent shall not incur any liability of any kind with respect to any Lender with respect to the maintenance of the Register.

15.8GOVERNING LAW. THIS AGREEMENT AND EACH NOTE SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

15.9Confidentiality. As required by federal law and the Administrative Agent’s policies and practices, the Administrative Agent may need to obtain, verify, and record certain customer identification information and documentation in connection with opening or maintaining accounts, or establishing or continuing to provide services. The Administrative Agent and each Lender agree to use commercially reasonable efforts (equivalent to the efforts the Administrative Agent or such Lender applies to maintain the confidentiality of its own confidential information) to maintain as confidential all non-public information provided to them by any Loan Party (and which at the time is not, and does not thereafter become, publicly available), except that the Administrative Agent and each Lender may disclose such information (a) to Persons employed or engaged by the Administrative Agent or such Lender in evaluating, approving, structuring or administering the Revolving Loans and the Commitments; (b) to any assignee or participant or potential assignee or participant that has agreed in writingto comply with the covenant contained in this Section 15.9 (and any such assignee or participant or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any federal or state regulatory authority or examiner, or any insurance industry association, or as reasonably believed by the Administrative Agent or such Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advice of the Administrative Agent’s or such Lender’s counsel, is required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any litigation to which the Administrative Agent or such Lender is a party; (f) to any nationally recognized rating agency

95

that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender; (g) to any Affiliate of the Administrative Agent, the Issuing Bank or any other Lender who may provide Bank Products to the Loan Parties; or (h) that ceases to be confidential through no fault of the Administrative Agent or any Lender. Notwithstanding the foregoing, the Loan Parties consent to the publication by the Administrative Agent or any Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement; provided that such tombstone or announcement has been approved by the Loan Party Representative, which approval shall not be unreasonably withheld, delayed or conditioned, and the Administrative Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.

15.10Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All obligations of the Loan Parties and rights of the Administrative Agent and the Lenders expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law.

15.11Nature of Remedies. All Obligations of the Loan Parties and rights of the Administrative Agent and the Lenders expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

15.12Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof (except as relates to the fees described in Section 5.3) and any prior arrangements made with respect to the payment by the Loan Parties of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Administrative Agent, the Issuing Bank or the Lenders.

15.13Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof. Electronic records of executed Loan Documents maintained by the Administrative Agent, the Lenders and the Issuing Bank shall deemed to be originals.

15.14Successors and Assigns. This Agreement shall be binding upon the Loan Parties, the Lenders, the Issuing Bank and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of the Loan Parties, the Lenders, the Issuing

96

Bank and the Administrative Agent and the successors and assigns of the Lenders, the Issuing Bank and the Administrative Agent. No other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. No Loan Party may assign or transfer any of its rights or Obligations under this Agreement without the prior written consent of the Administrative Agent, the Issuing Bank and each Lender.

15.15Captions. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

15.16Patriot Act Notice. As required by federal law and LaSalle’s policies and practices, LaSalle may need to collect certain customer identification information and documentation in connection with opening or maintaining accounts or establishing or continuing to provide services.

15.17Indemnification by the Loan Parties. In consideration of the execution and delivery of this Agreement by the Administrative Agent, the Issuing Bank and the Lenders and the agreement to extend the Commitments provided hereunder and other financial accommodations, each Loan Party hereby agrees to jointly and severally indemnify and hold the Administrative Agent, each Lender, the Issuing Bank and each of the officers, directors, employees, affiliates and agents of the Administrative Agent, the Issuing Bank and each Lender (each a “Lender Party”) free and harmless from and against any and all actions, causes of action, suits, losses, liabilities, damages and expenses, including Attorney Costs (collectively, the “Indemnified Liabilities”), incurred by the Lender Parties or any of them as a result of, or arising out of, or relating to (a) any tender offer, merger, purchase of capital securities, purchase of assets or other similar transaction financed or proposed to be financed in whole or in part, directly or indirectly, with the proceeds of any of the Revolving Loans, (b) the past, present or future presence, use, handling, release or threat of release, emission, discharge, transportation, storage, treatment or disposal of any Hazardous Substance at or affecting any property owned or leased by any Loan Party, (c) any violation of any Environmental Laws with respect to conditions at any property owned or leased by any Loan Party or the operations conducted thereon, (d) the investigation, cleanup or remediation of offsite locations at which any Loan Party or their respective predecessors are alleged to have directly or indirectly disposed of Hazardous Substances or (e) the execution, delivery, performance or enforcement of this Agreement or any other Loan Document by any of the Lender Parties, except for any such Indemnified Liabilities arising on account of any of the Lender Parties’ gross negligence or willful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, each Loan Party hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. All obligations provided for in this Section 15.17 shall survive repayment of the Revolving Loans, cancellation of the Notes, expiration or termination of the Letters of Credit, any foreclosure under, or any modification, release or discharge of, any or all of the Collateral Documents and termination of this Agreement.

15.18Nonliability of Lenders. The relationship between the Loan Parties on the one hand and the Lenders, the Issuing Bank and the Administrative Agent on the other hand shall be solely that of borrower and lender, respectively. Neither the Administrative Agent, the Issuing

97

Bank nor any Lender has any fiduciary relationship with or duty to any Loan Party arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Loan Parties, on the one hand, and the Administrative Agent, the Issuing Bank and the Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor, respectively. Neither the Administrative Agent, the Issuing Bank nor any Lender undertakes any responsibility to any Loan Party to review or inform any Loan Party of any matter in connection with any phase of any Loan Party’s business or operations. Each Loan Party agrees, on behalf of itself and each other Loan Party, that neither the Administrative Agent, the Issuing Bank nor any Lender shall have liability to any Loan Party (whether sounding in tort, contract or otherwise) for losses suffered by any Loan Party in connection with, arising out of, or in any way related to the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless resulting from the gross negligence or willful misconduct of the party from which recovery is sought. NO LENDER PARTY SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY OTHERS OF ANY INFORMATION OR OTHER MATERIALS OBTAINED THROUGH INTRALINKS OR OTHER SIMILAR INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT, NOR SHALL ANY LENDER PARTY HAVE ANY LIABILITY WITH RESPECT TO, AND EACH LOAN PARTY ON BEHALF OF ITSELF AND EACH OTHER LOAN PARTY, HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ARISING OUT OF ITS ACTIVITIES IN CONNECTION HEREWITH OR THEREWITH (WHETHER BEFORE OR AFTER THE CLOSING DATE). Each Loan Party acknowledges that it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party. No joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Loan Parties and the Lenders.

15.19FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE ADMINISTRATIVE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH LOAN PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO

98

ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. With respect to any action by the Administrative Agent to enforce the rights and remedies of the Lender Parties hereunder or under the other Loan Documents, each Lender Party hereby consents to the jurisdiction of the court in which such action is maintained.

15.20WAIVER OF JURY TRIAL. EACH OF THE LOAN PARTIES, THE ADMINISTRATIVE AGENT, THE ISSUING BANK AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

15.21Other Waivers. The Administrative Agent’s, the Issuing Bank’s and/or the Lenders’ failure, at any time or times hereafter, to require strict performance by the Loan Parties of any provision of this Agreement or any of the other Loan Documents shall not waive, affect or diminish any right of the Administrative Agent, the Issuing Bank or any Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by the Administrative Agent, the Issuing Bank or any Lender of an Event of Default under this Agreement or any default under any of the other Loan Documents shall not suspend, waive or affect any other Event of Default under this Agreement or any other default under any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. No delay on the part of the Administrative Agent, the Issuing Bank or any Lender in the exercise of any right or remedy under this Agreement or any other Loan Documents shall preclude other or further exercise thereof or the exercise of any right or remedy. None of the undertakings, agreements, warranties, covenants and representations of any Loan Party contained in this Agreement or any of the other Loan Documents and no Event of Default under this Agreement or default under any of the other Loan Documents shall be deemed to have been suspended or waived by the Administrative Agent, the Issuing Bank and/or the Lenders unless such suspension or waiver is in writing, signed by a duly authorized officer of the Administrative Agent, the Required Lenders or all of the Lenders and/or the Issuing Bank, as required herein, and directed to such Loan Party specifying such suspension or waiver.

15.22Joint and Several Liability.

15.22.1Nature of Obligations. Notwithstanding anything to the contrary contained herein, all Obligations of each Loan Party hereunder and under the other Loan Documents shall be joint and several obligations of the Loan Parties.

15.22.2No Fraudulent Conveyances. Notwithstanding any provisions of this Agreement to the contrary, it is intended that the joint and several nature of the Obligations of the Loan Parties and the liens and security interests granted by the Loan Parties to secure the Obligations, not constitute a “Fraudulent Conveyance” (as defined below). Consequently, the

99

Administrative Agent, the Lenders and the Loan Parties agree that if the Obligations of a Loan Party, or any liens or security interests granted by such Loan Party securing the Obligations would, but for the application of this sentence, constitute a Fraudulent Conveyance, the Obligations of such Loan Party and the liens and security interests securing such Obligations shall be valid and enforceable only to the maximum extent that would not cause such Obligations or such lien or security interest to constitute a Fraudulent Conveyance, and the Obligations of such Loan Party and this Agreement shall automatically be deemed to have been amended accordingly. For purposes hereof, “Fraudulent Conveyance” means a fraudulent conveyance under the Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under the applicable provisions of any fraudulent conveyance or fraudulent transfer law or similar law of any state, nation or other governmental unit, as in effect from time to time.

15.23Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by any Loan Party or the transfer to the Administrative Agent, the Issuing Bank or any Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors’ rights, including provisions of the Bankruptcy Code relating to Fraudulent Conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a “Voidable Transfer”), and if the Administrative Agent, the Issuing Bank or any Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Administrative Agent, the Issuing Bank or any Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and Attorneys Costs of the Administrative Agent, the Issuing Bank and/or the Lenders, the Obligations shall automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made, and if the Termination Date had previously occurred, it shall be rescinded and this Agreement, the other Loan Documents and all Liens granted hereunder and thereunder shall be immediately reinstated until full and final payment of the Obligations, in cash, shall have been received by the Administrative Agent.

100

The parties hereto have caused this Amended and Restated Credit Agreement to be duly executed and delivered by their duly authorized officers as of the date first set forth above.

BORROWERS:
RUSS BERRIE U.S. GIFT, INC., a Delaware corporation
By:	/s/ John Wille
Name:			John Wille
Title:		Vice President and Chief Financial Officer
RUSS BERRIE & CO. (WEST), INC., a California corporation
By:	/s/ John Wille
Name:			John Wille
Title:		Vice President, Treasurer, Asst. Secretary
RUSS BERRIE AND COMPANY PROPERTIES, INC., a New Jersey corporation
By:	/s/ John Wille
Name:			John Wille
Title:		Vice President, Treasurer, Asst. Secretary
RUSSPLUS, INC., a New Jersey corporation
By:	/s/ John Wille
Name:			John Wille
Title:		Vice President, Treasurer, Asst. Secretary
RUSS BERRIE AND COMPANY INVESTMENTS, INC., a New Jersey corporation
By:	/s/ John Wille
Name:			John Wille
Title:		Vice President, Treasurer, Asst. Secretary

S-1

The undersigned hereby accepts its appointment as the Loan Party Representative pursuant to Section 2.6 of this Agreement and agrees to exercise its powers and perform its duties in its capacity as the Loan Party Representative in accordance with the terms and provisions of this Agreement and the other Loan Documents
RUSS BERRIE AND COMPANY, INC., a New Jersey corporation
By:	/s/ John Wille
Name:			John Wille
Title:		Vice President and Chief Financial Officer

S-2

LASALLE BUSINESS CREDIT, LLC, as Administrative Agent and as a Lender
By:	/s/ Steven E. Friedlander
Name:			Steven E. Friedlander
Title:		Senior Vice President
LASALLE BANK NATIONAL ASSOCIATION, as Issuing Bank
By:	/s/ Steven E. Friedlander
Name:			Steven E. Friedlander
Title:		Senior Vice President

S-3

EX-4.13

Exhibit 4.13

Execution Version

GUARANTY AND COLLATERAL AGREEMENT

dated as of March 14, 2006

among

RUSS BERRIE U.S. GIFT, INC.,
RUSS BERRIE & CO. (WEST), INC.,
RUSS BERRIE AND COMPANY PROPERTIES, INC.,
RUSSPLUS, INC.,

and
RUSS BERRIE AND COMPANY INVESTMENTS, INC.

and

LASALLE BUSINESS CREDIT, LLC,
as Administrative Agent and Arranger

GUARANTY AND COLLATERAL AGREEMENT

This Guaranty and Collateral Agreement dated as of March 14, 2006 (this “Agreement”) is entered into among Russ Berrie U.S. Gift, Inc. (“Russ Gift”), Russ Berrie & Co. (West), Inc. (“Russ West”), Russ Berrie and Company Properties, Inc. (“Russ Properties”), Russplus, Inc. (“Russplus”) and Russ Berrie and Company Investments, Inc. (“Russ Investments”) (Russ Gift, Russ West, Russ Properties, Russplus and Russ Investments are referred to herein collectively as, the “Borrowers”, and together with any other person that becomes a party hereto as provided herein being, collectively, the “Grantors”), in favor of LASALLE BUSINESS CREDIT, LLC, as the “Administrative Agent” for the “Issuing Bank” and the Lenders (as defined in the Credit Agreement).

The Administrative Agent, the Lenders and the Issuing Bank have severally agreed to extend credit and provide other financial accommodations to the Borrowers pursuant to the Credit Agreement. The Borrowers are affiliated with each other Grantor. The Borrowers and the other Grantors are engaged in interrelated businesses, and each Grantor will derive substantial direct and indirect benefit from extensions of credit under the Credit Agreement. It is a condition precedent to the Administrative Agent’s, each Lender’s and the Issuing Bank’s obligation to extend credit under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent for the benefit of itself and all the Lenders and the Issuing Bank.

In consideration of the premises and to induce the Administrative Agent, the Lenders and the Issuing Bank to enter into the Credit Agreement and to induce the Lenders and the Issuing Bank to extend credit and provide other financial accommodations thereunder, each Grantor hereby agrees with the Administrative Agent, for the benefit of itself, the Lenders and the Issuing Bank, as follows:

SECTION 1DEFINITIONS.

1.1Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms are used herein as defined in the UCC: Accounts, Account Debtor, Certificated Security, Commercial Tort Claims, Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Goods, Instruments, Inventory, Leases, Letter-of-Credit Rights, Money, Payment Intangibles, Supporting Obligations, Tangible Chattel Paper. In addition, for the purposes of this Agreement, the term “Lender” and “Lender Party” shall include the Issuing Bank.

1.2When used herein the following terms shall have the following meanings:

Assigned Agreements means (i) the Related Agreements, together with all security agreements, and all liens, security interest and other encumbrances granted thereunder, (ii) any agreement executed from time to time in favor of the Borrowers (or any of them) by their customers securing the purchase price of goods purchased by such customers from the Borrowers (or any of them), and (iii) each material document, instrument and agreement to be executed in connection with each Permitted Acquisition.

Agreement has the meaning set forth in the preamble hereto.

Borrower Obligations means all Obligations of the Borrowers.

Chattel Paper means all “chattel paper” as such term is defined in Section 9-102(a)(11) of the UCC and, in any event, including with respect to any Grantor, all Electronic Chattel Paper and Tangible Chattel Paper.

Collateral means (a) all of the personal property now owned or at any time hereafter acquired by any Grantor or in which any Grantor now has or at any time in the future may acquire any right, title or interest, including all of each Grantor’s Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments, Intellectual Property, Inventory, Investment Property, Leases, Letter-of-Credit Rights, Money, Supporting Obligations, and Identified Claims, (b) all of the real property mortgaged by any Grantor to the Administrative Agent, (c) all books and records pertaining to any of the foregoing and to each Grantor’s business, (d) any other property of any Grantor now or hereafter in the possession, custody or control of the Administrative Agent, the Issuing Bank, or any Lender or any participant with any Lender in the Loans, for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise), (e) all additions and accessions to, substitutions for, and replacements, products and Proceeds of any of the foregoing, including without limitation, proceeds of all insurance policies insuring the foregoing property, and (f) all collateral security and guaranties given by any Person with respect to any of the foregoing. Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof. Notwithstanding the foregoing, in no event shall any equity interest of any Second-Tier Foreign Subsidiary or more than 65% of the total outstanding equity interests of any First-Tier Foreign Subsidiary of any Grantor be deemed at any time to be “Collateral” hereunder. Anything contained in this Agreement to the contrary notwithstanding, the term “Collateral” shall not include any rights or interests in any real property lease or any contract, permit, license, charter or other agreement covering personal property that are now or hereafter held by any Grantor in the event that as a result of an assignment thereof or grant of a security interest therein, such Grantor’s rights in or with respect to such real property lease, contract, permit, license, charter, or other agreement would be forfeited or such Grantor would be deemed to have breached or defaulted under such real property lease, contract, permit, license, charter or other agreement pursuant to restrictions contained in such real property lease, contract, permit, license, charter, or other agreement (but only to the extent such prohibition is enforceable at law) (such real estate leases, contracts, permits, licenses, charters and other agreements being the “Restricted Agreements”); provided that the security interest granted herein and the term “Collateral” shall include the right to receive payments and other Proceeds with respect to such Restricted Agreements (except for the Restricted Agreements set forth on Schedule 1.1A attached hereto as the same may be updated monthly to reflect any additions or changes thereto) and the Goods produced under such Restricted Agreements (except for the Restricted Agreements set forth on Schedule 1.1B attached hereto as the same may be updated monthly to reflect any additions or changes thereto); provided further that the applicable Grantor shall, after the Administrative Agent’s request, have used its reasonable efforts to provide notice to the Administrative Agent of such restrictions contained in any Restricted Agreement to an assignment thereof or a grant of a security interest therein. In addition, the term “Collateral” shall not include Equipment which is subject to a Permitted Lien described in Section 11.2(d) of the Credit Agreement, which pursuant to and for so long as the terms of any lease or financing

2

agreement with respect thereto prohibits the granting of a security interest in such Equipment (so long as such restriction is limited to the particular Equipment financed or leased thereunder).

Contract Rights means all of the Grantors’ rights and remedies with respect to the Assigned Agreements.

Copyrights means all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, including those listed on Schedule 5 all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office, and the right to obtain all renewals of any of the foregoing.

Copyright Licenses means all written agreements naming any Grantor as licensor or licensee, including those listed on Schedule 5, granting any right under any Copyright, including the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

Credit Agreement means the Credit Agreement of even date herewith among the Borrowers, the other Subsidiaries from time to time party thereto, the Lenders, the Issuing Bank, and the Administrative Agent, as amended, supplemented, restated or otherwise modified from time to time.

Fixtures means all of the following, whether now owned or hereafter acquired by a Grantor: plant fixtures; business fixtures and other fixtures, wherever located; and all additions and accessories thereto and replacements therefor.

General Intangibles means all “general intangibles” as such term is defined in Section 9-102(a)(42) of the UCC and, in any event, including with respect to any Grantor, all Payment Intangibles, all contracts and Contract Rights (including all Assigned Agreements and Seller Undertakings), agreements, instruments and indentures in any form, and portions thereof, to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same from time to time may be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of such Grantor to damages arising thereunder and (c) all rights of such Grantor to perform and to exercise all remedies thereunder; provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any Receivable or any money or other amounts due or to become due under any such Payment Intangible, contract, agreement, instrument or indenture.

Grantor means the collective reference to the Borrowers and each other Person that becomes a party to this Agreement in accordance with Section 8.16.

Guarantor Obligations means, collectively, with respect to each Guarantor, all Obligations of such Guarantor.

3

Guarantors means the collective reference to each Grantor other than the Borrowers, if any.

Identified Claims means the Commercial Tort Claims described on Schedule 7 as such schedule shall be supplemented from time to time.

Intellectual Property means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

Intercompany Note means any promissory note evidencing loans made by any Grantor to any other Grantor.

Investment Property means the collective reference to (a) all “investment property” as such term is defined in Section 9-102(a)(49) of the UCC (other than the equity interest of any Foreign Subsidiary excluded from the definition of Pledged Equity), (b) all “financial assets” as such term is defined in Section 8-102(a)(9) of the UCC, and (c) whether or not constituting “investment property” as so defined, all Pledged Notes and all Pledged Equity.

Issuers means the collective reference to each issuer of any Investment Property.

Paid in Full means (a) the payment in full in cash and performance of all Secured Obligations (other than unasserted contingent and indemnification obligations), (b) the termination of all Commitments and (c) either (i) the cancellation and return to the Administrative Agent of all Letters of Credit or (ii) the cash collateralization of all Letters of Credit in accordance with the Credit Agreement.

Patents means (a) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including any of the foregoing referred to in Schedule 5, (b) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including any of the foregoing referred to in Schedule 5, and (c) all rights to obtain any reissues or extensions of the foregoing.

Patent Licenses means all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including any of the foregoing referred to in Schedule 5.

Pledged Equity means the equity interests listed on Schedule 1, together with any other equity interests, certificates, options or rights of any nature whatsoever in respect of the equity interests of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect; provided that in no event shall more than 65% of the total outstanding equity interests of any First-Tier Foreign Subsidiary be required to be directly or indirectly pledged hereunder; provided, further that in no event shall any of the equity interests of Kids

4

Line Australia Pty Ltd. or of any Second-Tier Foreign Subsidiary be required to be directly or indirectly pledged hereunder.

Pledged Notes means all promissory notes listed on Schedule 1, all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor (other than (a) promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business and (b) any individual promissory note which is less than $250,000 in principal amount, up to an aggregate of $500,000 for all such promissory notes excluded under this clause (b)).

Proceeds means all “proceeds” as such term is defined in Section 9-102(a)(64) of the UCC and, in any event, shall include all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto.

Receivable means any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including any Accounts).

Restricted Agreements has the meaning set forth in the definition of “Collateral.”

Secured Obligations means, collectively, the Borrower Obligations and Guarantor Obligations, and shall not include any obligation of any Person under the Canadian Guaranty or the Canadian Loan Documents.

Securities Act means the Securities Act of 1933, as amended.

Seller Undertakings means, collectively, all representations, warranties, covenants and agreements in favor of any Grantor, and all indemnifications for the benefit of any Grantor relating thereto, pursuant to the Assigned Agreements.

Trademarks means (a) all trademarks, trade names, corporate names, the Grantors’ names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including any of the foregoing referred to in Schedule 5, and (b) the right to obtain all renewals thereof.

Trademark Licenses means, collectively, each agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including any of the foregoing referred to in Schedule 5.

UCC means the Uniform Commercial Code as in effect on the date hereof and from time to time in the State of New York, provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interests in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, “UCC” means the Uniform

5

Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy.

SECTION 2GUARANTY.

2.1Guaranty.  (a)  Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, as a primary obligor and not only a surety, guaranties to the Administrative Agent, for the benefit of itself and of the Lenders, the Issuing Bank and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations.

(b)Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guarantied by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2).

(c)         Each Guarantor agrees that the Secured Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guaranty contained in this Section 2 or affecting the rights and remedies of the Administrative Agent or any Lender hereunder.

(d)        The guaranty contained in this Section 2 shall remain in full force and effect until all of the Secured Obligations shall have been Paid in Full.

(e)         No payment made by the Borrowers, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from the Borrowers, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Secured Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Secured Obligations or any payment received or collected from such Guarantor in respect of the Secured Obligations), remain liable for the Secured Obligations up to the maximum liability of such Guarantor hereunder until the Secured Obligations are Paid in Full.

2.2Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall remain liable to the Administrative Agent and the Lenders for the full amount guarantied by such Guarantor hereunder.

6

2.3No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Administrative Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against the Borrowers or any other Guarantor or any collateral security or guaranty or right of offset held by the Administrative Agent or any Lender for the payment of the Secured Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrowers or any other Guarantor in respect of payments made by such Guarantor hereunder, until all of the Secured Obligations are Paid in Full. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Secured Obligations shall not have been Paid in Full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Secured Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine.

2.4Amendments, etc. with respect to the Secured Obligations.   Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Secured Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender and any of the Secured Obligations continued, and the Secured Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guaranty therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Required Lenders or all the Lenders, as the case may be) and, to the extent required thereunder, the other parties thereto may deem advisable from time to time. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Secured Obligations or for the guaranty contained in this Section 2 or any property subject thereto.

The Administrative Agent or any Lender may, from time to time, at its sole discretion and without notice to any Guarantor (or any of them), take any or all of the following actions:  (a) retain or obtain a security interest in any property to secure any of the Secured Obligations or any obligation hereunder, (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the undersigned, with respect to any of the Secured Obligations, (c) extend or renew any of the Secured Obligations for one or more periods (whether or not longer than the original period), alter or exchange any of the Secured Obligations, or release or compromise any obligation of any of the undersigned hereunder or any obligation of any nature of any other obligor with respect to any of the Secured Obligations, (d) release any guaranty or right of offset or its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Secured Obligations or any obligation hereunder, or extend or renew for one or more periods (whether or

7

not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property, and (e) resort to the undersigned (or any of them) for payment of any of the Secured Obligations when due, whether or not the Administrative Agent or such Lender shall have resorted to any property securing any of the Secured Obligations or any obligation hereunder or shall have proceeded against any other of the undersigned or any other obligor primarily or secondarily obligated with respect to any of the Secured Obligations.

2.5Waivers.  Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Secured Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guaranty contained in this Section 2 or acceptance of the guaranty contained in this Section 2; the Secured Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guaranty contained in this Section 2, and all dealings between the Borrowers and any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guaranty contained in this Section 2. Each Guarantor waives (a) diligence, presentment, protest, demand for payment and notice of default, dishonor or nonpayment and all other notices whatsoever to or upon the Borrowers or any of the Guarantors with respect to the Secured Obligations, (b) notice of the existence or creation or non-payment of all or any of the Secured Obligations and (c) all diligence in collection or protection of or realization upon any Secured Obligations or any security for or guaranty of any Secured Obligations.

2.6Payments.  Each Guarantor hereby guaranties that payments by such Guarantor hereunder will be paid to the Administrative Agent without set-off or counterclaim in Dollars at the office of the Administrative Agent specified in the Credit Agreement.

SECTION 3GRANT OF SECURITY INTEREST.

3.1Grant.  Each Grantor hereby collaterally assigns and transfers to the Administrative Agent, and hereby grants to the Administrative Agent, for the benefit of itself and the Lenders, and the Issuing Bank, a continuing security interest in all of its Collateral, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations or the Guarantor Obligations, as the case may be.

3.2Collateral Assignment of Rights under the Assigned Agreements. Each Grantor hereby irrevocably authorizes and empowers the Administrative Agent or its agents, in their sole discretion, to assert, either directly or on behalf of any Grantor, at any time that an Event of Default has occurred and is continuing, any claims any Grantor may from time to time have against the sellers or any of their affiliates with respect to any and all of the Contract Rights to the extent permitted by the applicable Assigned Agreement or with respect to any and all payments or other obligations due from the sellers or any of their affiliates to any Grantor under or pursuant to the Assigned Agreements (“Payments”), and to receive and collect any damages, awards and other monies resulting therefrom and to apply the same on account of the Secured Obligations. After the occurrence of any Event of Default, the Administrative Agent may

8

provide notice to the sellers or any of their affiliates under any Assigned Agreement that all Payments shall be made to or at the direction of the Administrative Agent for so long as such Event of Default shall be continuing. Following the delivery of any such notice, the Administrative Agent shall promptly notify the sellers under the Assigned Agreement upon the termination or waiver of any such Event of Default. Each Grantor hereby irrevocably makes, constitutes and appoints the Administrative Agent (and all officers, employees, or agents designated by the Administrative Agent) as such Grantor’s true and lawful attorney (and agent-in-fact) for the purpose of enabling the Administrative Agent or its agents to, during the occurrence and continuance of an Event of Default, assert and collect such claims and to apply such monies in the manner set forth hereinabove.

SECTION 4REPRESENTATIONS AND WARRANTIES.

To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, each Grantor jointly and severally hereby represents and warrants to the Administrative Agent and each Lender that:

4.1Title; No Other Liens. Except for Permitted Liens, the Grantors own each item of the Collateral free and clear of any and all Liens. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except filings evidencing Permitted Liens and filings for which termination statements have been delivered to the Administrative Agent.

4.2Perfected First Priority Liens. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 2 (which, in the case of all filings and other documents referred to on Schedule 2, have been delivered to the Administrative Agent in completed and duly executed form) and payment of all necessary filing fees will constitute valid perfected security interests in all of the Collateral in favor of the Administrative Agent, for the benefit of itself, the Lenders and the Issuing Bank, as collateral security for each Grantor’s Obligations, enforceable in accordance with the terms hereof (subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing) against all creditors of each Grantor and any Persons purporting to purchase any Collateral from each Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for Permitted Liens for which priority is accorded under applicable law. Subject to the payment of all necessary filing fees, the filings and other actions specified on Schedule 2 constitute all of the filings and other actions necessary to perfect all security interests granted hereunder. Anything contained in this Agreement to the contrary notwithstanding, in no event shall any Grantor be required to file, register or record any type of pledge or other agreement or filing in a jurisdiction outside the United States with respect to any Pledged Equity.

4.3Grantor Information. On the date hereof, Schedule 3 sets forth (a) each Grantor’s jurisdiction of organization, (b) the location of each Grantor’s chief executive office, (c) each Grantor’s exact legal name as it appears on its organizational documents and (d) each

9

Grantor’s organizational identification number (to the extent a Grantor is organized in a jurisdiction which assigns such numbers) and federal employer identification number.

4.4Collateral Locations. On the date hereof, Schedule 4 sets forth (a) each place of business of each Grantor (including its chief executive office), (b) all locations where all Inventory and the Equipment owned by each Grantor is kept, except with respect to locations at which Inventory and Equipment with a fair market value of less than $10,000 in the aggregate for each location (up to an aggregate of $300,000 for all locations) and excluding Inventory with respect to “bill and hold” or consignment arrangements with fair market value of less than $10,000 in the aggregate for each location (up to an aggregate of $300,000 for all locations) which may be located at other locations and (c) whether each such Collateral location and place of business (including each Grantor’s chief executive office) is owned or leased (and if leased, specifies the complete name and notice address of each lessor). No Collateral is located outside the United States (excluding In-Transit Inventory) or in the possession of any lessor, bailee, warehouseman or consignee, except as indicated on Schedule 4 or except for Collateral with a fair market value of less than $10,000 in the aggregate for each location and $300,000 in the aggregate for all locations of the Grantors.

4.5        Certain Property. None of the Collateral constitutes, or is the Proceeds of, (a) Farm Products, (b) Health Care Insurance Receivables or (c) vessels, aircraft or any other property subject to any certificate of title or other registration statute of the United States, any State or other jurisdiction, except for vehicles owned by the Grantors and used by employees of the Grantors in the ordinary course of business with an aggregate fair market value of less than $100,000 (in the aggregate for all Grantors).

4.6        Investment Property. (a)  The Pledged Equity pledged by each Grantor hereunder constitute all the issued and outstanding equity interests of each Issuer owned by such Grantor and, in the case of any First-Tier Foreign Subsidiary, 65% of all issued and outstanding equity interests of such First-Tier Foreign Subsidiary.

(b)        All of the Pledged Equity has been duly and validly issued and is fully paid and nonassessable.

(c)         Each of the Intercompany Notes and, to the applicable Grantor’s knowledge, each of the other Pledged Notes in favor of such Grantor constitutes the legal, valid and binding obligation of the obligor with respect thereto, enforceable in accordance with its terms (subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing).

(d)        Subject to quarterly updates to reflect any additions or changes thereto, Schedule 1 lists all Investment Property owned by each Grantor having a fair market value or remaining principal balance, as applicable, in excess of $250,000 as to each Grantor. Each Grantor is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except Permitted Liens.

10

4.7Receivables. (a)  No amount in excess of $200,000 payable to all such Grantors under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent.

(b)        The amounts represented by such Grantor to the Lenders from time to time as owing to such Grantor in respect of the Receivables (to the extent such representations are required by any of the Loan Documents) will at all such times be accurate in all material respects; provided however that such amounts included in any Borrowing Base Certificate shall be accurate in all respects on the date represented in such Borrowing Base Certificate.

4.8        Intellectual Property. (a)  Subject to quarterly updates to reflect any additions or changes thereto, Schedule 5 lists all material registered or applied for Intellectual Property owned by such Grantor in its own name on the date hereof.

(b)        On the date hereof, all material Intellectual Property owned or licensed by any Guarantor is valid, subsisting, unexpired and enforceable and has not been abandoned.

(c)         Subject to quarterly updates to reflect any additions or changes thereto, except as set forth in Schedule 5, none of the material Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor.

(d)        Each Grantor owns and possesses or has a license or other right to use all Intellectual Property as is necessary for the conduct of the businesses of such Grantor, without any infringement upon rights of others which could reasonably be expected to have a Material Adverse Effect.

4.9        Depositary and Other Accounts.  All depositary and other accounts maintained by each Grantor are described on Schedule 6 hereto (subject to quarterly updates to reflect any additions or changes thereto), which description includes for each such account the name of the Grantor maintaining such account, the name, address, telephone and fax numbers of the financial institution at which such account is maintained, the account number of such account.

4.10      Eligible Accounts. Each Account which the Grantors shall request the Administrative Agent to classify as an Eligible Account shall, as of the time when such request is made or deemed made, meet all requirements of and constitute an “Eligible Account” for purposes of the Credit Agreement at such time.

SECTION 5COVENANTS.

Each Grantor covenants and agrees with the Administrative Agent and the Lenders that, from and after the date of this Agreement until the Secured Obligations shall have been Paid in Full:

5.1        Delivery of Instruments, Certificated Securities and Chattel Paper. If any amount payable under or in connection with any of the Collateral in excess of $250,000 (in the aggregate for all Grantors) shall be or become evidenced by any Instrument, Certificated Security or Chattel Paper, such Instrument, Certificated Security or Chattel Paper shall be

11

delivered to the Administrative Agent within five (5) Business Days of the applicable Grantor’s receipt thereof, duly indorsed in a manner reasonably satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Agreement. Notwithstanding the foregoing, in the event that an Event of Default shall have occurred and be continuing, upon the written request of the Administrative Agent, any Instrument, Certificated Security or Chattel Paper not theretofore delivered to the Administrative Agent and at such time being held by any Grantor shall be promptly delivered to the Administrative Agent, duly indorsed in a manner reasonably satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Agreement.

5.2        Maintenance of Perfected Security Interest; Further Documentation. (a)  Except with respect to actions affirmatively taken by the Administrative Agent with respect to its Liens or any failure by the Administrative Agent to continue any such Lien prior to the lapse thereof due to the passage of time, such Grantor shall maintain such security interest as a perfected security interest having at least the priority described in Section 4.2 and shall defend such security interest against the claims and demands of all Persons whomsoever.

(b)        Such Grantor will furnish to the Administrative Agent and the Lenders from time to time statements and schedules further identifying and describing the assets and property of such Grantor and such other reports in connection therewith as the Administrative Agent may reasonably request, all in reasonable detail.

(c)         At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, but not limited to, (i) filing any financing or continuation statements under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and, (ii) subject to Section 4.6(a) hereof in the case of Investment Property and any other relevant Collateral, taking any actions necessary or reasonably advisable to enable the Administrative Agent to obtain “control” (within the meaning of the applicable UCC) with respect thereto, including obtaining Account Control Agreements.

(d)        Such Grantor shall not permit any of the Collateral with a fair market value in excess of $250,000, in aggregate for all Grantors to become a Fixture to any real property unless such real property is subject to a mortgage by such Grantor in favor of Administrative Agent.

(e)         If, notwithstanding anything in Section 10.11 of the Credit Agreement, any Grantor receives any payments in respect of any Receivables, such payments (i) shall be forthwith (and, in any event, within three (3) Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Administrative Agent if required, in a collateral account maintained under the sole dominion and control of the Administrative Agent, subject to withdrawal by the Administrative Agent for the account of the Lenders as provided in Section 6.5, and (ii) until so turned over, shall be held by such Grantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Grantor.

12

5.3Changes in Locations, Name, etc. Such Grantor shall not, except upon twenty (20) days’ prior written notice to the Administrative Agent and delivery to the Administrative Agent of (a) all additional financing statements and other documents reasonably requested by the Administrative Agent as to the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to Schedule 4 showing any additional location at which Inventory or Equipment shall be kept (other than locations at which Inventory or Equipment shall be kept with a fair market value not to exceed $10,000 in the aggregate for each location and $300,000 in aggregate for all locations for all Grantors):

(i)permit any of the Inventory or Equipment (other than In-Transit Inventory or Inventory related to any “bill and hold” or consignment arrangement, with a fair market value not to exceed $10,000 in the aggregate for each location and $300,000 in the aggregate for all locations for all Grantors) to be kept at a location other than those listed on Schedule 4;

(ii)         change its jurisdiction of organization or the location of its chief executive office from that specified on Schedule 3 or in any subsequent notice delivered pursuant to this Section 5.3; or

(iii)        change its name, identity or corporate structure.

5.4         Notices. Such Grantor will advise the Administrative Agent promptly, in reasonable detail, of:

(a)         any Lien (other than Permitted Liens) on any of the Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies hereunder; and

(b)        the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereby.

5.5Investment Property. (a)  If such Grantor shall become entitled to receive or shall receive any certificate, option or rights in respect of the equity interests (other than the equity interests not required to be pledged hereunder)  of any Issuer of Pledged Equity, whether in addition to, in substitution of, as a conversion of, or in exchange for, any of the Pledged Equity, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Administrative Agent and the Lenders, hold the same in trust for the Administrative Agent and the Lenders and, if certificated, deliver the same forthwith to the Administrative Agent in the exact form received, duly indorsed by such Grantor to the Administrative Agent, if required, together with an undated instrument of transfer covering such certificate duly executed in blank by such Grantor, to be held by the Administrative Agent, subject to the terms hereof, as additional Collateral for the Secured Obligations (and if uncertificated, shall promptly notify the Administrative Agent of its receipt thereof and take such actions as the Administrative Agent shall reasonably request to note the Administrative Agent’s Lien on such interest, right or option and to enable the Administrative Agent to exercise its rights with respect thereto (including the transfer thereof) upon the occurrence and during the continuance of an Event of Default without

13

any action on the part of the Grantor). Upon the occurrence and during the continuance of an Event of Default, (i) any sums paid upon or in respect of the Investment Property upon the liquidation or dissolution of any Issuer shall be paid over to the Administrative Agent to be held by it hereunder as additional Collateral for the Secured Obligations, and (ii) in case any distribution of capital shall be made on or in respect of the Investment Property or any property shall be distributed upon or with respect to the Investment Property pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected Lien in favor of the Administrative Agent, be delivered to the Administrative Agent to be held by it hereunder as additional Collateral for the Secured Obligations. Upon the occurrence and during the continuance of an Event of Default, if any sums of money or property so paid or distributed in respect of the Investment Property shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Administrative Agent, hold such money or property in trust for the Lenders, segregated from other funds of such Grantor, as additional Collateral for the Secured Obligations.

(b)Without the prior written consent of the Administrative Agent, such Grantor will not (i) vote to enable, or take any other action to permit, any Issuer of Pledged Equity to issue any equity interests of any nature or to issue any other securities or interests convertible into or granting the right to purchase or exchange for any equity interests of any nature of any Issuer of Pledged Equity, except, in each case, as permitted by the Credit Agreement, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Investment Property or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement) other than, with respect to Investment Property not constituting Pledged Equity or Pledged Notes, any such action which is not prohibited by the Credit Agreement, (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person other than such Grantor with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for Permitted Liens, or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Administrative Agent to sell, assign or transfer any of the Investment Property or Proceeds thereof, except, with respect to such Investment Property, shareholders’ agreements entered into by such Grantor with respect to Persons in which such Grantor maintains an ownership interest of 50% or less.

(c)In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Investment Property issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Section 5.5(a) with respect to the Investment Property issued by it and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to such Grantor with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 regarding the Investment Property issued by it.

5.6Receivables. (a) Other than in the ordinary course of business consistent with the past practices of the Grantors and/or the Company and in amounts which are not material to such Grantor and as permitted by Section 11.14 of the Credit Agreement, such Grantor will not (i) grant any extension of the time of payment of any Receivable, (ii) compromise or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, (iv) allow any credit or discount

14

whatsoever on any Receivable or (v) amend, supplement or modify any Receivable in any manner that could reasonably be expected to materially and adversely affect the value thereof; provided, however, that no Grantor shall take any such action at any time that an Event of Default then exists or would result therefrom; provided further that no Grantor shall take any action described in clause (v) above at any time that an Event of Default or an Unmatured Event of Default then exists or would result therefrom.

(b)Such Grantor will deliver to the Administrative Agent a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of more than 5% of the aggregate amount of the then outstanding Receivables for all Grantors.

5.7        Intellectual Property. (a)   Unless such Grantor, in its commercially reasonable business judgment determines that doing otherwise would be in its best commercial interest, such Grantor (either itself or through licensees) will (i) continue to use each Trademark material to its business in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Administrative Agent, for the benefit of itself, the Lenders and the Issuing Bank, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not knowingly permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way.

(b)        Unless such Grantor, in its commercially reasonable business judgment determines doing so would be in its best commercial interest, such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any Patent material to its business may become forfeited, abandoned or dedicated to the public.

(c)         Unless such Grantor, in its commercially reasonable business judgment determines that doing otherwise would be in its best commercial interest, such Grantor (either itself or through licensees) (i) will employ each Copyright material to its business and (ii) will not (and will not knowingly permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of such Copyrights may become invalidated or otherwise impaired. Such Grantor will not (either itself or through licensees) do any act whereby any material portion of such Copyrights may fall into the public domain.

(d)        Such Grantor (either itself or through licensees) will not do any act that knowingly uses any Intellectual Property material to its business to infringe the intellectual property rights of any other Person.

(e)         Such Grantor will notify the Administrative Agent and the Lenders promptly if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark

15

Office, the United States Copyright Office or any court or tribunal in any country) regarding, such Grantor’s ownership of, or the validity of, any material Intellectual Property or such Grantor’s right to register the same or to own and maintain the same.

(f)Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Administrative Agent by the later of 30 days thereafter or concurrently with the next delivery of financial statements of the Borrowers pursuant to Section 10.1 of the Credit Agreement. Upon the request of the Administrative Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent’s and the Lenders’ security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby.

(g)        Unless such Grantor, in its commercially reasonable business judgment determines doing so would be in its best commercial interest, such Grantor will take all reasonable and necessary steps to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of all material Intellectual Property owned by it.

(h)        In the event that any material Intellectual Property is infringed upon or misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Grantor in its commercially reasonable business judgment determines that such Intellectual Property is of material economic value, promptly notify the Administrative Agent after it learns thereof and, to the extent, in its commercially reasonable business judgment, such Grantor determines it appropriate under the circumstances, sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution.

5.8        Seller Undertakings.

(a)         Each Grantor shall keep the Administrative Agent informed of all circumstances bearing upon any potential claim under or with respect to the Assigned Agreements and the Seller Undertakings that could have a materially adverse effect on the Administrative Agent and the Lenders and such Grantor shall not, without the prior written consent of the Administrative Agent, (i) waive any of its rights or remedies under any Assigned Agreement with respect to any of the Seller Undertakings in excess of $25,000, (ii) settle, compromise or offset any amount payable by the sellers to such Grantor under any Assigned Agreement in excess of $25,000 or (iii) amend or otherwise modify any Assigned Agreement in any manner which is materially adverse to the interests of the Administrative Agent or the Lenders.

(b)        Each Grantor shall perform and observe all the material terms and conditions of each Assigned Agreement to be performed by it, maintain each Assigned

16

Agreement in full force and effect (except such Assigned Agreement which, by its terms, has expired or terminated), enforce the material provisions of each Assigned Agreement in accordance with its terms as it deems appropriate in its reasonable business judgment and, after the occurrence and during the continuance of an Event of Default, take all such action to such end as may from time to time be reasonably requested by the Administrative Agent.

(c)Anything herein to the contrary notwithstanding, (i) each applicable Grantor shall remain liable under each Assigned Agreement to the extent set forth therein to perform all of its material duties and obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Administrative Agent of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under any Assigned Agreement and (iii) neither the Administrative Agent nor any other Lender shall have any obligation or liability under any Assigned Agreement by reason of this Agreement, nor shall the Administrative Agent or any other Lender be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

5.9        Collection of Accounts. Without in any way limiting Section 10.11 of the Credit Agreement or any provisions of any Account Control Agreement, the Administrative Agent may, at any time after the occurrence and during the continuance of an Event of Default, whether before or after notification to any Account Debtor and whether before or after the maturity of any of the Secured Obligations, (i) enforce collection of any of each Grantor’s Accounts or other amounts owed to a Grantor by suit or otherwise; (ii) exercise all of such Grantor’s rights and remedies with respect to proceedings brought to collect any Accounts or other amounts owed to such Grantor; (iii) surrender, release or exchange all or any part of any Accounts or other amounts owed to such Grantor, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder; (iv) sell or assign any Account of such Grantor or other amount owed to such Grantor upon such terms, for such amount and at such time or times as the Administrative Agent deems advisable; (v) prepare, file and sign such Grantor’s name on any proof of claim in bankruptcy or other similar document against any Account Debtor or other Person obligated to such Grantor; and (vi) do all other acts and things which are necessary or reasonably advisable, in the Administrative Agent’s commercially reasonable discretion, to fulfill such Grantor’s obligations under this Agreement and the Credit Agreements and to allow Administrative Agent to collect the Accounts or other amounts owed to such Grantor. In addition to any other provision hereof, Administrative Agent may at any time, after the occurrence and during the continuance of an Event of Default, at Grantors’ expense, notify any parties obligated on any of the Accounts to make payment directly to Administrative Agent of any amounts due or to become due thereunder.

5.10      Other Matters.

(a)         Grantors shall each use commercially reasonable efforts to cause to be delivered to the Administrative Agent a Collateral Access Agreement with respect to (a) each bailee with which such Grantor keeps Inventory or other assets as of the Closing Date with a fair market value in excess of $450,000 and (b) each landlord which leases real property (and the accompanying facilities) to any of the Grantors at which such Grantor keeps Inventory or other assets with a fair market value in excess of $250,000. Such requirement may be waived at the

17

option of the Administrative Agent or may, in the discretion of the Administrative Agent after consultation with the Loan Party Representative, be substituted with a requirement to maintain a Rent Reserve as set forth in the Credit Agreement.

(b)Each Grantor authorizes the Administrative Agent to, at any time and from time to time, file financing statements, continuation statements, and amendments thereto that describe the Collateral as set forth herein or describe the collateral covered thereby as “all assets” of each Grantor, or words of similar effect, and which contain any other information required pursuant to the UCC for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, and each Grantor agrees to furnish any such information to the Administrative Agent promptly upon request. Any such financing statement, continuation statement, or amendment may be signed and/or filed by the Administrative Agent on behalf of any Grantor and may be filed at any time in any jurisdiction.

(c)         Each Grantor shall, at any time and from time and to time, take such steps as the Administrative Agent may reasonably request for the Administrative Agent (i) to obtain an acknowledgement, in form and substance reasonably satisfactory to the Administrative Agent, of any bailee having possession of any of the Collateral having a value in excess of $250,000, stating that the bailee holds such Collateral for the Administrative Agent, (ii) to obtain “control” of any letter-of-credit rights, or electronic chattel paper having a value in excess of $250,000 (as such terms are defined by the UCC with corresponding provisions thereof defining what constitutes “control” for such items of Collateral), with any agreements establishing control to be in form and substance reasonably satisfactory to the Administrative Agent, and (iii) otherwise to insure the continued perfection and priority of the Administrative Agent’s security interest in any of the Collateral and of the preservation of its rights therein. If any Grantor shall at any time, acquire a “commercial tort claim” (as such term is defined in the UCC) in excess of $250,000, such Grantor shall promptly notify the Administrative Agent thereof in writing and supplement Schedule 7, therein providing a reasonable description and summary thereof, and upon delivery thereof to the Administrative Agent, such Grantor shall be deemed to thereby grant to the Administrative Agent (and such Grantor hereby grants to the Administrative Agent) a security interest and lien in and to such commercial tort claim and all proceeds thereof, all upon the terms of and governed by this Agreement.

(d)        Without limiting the generality of the foregoing, if any Grantor at any time holds or acquires an interest in any electronic chattel paper or any “transferable record”, as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in §16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction having a value greater than $250,000, such Grantor shall promptly notify the Administrative Agent thereof and, at the request of the Administrative Agent, shall take such action as the Administrative Agent may reasonably request to vest in the Administrative Agent “control” under Section 9-105 of the UCC of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, §16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.

(e)         Subject to Section 10.2 of the Credit Agreement, each Grantor shall permit during regular business hours and with reasonable prior notice (or at any time without notice if

18

an Event of Default has occurred and is continuing) the Administrative Agent and the Lenders to examine any of the Collateral and wherever the Collateral may be located. Each Grantor shall, at the request of the Administrative Agent, indicate on its records concerning the Collateral a notation, in form reasonably satisfactory to the Administrative Agent, of the security interest of the Administrative Agent hereunder.

(f)Each Grantor shall (x) use its commercially reasonable efforts to obtain the consent to the assignment thereof or the granting of a security interest by such Grantor to the Administrative Agent of the applicable parties to any Restricted Agreement entered into after the date of this Agreement which contains a restriction or prohibition on the assignment of, or grant of a security interest in the right to receive payments and other Proceeds with respect to, or the Goods produced under, such Restricted Agreement (provided however that such Grantor’s commercially reasonable efforts shall not include the requirement that such Grantor pay any fees to any other party of a Restricted Agreement to obtain a consent to the assignment thereof or a grant of a security interest therein), and (y) shall provide the Administrative Agent with monthly updates to Schedules 1.1A and 1.1B to reflect any additions to or changes in such schedules.

SECTION 6REMEDIAL PROVISIONS.

6.1Certain Matters Relating to Receivables. (a)  At any time after the occurrence and during the continuance of an Event of Default, the Administrative Agent (through its officers, employees or agents) shall have the right to make test verifications of the Receivables in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Administrative Agent may reasonably require in connection with such test verifications. At any time after the occurrence and during the continuance of an Event of Default, upon the Administrative Agent’s request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others reasonably satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, agings and test verifications of, and trial balances for, the Receivables.

(b)[Intentionally Omitted]

(c)At any time after the occurrence and during the continuance of an Event of Default, at the Administrative Agent’s request, each Grantor shall deliver to the Administrative Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including all original orders, invoices and shipping receipts in such Grantor’s possession.

(d)Each Grantor hereby irrevocably authorizes and empowers the Administrative Agent, in the Administrative Agent’s sole discretion, at any time after the occurrence and during the continuance of an Event of Default, to assert, either directly or on behalf of such Grantor, any claim such Grantor may from time to time have against the sellers under or with respect to the Assigned Agreements and to receive and collect any and all damages, awards and other monies resulting therefrom and to apply the same to the Secured Obligations. Each Grantor hereby irrevocably makes, constitutes and appoints the Administrative Agent as its true and lawful attorney in fact for the purpose of enabling the

19

Administrative Agent to, after the occurrence and during the continuance of an Event of Default, assert and collect such claims and to apply such monies in the manner set forth above, which appointment, being coupled with an interest, is irrevocable.

6.2Communications with Obligors; Grantors Remain Liable.  (a)   The Administrative Agent in its own name or in the name of others may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables to verify with them to the Administrative Agent’s satisfaction the existence, amount and terms of any Receivables.

(b)        Anything herein to the contrary notwithstanding, each Grantor shall remain liable in respect of each of the Receivables to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither the Administrative Agent nor any Lender shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Administrative Agent or any Lender of any payment relating thereto, nor shall the Administrative Agent or any Lender be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Receivable (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

(c)         For the purpose of enabling the Administrative Agent to exercise rights and remedies under this Agreement, each Grantor hereby grants to the Administrative Agent, for the benefit of the Administrative Agent and the Lenders, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor) to, during the continuance of an Event of Default, use, license or sublicense for such purpose any Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and, to the extent permitted by terms of the applicable underlying agreement, all computer software and programs used for the compilation or printout thereof.

6.3        Investment Property. (a)  Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given written notice to the relevant Grantor of the Administrative Agent’s intent to exercise its corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash dividends and distributions paid in respect of the Pledged Equity and all payments made in respect of the Pledged Notes, to the extent permitted in the Credit Agreement, and to exercise all voting and other rights with respect to the Investment Property; provided, that no vote shall be cast or other right exercised or action taken which would or would reasonably be likely to impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document.

(b)        If an Event of Default shall occur and be continuing and the Administrative Agent shall give written notice of its intent to exercise such rights to the relevant

20

Grantor or Grantors, (i) the Administrative Agent shall have the right to receive any and all cash dividends and distributions, payments or other Proceeds paid in respect of the Investment Property and make application thereof to the Secured Obligations in accordance with Section 6.5 hereof, and (ii) any or all of the Investment Property shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (x) all voting and other rights pertaining to such Investment Property at any meeting of holders of the equity interests of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property as if it were the absolute owner thereof (including the right to exchange at its discretion any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate or other structure of any Issuer, or upon the exercise by any Grantor or the Administrative Agent of any right, privilege or option pertaining to such Investment Property, and in connection therewith, the right to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except for the Administrative Agent’s gross negligence or willful misconduct and except to account for property actually received by it, but the Administrative Agent shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

(c)Each Grantor hereby authorizes and instructs each Issuer under the control of such Grantor of any Investment Property pledged by such Grantor hereunder to (i) comply with any instruction received by it from the Administrative Agent in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying and (ii) unless otherwise expressly permitted by this Agreement or other Loan Documents, pay any dividends, distributions or other payments with respect to the Investment Property directly to the Administrative Agent.

6.4Proceeds to be Turned Over to Administrative Agent. In addition to the rights of the Administrative Agent and the Lenders specified in Section 6.1 with respect to payments of Receivables, if an Event of Default shall occur and be continuing and subject to Section 11.10(k) of the Credit Agreement, all Proceeds received by any Grantor consisting of cash, checks and other cash equivalent items shall be held by such Grantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Administrative Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Administrative Agent, if required). All such Proceeds received by the Administrative Agent under this Section 6.4 shall be held by the Administrative Agent in a collateral account maintained under its sole dominion and control. All such Proceeds, while held by the Administrative Agent in any collateral account (or by such Grantor in trust for the Administrative Agent and the Lenders) established pursuant hereto, shall continue to be held as collateral security for the Secured Obligations and shall not constitute payment thereof until applied as provided in Section 6.5.

21

6.5Application of Proceeds.  At such intervals as may be elected by the Administrative Agent upon its receipt of any payments or Net Cash Proceeds in respect of the Secured Obligations, the Administrative Agent may or, if an Event of Default shall have occurred and be continuing, upon its receipt of any payments or Net Cash Proceeds in respect of the Secured Obligations, the Administrative Agent shall apply all or any part of Net Cash Proceeds from the sale of, or other realization upon, all or any part of the Collateral in payment of the Secured Obligations as set forth below (subject to the terms of the Credit Agreement). Any part of such funds which the Administrative Agent elects not so to apply and deems not required as collateral security for the Secured Obligations shall be paid over from time to time by the Administrative Agent to the applicable Grantor or to whomsoever may be lawfully entitled to receive the same. Any balance of such Net Cash Proceeds remaining after the Secured Obligations shall have been Paid in Full shall be paid over to the applicable Grantor or to whomsoever may be lawfully entitled to receive the same. In the absence of a specific determination by the Administrative Agent, and at all times during the continuation of an Event of Default, the Net Cash Proceeds from the sale of, or other realization upon, all or any part of the Collateral in payment of the Secured Obligations shall be applied in the following order:

FIRST, TO THE PAYMENT OF ALL FEES, REASONABLE COSTS, REASONABLE EXPENSES AND INDEMNITIES OF THE ADMINISTRATIVE AGENT (IN ITS CAPACITY AS SUCH), INCLUDING ATTORNEY COSTS, AND ANY OTHER SECURED OBLIGATIONS THEN DUE AND PAYABLE TO THE ADMINISTRATIVE AGENT IN RESPECT OF SUMS ADVANCED BY THE ADMINISTRATIVE AGENT TO PRESERVE THE COLLATERAL OR TO PRESERVE ITS SECURITY INTEREST IN THE COLLATERAL, UNTIL PAID IN FULL;

SECOND, TO THE PAYMENT OF ALL FEES, REASONABLE COSTS, REASONABLE EXPENSES AND INDEMNITIES OF THE LENDERS, PRO-RATA, UNTIL PAID IN FULL;

THIRD, TO THE PAYMENT OF ALL OF THE SECURED OBLIGATIONS CONSISTING OF ACCRUED AND UNPAID INTEREST THEN DUE AND PAYABLE TO THE LENDERS, PRO-RATA, UNTIL PAID IN FULL;

FOURTH, TO THE PAYMENT OF ALL SECURED OBLIGATIONS CONSISTING OF PRINCIPAL THEN DUE AND PAYABLE TO THE LENDERS, PRO-RATA, UNTIL PAID IN FULL;

FIFTH, TO THE PAYMENT OF THE ADMINISTRATIVE AGENT AN AMOUNT EQUAL TO ALL SECURED OBLIGATIONS IN RESPECT OF ALL OUTSTANDING LETTERS OF CREDIT, IF ANY, TO BE HELD AS CASH COLLATERAL IN RESPECT OF SUCH OBLIGATIONS;

SIXTH, TO THE PAYMENT OF ALL BANK PRODUCTS OBLIGATIONS AND SPECIFIED HEDGING OBLIGATIONS THEN DUE AND PAYABLE TO ANY LENDER OR ITS AFFILIATES, PRO-RATA, UNTIL PAID IN FULL;

22

SEVENTH, TO THE PAYMENT OF ALL OTHER SECURED OBLIGATIONS THEN DUE AND PAYABLE TO EACH LENDER, PRO-RATA, UNTIL PAID IN FULL; AND

EIGHTH, THE REMAINING PROCEEDS, IF ANY, TO THE GRANTORS OR TO WHOMEVER MAY BE LAWFULLY ENTITLED TO RECEIVE SUCH AMOUNTS.

6.6Code and Other Remedies.  Subject to Section 11.10(k) of the Credit Agreement, if an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Lenders, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC or any other applicable law. Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate, realize upon and take possession of the Collateral, or any part thereof (in addition to Collateral of which it already has possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may enter onto any of Grantor’s premises where any of the Collateral may be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of, and Administrative Agent shall have the right to store the same at any of Grantor’s premises without cost to Administrative Agent or any Lender in each case, subject to the terms of the applicable lease agreement and Collateral Access Agreements with respect to premises leased by Grantor. The Administrative Agent may forthwith sell, lease, assign, give options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Administrative Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery with assumption of any credit risk. The Administrative Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Each Grantor further agrees, at the Administrative Agent’s request and at each Grantor’s expense, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Grantor’s premises or elsewhere. The Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.6, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the Lenders hereunder, including Attorney Costs, as provided in Section 6.5. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Administrative Agent or any Lender arising out of the exercise by them of any rights hereunder, except claims, damages and demands related to Administrative Agent or any Lender’s gross negligence, willful misconduct or bad faith. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice

23

shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

6.7Registration Rights. (a)  If the Administrative Agent shall determine to exercise its right to sell any or all of the Pledged Equity in any Domestic Wholly-Owned Subsidiary (as defined in the Credit Agreement) pursuant to Section 6.6, and if in the opinion of the Administrative Agent it is necessary or reasonably advisable to have the Pledged Equity in any Subsidiary, or that portion thereof to be sold, registered under the provisions of the Securities Act, the relevant Grantor will cause the Issuer thereof to (i) execute and deliver, and cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the reasonable opinion of the Administrative Agent or its counsel, necessary or advisable to register the Pledged Equity, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use commercially reasonable efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of the Pledged Equity, or that portion thereof to be sold, and (iii) make all amendments thereto and/or to the related prospectus which, in the reasonable opinion of the Administrative Agent or its counsel, are necessary or reasonably advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. Each Grantor agrees to cause such Issuer to comply with the provisions of the securities or “Blue Sky” laws of any and all jurisdictions which the Administrative Agent shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act.

(b)Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Pledged Equity, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Administrative Agent shall be under no obligation to delay a sale of any of the Pledged Equity for the period of time necessary to permit the Issuer thereof to register such securities or other interests for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so.

(c)Each Grantor agrees to use commercially reasonable efforts to do or cause to be done all such other acts as may be reasonably necessary to make such sale or sales of all or any portion of the Pledged Equity pursuant to this Section 6.7 valid and binding and in compliance with applicable law. Each Grantor further agrees that a breach of any of the covenants contained in this Section 6.7 will cause irreparable injury to the Administrative Agent and the Lenders, that the Administrative Agent and the Lenders have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such

24

covenants except for a defense that no Event of Default has occurred under the Credit Agreement.

6.8Waiver; Deficiency.  Each Grantor waives and agrees not to assert any rights or privileges which it may acquire under Section 9-626 of the UCC. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Secured Obligations in full and the reasonable fees and disbursements of any attorneys employed by the Administrative Agent or any Lender to collect such deficiency.

SECTION 7THE ADMINISTRATIVE AGENT.

7.1Administrative Agent’s Appointment as Attorney-in-Fact, etc. (a)  Each Grantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be reasonably necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Administrative Agent the power and right, on behalf of and at the expense of such Grantor, without notice to or assent by such Grantor, to do any or all of the following:

(i)in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed reasonably appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due under any Receivable or with respect to any other Collateral whenever payable;

(ii)in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent’s security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby;

(iii)discharge Liens levied or placed on or threatened against the Collateral (other than Permitted Liens), and effect any repairs or insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

(iv)execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

(v)(1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other

25

amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Administrative Agent may deem reasonably appropriate; (7) assign any Copyright, Patent or Trademark, in each case, that is subject to the Lien of the Administrative Agent granted pursuant to any Loan Document, throughout the world for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its reasonable discretion determine; (8) vote any right or interest with respect to any Investment Property; (9) order good standing certificates and conduct lien searches in respect of such jurisdictions or offices as the Administrative Agent may deem reasonably appropriate; and (10) generally sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent’s option and such Grantor’s expense, at any time, or from time to time, all acts and things which the Administrative Agent deems reasonably necessary to protect, preserve or realize upon the Collateral and the Administrative Agent’s security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

Anything in this Section 7.1(a) or any other Loan Document to the contrary notwithstanding, the Administrative Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing.

(b)If any Grantor fails to perform or comply with any of its agreements contained herein, the Administrative Agent, at its option, but without any obligation so to do, may, after written notice to such Grantor, perform or comply, or otherwise cause performance or compliance, with such agreement.

(c)Each Grantor hereby ratifies all that such attorneys in fact shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the Secured Obligations are Paid in Full.

7.2Duty of Administrative Agent. The Administrative Agent’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent or any Lender nor any of their respective officers, directors, employees or agents shall be liable for any failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any

26

other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Administrative Agent and the Lenders hereunder are solely to protect the Administrative Agent’s and the Lenders’ interests in the Collateral and shall not impose any duty upon the Administrative Agent or any Lender to exercise any such powers. The Administrative Agent and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither the Administrative Agent, nor any Lender nor any of their respective officers, directors, employees or agents shall be responsible to any Grantor for any act (except for the Administrative Agent’s or any Lender’s gross negligence or willful misconduct in so acting) or failure to act hereunder.

7.3Authority of Administrative Agent. Each Grantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Grantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority.

SECTION 8MISCELLANEOUS.

8.1Amendments in Writing.    None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 15.1 of the Credit Agreement.

8.2Notices.   All notices, requests and demands to or upon the Administrative Agent or any Grantor hereunder shall be addressed to the Administrative Agent or Loan Party Representative, respectively, and effected in the manner provided for in Section 15.3 of the Credit Agreement and each Grantor hereby appoints the Loan Party Representative as its agent to give and receive notices hereunder and the Administrative Agent shall be fully protected and held harmless by the Grantors hereunder for relying on any such notice reasonably believed by it to have been delivered by the Loan Party Representative.

8.3Indemnification by Grantors.   THE GRANTORS, JOINTLY AND SEVERALLY, HEREBY AGREE TO INDEMNIFY AND HOLD EACH LENDER PARTY AND ISSUING BANK FREE AND HARMLESS FROM AND AGAINST ANY AND ALL INDEMNIFIED LIABILITIES, INCURRED BY THE LENDER PARTIES, ISSUING BANK OR ANY OF THEM AS A RESULT OF, OR ARISING OUT OF, OR RELATING TO (A) ANY TENDER OFFER, MERGER, PURCHASE OF EQUITY INTERESTS, PURCHASE OF ASSETS (INCLUDING THE RELATED TRANSACTIONS) OR OTHER SIMILAR TRANSACTION FINANCED OR PROPOSED TO BE FINANCED IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, WITH THE PROCEEDS OF ANY OF THE LOANS, (B) THE PAST, PRESENT OR FUTURE PRESENCE, USE, HANDLING, RELEASE OR THREAT OF RELEASE, EMISSION, DISCHARGE, TRANSPORTATION, STORAGE, TREATMENT OR DISPOSAL OF ANY HAZARDOUS SUBSTANCE AT OR AFFECTING ANY PROPERTY

27

OWNED OR LEASED BY ANY GRANTOR, (C) ANY VIOLATION OF ANY ENVIRONMENTAL LAWS WITH RESPECT TO CONDITIONS AT ANY PROPERTY OWNED OR LEASED BY ANY GRANTOR OR THE OPERATIONS CONDUCTED THEREON, (D) THE INVESTIGATION, CLEANUP OR REMEDIATION OF OFFSITE LOCATIONS AT WHICH ANY GRANTOR OR ITS RESPECTIVE PREDECESSORS ARE ALLEGED TO HAVE DIRECTLY OR INDIRECTLY DISPOSED OF HAZARDOUS SUBSTANCES OR (E) THE EXECUTION, DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BY ANY OF THE LENDER PARTIES OR ISSUING BANK, EXCEPT FOR ANY SUCH INDEMNIFIED LIABILITIES ARISING ON ACCOUNT OF THE APPLICABLE LENDER PARTY’S OR ISSUING BANK’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IF AND TO THE EXTENT THAT THE FOREGOING UNDERTAKING MAY BE UNENFORCEABLE FOR ANY REASON, EACH GRANTOR HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. ALL OBLIGATIONS PROVIDED FOR IN THIS SECTION 8.3 SHALL SURVIVE REPAYMENT OF ALL (AND SHALL BE) SECURED OBLIGATIONS (AND TERMINATION OF ALL COMMITMENTS UNDER THE CREDIT AGREEMENT), ANY FORECLOSURE UNDER, OR ANY MODIFICATION, RELEASE OR DISCHARGE OF, ANY OR ALL OF THE COLLATERAL DOCUMENTS AND TERMINATION OF THIS AGREEMENT.

8.4Enforcement Expenses. (a)  Each Grantor agrees, on a joint and several basis, to pay or reimburse within three (3) Business Days of demand each Lender and the Administrative Agent for all reasonable out-of-pocket costs and expenses (subject to the limitations on the number of counsel set forth in Section 15.5 of the Credit Agreement, including, without duplication of any provision of this Agreement, Attorney Costs) incurred in collecting against any Guarantor under the guaranty contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents.

(b)Each Grantor agrees to pay, and to save the Administrative Agent and the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay caused by any Grantor in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement.

(c)The agreements in this Section 8.4 shall survive repayment of all (and shall be) Secured Obligations (and termination of all commitments under the Credit Agreement), any foreclosure under, or any modification, release or discharge of, any or all of the Collateral Documents and termination of this Agreement.

8.5Captions.  Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

8.6Nature of Remedies.  All Secured Obligations of each Grantor and rights of the Administrative Agent and the Lenders expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by applicable law. No failure to

28

exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

8.7Counterparts.    This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. Receipt by telecopy of any executed signature page to this Agreement or any other Loan Document shall constitute effective delivery of such signature page.

8.8Severability.    The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

8.9Entire Agreement.    This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof and any prior arrangements made with respect to the payment by any Grantor of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Administrative Agent or the Lenders.

8.10Successors; Assigns.    This Agreement shall be binding upon Grantors, the Lenders and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of Grantors, Lenders and the Administrative Agent and the successors and assigns of the Lenders and the Administrative Agent. No other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. No Grantor may assign or transfer any of its rights or Obligations under this Agreement without the prior written consent of the Administrative Agent.

8.11Governing Law.    THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

8.12Forum Selection; Consent to Jurisdiction.    ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE ADMINISTRATIVE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION IN WHICH COLLATERAL IS LOCATED.

29

EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH GRANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

8.13Waiver of Jury Trial.   EACH GRANTOR, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

8.14Set-off.   Each Grantor agrees that the Administrative Agent and each Lender have all rights of set-off and bankers’ lien provided by applicable law, and in addition thereto, each Grantor agrees that at any time any Event of Default occurs and is continuing, the Administrative Agent and each Lender may apply to the payment of any Secured Obligations, whether or not then due, any and all balances, credits, deposits, accounts or moneys of such Grantor then or thereafter with the Administrative Agent or such Lender.

8.15Acknowledgements.  Each Grantor hereby acknowledges that:

(a)it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party;

(b)neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c)no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Grantors and the Lenders.

8.16Additional Grantors.  Each Loan Party that is required to become a party to this Agreement pursuant to Section 10.10 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Loan Party of a joinder agreement in the form of Exhibit G to the Credit Agreement.

30

8.17Releases. (a)  At such time as the Secured Obligations have been Paid in Full, the Collateral shall be automatically released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of any Grantor concurrently with any such termination, the Administrative Agent shall deliver to the Grantors any Collateral held by the Administrative Agent hereunder, and execute and deliver to the Grantors such documents as the Grantors shall reasonably request to evidence such termination.

(b)If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Administrative Agent, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. At the request and sole expense of the Borrowers, a Guarantor shall be released from its obligations hereunder in the event that all the equity interests of such Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement; provided that the Borrowers shall have delivered to the Administrative Agent, with reasonable notice prior to the date of the proposed release, a written request for release identifying the relevant Guarantor and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Borrowers stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents.

8.18Obligations and Liens Absolute and Unconditional. Each Grantor understands and agrees that the obligations of each Grantor under this Agreement shall be construed as a continuing, absolute and unconditional without regard to (a) the validity or enforceability of any Loan Document, any of the Secured Obligations or any other collateral security therefor or guaranty or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Grantor or any other Person against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of any Grantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Grantor for the Secured Obligations, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Grantor, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any other Grantor or any other Person or against any collateral security or guaranty for the Secured Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from any other Grantor or any other Person or to realize upon any such collateral security or guaranty or to exercise any such right of offset, or any release of any other Grantor or any other Person or any such collateral security, guaranty or right of offset, shall not relieve any Grantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the

31

Administrative Agent or any Lender against any Grantor. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

8.19Reinstatement.  This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor or any Issuer for liquidation or reorganization, should Grantor or any Issuer become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Grantor’s or and Issuer’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference”, “fraudulent conveyance”, or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

[signature pages follow]

32

Each of the undersigned has caused this Guaranty and Collateral Agreement to be duly executed and delivered as of the date first above written.

RUSS BERRIE U.S. GIFT, INC., a Delaware
corporation
By:		/s/ John Wille
Name: John Wille
Title: Vice President and Chief Financial Officer
RUSS BERRIE & CO. (WEST), INC., a California
corporation
By:		/s/ John Wille
Name: John Wille
Title: Vice President, Treasurer and Assistant Secretary
RUSS BERRIE AND COMPANY PROPERTIES,
INC., a New Jersey corporation
By:	/s/ John Wille
Name: John Wille
Title: Vice President, Treasurer and Assistant Secretary
RUSSPLUS, INC., a New Jersey corporation
By:		/s/ John Wille
Name: John Wille
Title: Vice President, Treasurer and Assistant Secretary
RUSS BERRIE AND COMPANY INVESTMENTS,
INC., a New Jersey corporation
By:		/s/ John Wille
Name: John Wille
Title: Vice President, Treasurer and Assistant Secretary

LASALLE BUSINESS CREDIT, LLC, as the
Administrative Agent and a Lender
By:	/s/ C. John Mostofi
Name: C. John Mostofi
Title: Senior Vice President

33

EX-4.14

Exhibit 4.14

Execution Version

LIMITED RECOURSE
GUARANTY AND COLLATERAL AGREEMENT

dated as of March 14, 2006

among

RUSS BERRIE AND COMPANY, INC.,
as the Company

and

LASALLE BUSINESS CREDIT, LLC,
as Administrative Agent and Arranger

LIMITED RECOURSE GUARANTY AND COLLATERAL AGREEMENT

This Limited Recourse Guaranty and Collateral Agreement dated as of March 14, 2006 (this “Agreement”) is entered into by and between Russ Berrie and Company, Inc. (the “Company”), in favor of LASALLE BUSINESS CREDIT, LLC, as the “Administrative Agent” for the “Issuing Bank” and the Lenders (as defined in the Credit Agreement).

The Administrative Agent, the Lenders and the Issuing Bank have severally agreed to extend credit and provide other financial accommodations to Russ Berrie U.S. Gift, Inc. (“Russ Gift”), Russ Berrie & Co. (West), Inc. (“Russ West”), Russ Berrie and Company Properties, Inc. (“Russ Properties”), Russplus, Inc. (“Russplus”) and Russ Berrie and Company Investments, Inc. (“Russ Investments”) (Russ Gift, Russ West, Russ Properties, Russplus and Russ Investments are referred to herein collectively as, the “Borrowers”) pursuant to the Credit Agreement. The Borrowers are each direct wholly-owned subsidiaries of the Company. The Borrowers and the Company are engaged in interrelated businesses, and the Company will derive substantial direct and indirect benefit from extensions of credit under the Credit Agreement. It is a condition precedent to the Administrative Agent’s, each Lender’s and the Issuing Bank’s obligation to extend credit under the Credit Agreement that the Company shall have executed and delivered this Agreement to the Administrative Agent for the benefit of all the Lenders and the Issuing Bank.

In consideration of the premises and to induce the Administrative Agent, the Lenders and the Issuing Bank to enter into the Credit Agreement and to induce the Lenders and the Issuing Bank to extend credit and provide other financial accommodations thereunder, the Company hereby agrees with the Administrative Agent, for the benefit of itself, the Lenders and the Issuing Bank, as follows:

SECTION 1            DEFINITIONS.

1.1           Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms are used herein as defined in the UCC: Accounts, Account Debtor, Certificated Security, Commercial Tort Claims, Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Goods, Instruments, Inventory, Leases, Letter-of-Credit Rights, Money, Payment Intangibles, Supporting Obligations, Tangible Chattel Paper. In addition, for the purposes of this Agreement, the term “Lender” and “Lender Party” shall include the Issuing Bank.

1.2           When used herein the following terms shall have the following meanings:

Agreement has the meaning set forth in the preamble hereto.

Assignment and Assumption Agreement means the Assignment and Assumption Agreement and Bill of Sale dated on or about March 14, 2006 between the Company and Russ Gift.

Borrower Obligations means all Obligations of the Borrowers.

Chattel Paper means all “chattel paper” as such term is defined in Section 9-102(a)(11) of the UCC and, in any event, including with respect to the Company, all Electronic Chattel Paper and Tangible Chattel Paper.

Collateral means all now owned or hereafter acquired or arising (including from and after a Triggering Event) right, title or interest, of the Company in any personal property (i) conveyed, (ii) purportedly conveyed or (iii) which but for the operation of Section 5 of the Assignment and Assumption Agreement, would have been transferred by the Company pursuant to Section 1 thereof, to Russ Gift pursuant to the Related Agreements, including any or all, as the case may be, of (a) the Company’s Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments, Intellectual Property, Inventory, Investment Property, Leases, Letter-of-Credit Rights, Money, Supporting Obligations, (b) all books and records pertaining to any of the foregoing and to the Company’s business, (c) any other property of the Company now or hereafter in the possession, custody or control of the Administrative Agent, the Issuing Bank, or any Lender or any participant with any Lender in the Loans, for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise) (other than the Company Equity Interests), (d) all Proceeds of any of the foregoing, including without limitation, proceeds of all insurance policies insuring the foregoing property, and (e) all collateral security and guaranties given by any Person with respect to any of the foregoing.

Company Equity Interests means the equity interests in any other Person held by the Company and pledged by the Company to the Administrative Agent under the Pledge Agreement or under any other pledge agreement to which the Company and the Administrative Agent are parties; provided that in no event shall more than 65% of the total outstanding equity interests of any First-Tier Foreign Subsidiary be required to be directly or indirectly pledged by the Company to the Administrative Agent.

Company Obligations means all obligations of the Company under this Agreement.

Contract Rights means all of the Company’s rights and remedies with respect to the Related Agreements.

Copyrights means all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office, and the right to obtain all renewals of any of the foregoing.

Copyright Licenses means all written agreements under which the Company is a licensor or licensee, granting any right under any Copyright, including the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

Credit Agreement means the Credit Agreement of even date herewith among the Borrowers, the other Subsidiaries from time to time party thereto, the Lenders, the Issuing Bank, and the Administrative Agent, as amended, supplemented, restated or otherwise modified from time to time.

2

Fixtures means all of the following, whether now owned or hereafter acquired by the Company: plant fixtures; business fixtures and other fixtures, wherever located; and all additions and accessories thereto and replacements therefor.

General Intangibles means all “general intangibles” as such term is defined in Section 9-102(a)(42) of the UCC (excluding any applicable Company Equity Interests) and, in any event, including all Payment Intangibles, all contracts and Contract Rights (including all Related Agreements), agreements, instruments and indentures in any form, and portions thereof, to which the Company is a party or under which the Company has any right, title or interest or to which the Company or any property of the Company is subject, as the same from time to time may be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of the Company to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of the Company to damages arising thereunder and (c) all rights of the Company to perform and to exercise all remedies thereunder; provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by the Company of a security interest pursuant to this Agreement in any Receivable or any money or other amounts due or to become due under any such Payment Intangible, contract, agreement, instrument or indenture.

Intellectual Property means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

Investment Property means the collective reference to (a) all “investment property” as such term is defined in Section 9-102(a)(49) of the UCC (other than the equity interest of any Foreign Subsidiary excluded from the definition of Company Equity Interests) and (b) all “financial assets” as such term is defined in Section 8-102(a)(9) of the UCC, but, in any case, excludes the Company Equity Interests.

Paid in Full means (a) the payment in full in cash and performance of all Secured Obligations (other than unasserted contingent and indemnification obligations), (b) the termination of all Commitments and (c) either (i) the cancellation and return to the Administrative Agent of all Letters of Credit or (ii) the cash collateralization of all Letters of Credit in accordance with the Credit Agreement.

Patents means (a) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, (b) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, and (c) all rights to obtain any reissues or extensions of the foregoing.

Patent Licenses means all agreements, whether written or oral, providing for the grant by or to the Company of any right to manufacture, use or sell any invention covered in whole or in part by a Patent.

3

Pledged Notes means all Intercompany Notes at any time issued to the Company and all other promissory notes issued to or held by the Company.

Proceeds means all “proceeds” as such term is defined in Section 9-102(a)(64) of the UCC and, in any event, shall include all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto.

Receivable means any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including any Accounts).

Secured Obligations means, collectively, the Borrower Obligations and Company Obligations, and shall not include any obligation of any Person under the Canadian Guaranty or the Canadian Loan Documents.

Trademarks means (a) all trademarks, trade names, corporate names, the Company’s names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto and (b) the right to obtain all renewals thereof.

Trademark Licenses means, collectively, each agreement, whether written or oral, providing for the grant by or to the Company of any right to use any Trademark.

UCC means the Uniform Commercial Code as in effect on the date hereof and from time to time in the State of New York, provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interests in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, “UCC” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy.

SECTION 2            GUARANTY.

2.1           Guaranty. (a)  Subject to the limitations set forth in clause (b) below and in Section 6.1 below, the Company hereby unconditionally and irrevocably, as a primary obligor and not only a surety, guarantees to the Administrative Agent, for the benefit of itself and of the Lenders, the Issuing Bank and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations.

(b)           Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of the Company hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by the Company under

4

applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2).

(c)           The Company agrees that the Secured Obligations may at any time and from time to time exceed the amount of the liability of the Company hereunder without impairing the guaranty contained in this Section 2 or affecting the rights and remedies of the Administrative Agent or any Lender hereunder.

(d)           The guaranty contained in this Section 2 shall remain in full force and effect until all of the Secured Obligations shall have been Paid in Full.

(e)           No payment made by the Borrowers, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from the Borrowers, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Secured Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Company hereunder which shall, notwithstanding any such payment (other than any payment made by the Company in respect of the Secured Obligations or any payment received or collected from the Company in respect of the Secured Obligations), remain liable for the Secured Obligations up to the maximum liability of the Company hereunder until the Secured Obligations are Paid in Full.

2.2           Right of Contribution. The Company hereby agrees that to the extent that the Company shall have paid more than its proportionate share of any payment made, the Company shall be entitled to seek and receive contribution from and against any other Guarantor which has not paid its proportionate share of such payment. The Company’s right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of the Company to the Administrative Agent and the Lenders, and the Company shall remain liable to the Administrative Agent and the Lenders for the full amount guaranteed by the Company hereunder.

2.3           No Subrogation. Notwithstanding any payment made by the Company hereunder or any set-off or application of funds of the Company by the Administrative Agent or any Lender, the Company shall not be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against the Borrowers or any other Guarantor or any collateral security or guaranty or right of offset held by the Administrative Agent or any Lender for the payment of the Secured Obligations, nor shall the Company seek or be entitled to seek any contribution or reimbursement from the Borrowers or any other Guarantor in respect of payments made by the Company hereunder, until all of the Secured Obligations are Paid in Full. If any amount shall be paid to the Company on account of such subrogation rights at any time when all of the Secured Obligations shall not have been Paid in Full, such amount shall be held by the Company in trust for the Administrative Agent and the Lenders, segregated from other funds of the Company, and shall, forthwith upon receipt by the Company, be turned over to the Administrative Agent in the exact form received by the Company (duly indorsed by the Company to the Administrative Agent, if required), to be applied against the Secured

5

Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine.

2.4           Amendments, etc. with respect to the Secured Obligations. The Company shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Company and without notice to or further assent by the Company, any demand for payment of any of the Secured Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender and any of the Secured Obligations continued, and the Secured Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guaranty therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Required Lenders or all the Lenders, as the case may be) and, to the extent required thereunder, the other parties thereto may deem advisable from time to time. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Secured Obligations or for the guaranty contained in this Section 2 or any property subject thereto.

The Administrative Agent or any Lender may, from time to time, at its sole discretion and without notice to the Company, take any or all of the following actions:  (a) retain or obtain a security interest in any property of any other Person to secure any of the Secured Obligations or any obligation hereunder, (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to the Company, with respect to any of the Secured Obligations, (c) extend or renew any of the Secured Obligations for one or more periods (whether or not longer than the original period), alter or exchange any of the Secured Obligations, or release or compromise any obligation of any of Borrowers or any obligation of any nature of any other obligor with respect to any of the Secured Obligations, (d) release any guaranty or right of offset or its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any property securing any of the Secured Obligations or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property, and (e) Subject to Section 6.1, resort to the Company for payment of any of the Secured Obligations when due, whether or not the Administrative Agent or such Lender shall have resorted to any property securing any of the Secured Obligations or any obligation hereunder or shall have proceeded against the Borrowers or any other obligor primarily or secondarily obligated with respect to any of the Secured Obligations.

2.5           Waivers. The Company waives any and all notice of the creation, renewal, extension or accrual of any of the Secured Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guaranty contained in this Section 2 or acceptance of the guaranty contained in this Section 2; the Secured Obligations, and the Secured Obligations shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guaranty contained in this Section 2, and all dealings between the Borrowers and the Company, on the one hand, and the

6

Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guaranty contained in this Section 2. The Company waives (a) diligence, presentment, protest, demand for payment and notice of default, dishonor or nonpayment and all other notices whatsoever to or upon the Borrowers or the Company with respect to the Secured Obligations, (b) notice of the existence or creation or non-payment of all or any of the Secured Obligations and (c) all diligence in collection or protection of or realization upon any Secured Obligations or any security for or guaranty of any Secured Obligations.

2.6           Payments. The Company hereby guarantees that payments by the Company hereunder will be paid to the Administrative Agent without set-off or counterclaim in Dollars at the office of the Administrative Agent specified in the Credit Agreement.

SECTION 3            GRANT OF SECURITY INTEREST.

3.1           Grant. The Company hereby collaterally assigns and transfers to the Administrative Agent, and hereby grants to the Administrative Agent, for the benefit of itself and the Lenders, and the Issuing Bank, a continuing security interest in all of the Collateral, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations or the Company Obligations, as the case may be. This Agreement constitutes a current grant of security in the Collateral.

3.2           Collateral Assignment. The Company hereby acknowledges the grant of Liens on and security interest in, and collateral assignment of, Russ Gift’s rights in, among other things, the Collateral and the Related Agreements pursuant to the Credit Agreement and the other Loan Documents, and hereby acknowledges and agrees as follows in that regard: (i) it will not sell, assign, transfer, convey, lease, amend, hypothecate, adjust, terminate or grant any compromise, waiver or forbearance of or with respect to any of the Collateral without the prior written consent of Russ Gift (which consent shall only be granted to the extent and subject to the same conditions as would any such action by Russ Gift pursuant to the terms of the Credit Agreement and the other Loan Documents), (ii) it will not enter into any amendment, modification, supplement or agreement to any of the Related Agreements without the consent of the Administrative Agent, and (iii) in addition to the other rights and remedies of the Administrative Agent hereunder, following the occurrence and during the continuance of an Event of Default, to the extent permitted by the Credit Agreement (to the same extent as it relates to property of the Borrowers), the Company hereby irrevocably authorizes and empowers the Administrative Agent or its agents, in their sole discretion, to assert, either directly or on behalf of the Company, at any time that an Event of Default has occurred and is continuing, any claims the Company may from time to time have with respect to any and all of the Collateral, and to receive and collect any damages, awards and other monies resulting therefrom and to apply the same on account of the Secured Obligations. After the occurrence and during the continuance of any Event of Default, the Administrative Agent may provide notice to the parties to any of the Collateral that any and all payments or remittances in respect thereof shall be made to or at the direction of the Administrative Agent for so long as such Event of Default shall be continuing. The Company hereby irrevocably makes, constitutes and appoints the Administrative Agent (and all officers, employees, or agents designated by the Administrative Agent) as the Company’s true

7

and lawful attorney (and agent-in-fact) for the purpose of enabling the Administrative Agent or its agents to, during the occurrence and continuance of an Event of Default, assert and collect such claims and to apply such monies in the manner set forth hereinabove.

SECTION 4            REPRESENTATIONS AND WARRANTIES.

To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, the Company hereby represents and warrants to the Administrative Agent and each Lender that:

4.1           Perfected Liens. The security interests granted pursuant to this Agreement upon completion of the filings and other actions specified on Schedule 1 (which, in the case of all filings and other documents referred to on Schedule 1, have been delivered to the Administrative Agent in completed and duly executed form) and payment of all necessary filing fees will constitute valid perfected security interests in all of the Collateral in favor of the Administrative Agent, for the benefit of itself, the Lenders and the Issuing Bank, as collateral security for the Company Obligations, enforceable in accordance with the terms hereof (subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing) against the Company in accordance with their terms. Subject to the payment of all necessary filing fees, the filings and other actions specified on Schedule 1 constitute all of the filings and other actions necessary to perfect all security interests granted hereunder.

4.2           Grantor Information. On the date hereof, Schedule 2 sets forth (a) the Company’s jurisdiction of organization, (b) the location of the Company’s chief executive office, (c) the Company’s exact legal name as it appears on its organizational documents and (d) the Company’s organizational identification number (to the extent the Company is organized in a jurisdiction which assigns such numbers) and federal employer identification number.

SECTION 5            COVENANTS.

The Company covenants and agrees with the Administrative Agent and the Lenders that, from and after the date of this Agreement until the Secured Obligations shall have been Paid in Full:

5.1           Maintenance of Perfected Security Interest; Further Documentation. (a)  Except with respect to actions affirmatively taken by the Administrative Agent with respect to its Liens or any failure by the Administrative Agent to continue any such Lien prior to the lapse thereof due to the passage of time, the Company shall maintain such security interest as a perfected security interest as described in Section 4 and shall defend such security interest against the claims and demands of all Persons whomsoever.

(b)           The Company will furnish to the Administrative Agent and the Lenders from time to time statements and schedules further identifying and describing the assets and property of the Company constituting Collateral and such other reports relating thereto as the Administrative Agent may reasonably request, all in reasonable detail.

8

(c)           At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of the Company, the Company will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, but not limited to, (i) filing any financing or continuation statements under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and, (ii) taking any actions necessary or reasonably advisable to enable the Administrative Agent to obtain “control” (within the meaning of the applicable UCC) with respect thereto.

5.2           Changes in Locations, Name, etc. Such the Company shall not, except upon twenty (20) days’ prior written notice to the Administrative Agent and delivery to the Administrative Agent of (a) all additional financing statements and other documents reasonably requested by the Administrative Agent as to the validity, perfection and priority of the security interests provided for herein:

(i)            change its jurisdiction of organization or the location of its chief executive office from that specified on Schedule 2 or in any subsequent notice delivered pursuant to this Section 5.2; or

(ii)           change its name, identity or corporate structure.

5.3           Notices. Such the Company will advise the Administrative Agent promptly, in reasonable detail, of:

(a)           any Lien (other than Permitted Liens) on any of the Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies hereunder; and

(b)           any circumstances bearing upon any potential claim under or with respect to the Collateral that could have a materially adverse effect on the Administrative Agent and the Lenders and the Company shall not, without the prior written consent of the Administrative Agent, amend or otherwise modify any Related Agreement in any manner which is materially adverse to the interests of the Administrative Agent or the Lenders.

SECTION 6            REMEDIAL PROVISIONS.

6.1           Notwithstanding anything in this Agreement or any Loan Document to the contrary, the Administrative Agent and the Lenders have recourse only to the Collateral to satisfy the Company Obligations. Except for the Collateral, neither the Administrative Agent nor any Lender shall look to any of the Company’s tangible or intangible real or personal property, or any of its directors, officers or other agents, for satisfaction of the Company Obligations. With respect to the Company Obligations, the Agent and the Lenders have only the rights and remedies provided herein and under the other Loan Documents and applicable law with respect to the Collateral, all of which rights and remedies are cumulative, and nonexclusive, to the extent permitted by law.

9

6.2           Application of Proceeds. At such intervals as may be elected by the Administrative Agent upon its receipt of any payments or Net Cash Proceeds in respect of the Secured Obligations, the Administrative Agent may or, if an Event of Default shall have occurred and be continuing, upon its receipt of any payments or Net Cash Proceeds in respect of the Secured Obligations, the Administrative Agent shall apply all or any part of Net Cash Proceeds from the sale of, or other realization upon, all or any part of the Collateral in payment of the Secured Obligations as set forth below (subject to the terms of the Credit Agreement). Any part of such funds which the Administrative Agent elects not so to apply and deems not required as collateral security for the Secured Obligations shall be paid over from time to time by the Administrative Agent to the Company or to whomsoever may be lawfully entitled to receive the same. Any balance of such Net Cash Proceeds remaining after the Secured Obligations shall have been Paid in Full shall be paid over to the Company or to whomsoever may be lawfully entitled to receive the same. In the absence of a specific determination by the Administrative Agent, and at all times during the continuation of an Event of Default, the Net Cash Proceeds from the sale of, or other realization upon, all or any part of the Collateral in payment of the Secured Obligations shall be applied in the following order:

FIRST, TO THE PAYMENT OF ALL FEES, REASONABLE COSTS, REASONABLE EXPENSES AND INDEMNITIES OF THE ADMINISTRATIVE AGENT (IN ITS CAPACITY AS SUCH), INCLUDING ATTORNEY COSTS, AND ANY OTHER SECURED OBLIGATIONS THEN DUE AND PAYABLE TO THE ADMINISTRATIVE AGENT IN RESPECT OF SUMS ADVANCED BY THE ADMINISTRATIVE AGENT TO PRESERVE THE COLLATERAL OR TO PRESERVE ITS SECURITY INTEREST IN THE COLLATERAL, UNTIL PAID IN FULL;

SECOND, TO THE PAYMENT OF ALL FEES, REASONABLE COSTS, REASONABLE EXPENSES AND INDEMNITIES OF THE LENDERS, PRO-RATA, UNTIL PAID IN FULL;

THIRD, TO THE PAYMENT OF ALL OF THE SECURED OBLIGATIONS CONSISTING OF ACCRUED AND UNPAID INTEREST THEN DUE AND PAYABLE TO THE LENDERS, PRO-RATA, UNTIL PAID IN FULL;

FOURTH, TO THE PAYMENT OF ALL SECURED OBLIGATIONS CONSISTING OF PRINCIPAL THEN DUE AND PAYABLE TO THE LENDERS, PRO-RATA, UNTIL PAID IN FULL;

FIFTH, TO THE PAYMENT OF THE ADMINISTRATIVE AGENT AN AMOUNT EQUAL TO ALL SECURED OBLIGATIONS IN RESPECT OF ALL OUTSTANDING LETTERS OF CREDIT, IF ANY, TO BE HELD AS CASH COLLATERAL IN RESPECT OF SUCH OBLIGATIONS;

SIXTH, TO THE PAYMENT OF ALL BANK PRODUCTS OBLIGATIONS AND SPECIFIED HEDGING OBLIGATIONS THEN DUE AND PAYABLE TO ANY LENDER OR ITS AFFILIATES, PRO-RATA, UNTIL PAID IN FULL;

10

SEVENTH, TO THE PAYMENT OF ALL OTHER SECURED OBLIGATIONS THEN DUE AND PAYABLE TO EACH LENDER, PRO-RATA, UNTIL PAID IN FULL; AND

EIGHTH, THE REMAINING PROCEEDS, IF ANY, TO THE GRANTORS OR TO WHOMEVER MAY BE LAWFULLY ENTITLED TO RECEIVE SUCH AMOUNTS.

6.3           Code and Other Remedies. Subject to Section 11.10(k) of the Credit Agreement, if an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Lenders, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC or any other applicable law. Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Company or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate, realize upon and take possession of the Collateral, or any part thereof (in addition to Collateral of which it already has possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may enter onto any of the Company’s premises where any of the Collateral may be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of, and Administrative Agent shall have the right to store the same at any of the Company’s premises without cost to Administrative Agent or any Lender in each case, subject to the terms of the applicable lease agreement, with respect to premises leased by the Company. The Administrative Agent may forthwith sell, lease, assign, give options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Administrative Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may reasonably deem best, for cash or on credit or for future delivery with assumption of any credit risk. The Administrative Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Company, which right or equity is hereby waived and released. The Company further agrees, at the Administrative Agent’s request and at the Company’s expense, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at the Company’s premises or elsewhere. The Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.3, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the Lenders hereunder, including Attorney Costs, as provided in Section 6.2. To the extent permitted by applicable law, the Company waives all claims, damages and demands it may acquire against the Administrative Agent or any Lender arising out of the exercise by them of any rights hereunder, except claims, damages and demands related to Administrative Agent or any Lender’s gross negligence, willful misconduct or bad faith. If any notice of a proposed sale or other disposition of Collateral shall be required by law,

11

such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

6.4           Waiver. The Company waives and agrees not to assert any rights or privileges which it may acquire under Section 9-626 of the UCC.

SECTION 7            THE ADMINISTRATIVE AGENT.

7.1           Administrative Agent’s Appointment as Attorney-in-Fact, etc. (a)  The Company hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Company and in the name of the Company or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be reasonably necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, the Company hereby gives the Administrative Agent the power and right, on behalf of and at the expense of the Company, without notice to or assent by the Company, to do any or all of the following:

(i)            in the name of the Company or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable that constitutes Collateral hereunder or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed reasonably appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due under any Receivable that constitutes Collateral hereunder or with respect to any other Collateral whenever payable;

(ii)           in the case of any Intellectual Property that constitutes Collateral hereunder , execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent’s security interest in such Intellectual Property that constitutes Collateral hereunder and the goodwill and general intangibles of the Company relating thereto or represented thereby;

(iii)          discharge Liens levied or placed on or threatened against the Collateral (other than Permitted Liens), and effect any repairs or insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

(iv)          execute, in connection with any sale provided for in Section 6.4, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

(v)           (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral;

12

(3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against the Company with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Administrative Agent may deem reasonably appropriate; (7) assign any Copyright, Patent or Trademark, in each case, that constitutes Collateral and is subject to the Lien of the Administrative Agent granted pursuant to this Agreement, throughout the world for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its reasonable discretion determine; (8) vote any right or interest with respect to any Investment Property that constitutes Collateral; (9) order good standing certificates and conduct lien searches in respect of such jurisdictions or offices as the Administrative Agent may deem reasonably appropriate; and (10) generally sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent’s option and the Company’s expense, at any time, or from time to time, all acts and things which the Administrative Agent deems reasonably necessary to protect, preserve or realize upon the Collateral and the Administrative Agent’s security interests therein and to effect the intent of this Agreement, all as fully and effectively as the Company might do.

Anything in this Section 7.1(a) or any other Loan Document to the contrary notwithstanding, the Administrative Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing, and the Agent is exercising its rights under this Agreement.

(b)           If the Company fails to perform or comply with any of its agreements contained herein, the Administrative Agent, at its option, but without any obligation so to do, may, after written notice to the Company, perform or comply, or otherwise cause performance or compliance, with such agreement.

(c)           The Company hereby ratifies all that such attorneys in fact shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the Secured Obligations are Paid in Full.

7.2           Duty of Administrative Agent. The Administrative Agent’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent or any Lender nor any of their respective officers, directors, employees or agents shall be liable for any failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Company or any other Person or to take any other action whatsoever with regard to the Collateral or any part

13

thereof. The powers conferred on the Administrative Agent and the Lenders hereunder are solely to protect the Administrative Agent’s and the Lenders’ interests in the Collateral and shall not impose any duty upon the Administrative Agent or any Lender to exercise any such powers. The Administrative Agent and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither the Administrative Agent, nor any Lender nor any of their respective officers, directors, employees or agents shall be responsible to the Company for any act (except for the Administrative Agent’s or any Lender’s gross negligence or willful misconduct in so acting) or failure to act hereunder.

7.3           Authority of Administrative Agent. The Company acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the the Company, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no the Company shall be under any obligation, or entitlement, to make any inquiry respecting such authority.

SECTION 8            MISCELLANEOUS.

8.1           Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 15.1 of the Credit Agreement.

8.2           Notices. All notices, requests and demands to or upon the Administrative Agent or the Company hereunder shall be addressed to the Administrative Agent or Loan Party Representative, respectively, and effected in the manner provided for in Section 15.3 of the Credit Agreement and the Company hereby appoints the Loan Party Representative as its agent to give and receive notices hereunder and the Administrative Agent shall be fully protected and held harmless by the the Company hereunder for relying on any such notice reasonably believed by it to have been delivered by the Loan Party Representative.

8.3           Indemnification by Company. THE COMPANY HEREBY AGREES TO INDEMNIFY AND HOLD EACH LENDER PARTY AND ISSUING BANK FREE AND HARMLESS FROM AND AGAINST ANY AND ALL INDEMNIFIED LIABILITIES, INCURRED BY THE LENDER PARTIES, ISSUING BANK OR ANY OF THEM AS A RESULT OF, OR ARISING OUT OF, OR RELATING TO THE EXECUTION, DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT BY ANY OF THE LENDER PARTIES OR ISSUING BANK, EXCEPT FOR ANY SUCH INDEMNIFIED LIABILITIES ARISING ON ACCOUNT OF THE APPLICABLE LENDER PARTY’S OR ISSUING BANK’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IF AND TO THE EXTENT THAT THE FOREGOING UNDERTAKING MAY BE UNENFORCEABLE FOR ANY REASON, THE COMPANY HEREBY AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE

14

INDEMNIFIED LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. ALL OBLIGATIONS PROVIDED FOR IN THIS SECTION 8.3 SHALL SURVIVE REPAYMENT OF ALL (AND SHALL BE) SECURED OBLIGATIONS (AND TERMINATION OF ALL COMMITMENTS UNDER THE CREDIT AGREEMENT), ANY FORECLOSURE UNDER, OR ANY MODIFICATION, RELEASE. DISCHARGE OR TERMINATION OF THIS AGREEMENT.

8.4           Enforcement Expenses. (a)  The Company agrees to pay or reimburse within three (3) Business Days of demand each Lender and the Administrative Agent for all reasonable out-of-pocket costs and expenses (subject to the limitations on the number of counsel set forth in Section 15.5 of the Credit Agreement, including, without duplication of any provision of this Agreement, Attorney Costs) incurred in collecting against the Company under the guaranty contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement.

(b)           The Company agrees to pay, and to save the Administrative Agent and the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay caused by the Company in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement.

(c)           The agreements in this Section 8.4 shall survive repayment of all (and shall be) Secured Obligations (and termination of all commitments under the Credit Agreement), any foreclosure under, or any modification, release or discharge of, any or all of the Collateral Documents and termination of this Agreement.

8.5           Captions. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

8.6           Nature of Remedies. All Secured Obligations of the Company and rights of the Administrative Agent and the Lenders expressed herein shall be in addition to and not in limitation of those provided by applicable law. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

8.7           Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. Receipt by telecopy of any executed signature page to this Agreement shall constitute effective delivery of such signature page.

8.8           Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

15

8.9           Entire Agreement. This Agreement, together with the other Loan Documents to which the parties hereto are parties, embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof and any prior arrangements made with respect to the payment by the Company of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Administrative Agent or the Lenders.

8.10         Successors; Assigns. This Agreement shall be binding upon the Company, the Lenders and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of the Company, Lenders and the Administrative Agent and the successors and assigns of the Lenders and the Administrative Agent. No other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement. The Company may not assign or transfer any of its rights or Obligations under this Agreement without the prior written consent of the Administrative Agent.

8.11         Governing Law. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

8.12         Forum Selection; Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE ADMINISTRATIVE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION IN WHICH COLLATERAL IS LOCATED. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

8.13         Waiver of Jury Trial. THE COMPANY, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN

16

CONNECTION HEREWITH AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

8.14         Acknowledgements. The Company hereby acknowledges that:

(a)           it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party;

(b)           neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Company arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Company, on the one hand, and the Administrative Agent and the Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c)           no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Company and the Lenders.

8.15         Releases. At such time as the Secured Obligations have been Paid in Full, the Collateral shall be automatically released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and the Company hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the the Company. At the request and sole expense of the Company concurrently with any such termination, the Administrative Agent shall deliver to the Company any Collateral held by the Administrative Agent hereunder, and execute and deliver to the the Company such documents as the the Company shall reasonably request to evidence such termination.

8.16         Obligations and Liens Absolute and Unconditional. The Company understands and agrees that the obligations of the Company under this Agreement shall be construed as a continuing, absolute and unconditional without regard to (a) the validity or enforceability of any Loan Document, any of the Secured Obligations or any other collateral security therefor or guaranty or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Company or any other Person against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company for the Secured Obligations, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against the Company, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any other the Company or any other Person or against any collateral security or guaranty for the Secured Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from any other the Company or any other Person or to realize upon any such collateral security or guaranty or to exercise any such right of offset, or any release of any

17

other the Company or any other Person or any such collateral security, guaranty or right of offset, shall not relieve the Company of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any Lender against the Company. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

8.17         Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference”, “fraudulent conveyance”, or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

[signature pages follow]

18

Each of the undersigned has caused this Limited Recourse Guaranty and Collateral Agreement to be duly executed and delivered as of the date first above written.

RUSS BERRIE AND COMPANY, INC., a New Jersey corporation
By:	/s/ John Wille
Name: John Wille
Title: Vice President and Chief Financial Officer
LASALLE BUSINESS CREDIT, LLC, as the Administrative Agent and a Lender
By:	/s/ C. John Mostofi
Name:  C. John Mostofi
Title:  Senior Vice President

EX-4.15

Exhibit 4.15

Execution Version

THIS GUARANTY IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN INTERCREDITOR AGREEMENT DATED AS OF MARCH 14, 2006 BY AND AMONG LASALLE BUSINESS CREDIT, LLC AND LASALLE BUSINESS CREDIT, A DIVISION OF ABN AMRO BANK N.V., CANADA BRANCH (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE “INTERCREDITOR AGREEMENT”)

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT (this “Agreement”), dated as of March 14, 2006, made by Russ Berrie U.S. Gift, Inc., a Delaware corporation (“Guarantor”) in favor of LaSalle Business Credit, a division of ABN AMRO Bank N.V., Canada Branch, as agent (in such capacity, “Agent”), for itself and the Lenders (as such term is defined in the Credit Agreement referred to below). Capitalized terms used herein but not otherwise defined have the same meanings ascribed to such terms in the Credit Agreement referred to below; provided that if such terms are not defined in the Credit Agreement, then such terms have the meanings ascribed to them in the US Credit Agreement.

W I T N E S S E T H:

WHEREAS, Guarantor is an affiliate of Amram’s Distributing Ltd., a corporation incorporated under the laws of Canada (“Borrower”);

WHEREAS, Borrower has entered into that certain Credit Agreement dated June 28, 2005 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) with Agent and Lenders and acknowledged by Guarantor, pursuant to which Agent and Lenders have agreed to make certain loans, advances and other financial accommodations to Borrower;

WHEREAS, as a condition to their agreeing to enter into the Credit Agreement and to make certain loans, advances and other financial accommodations to Borrower, Agent and Lenders require that Guarantor enter into this Agreement; and

WHEREAS, Guarantor will derive substantial benefit and advantage from the loans, advances and other financial accommodations available to Borrower pursuant to the Credit Agreement, and it will be to Guarantor’s indirect interest and economic benefit to assist Borrower in procuring said loans, advances and other financial accommodations from Lenders and Agent.

NOW, THEREFORE, for value received and in consideration of any loan, advance, or financial accommodation of any kind whatsoever heretofore, now or hereafter made, given or granted to Borrower by Agent and Lenders pursuant to the Credit Agreement, Guarantor agrees as follows:

A.            Guaranty

1.             Guarantor hereby unconditionally and irrevocably guarantees (i) the full and prompt payment when due, whether at maturity or earlier, by reason of acceleration or otherwise, and at all times thereafter, of all Obligations of Borrower owing

1

to Agent and Lenders under the Credit Agreement and the other Loan Documents and (ii) the prompt, full discharge by Borrower of each and every term, condition, agreement, representation and warranty now or hereafter made by Borrower to Agent and Lenders pursuant to the Credit Agreement and the other Loan Documents to which Borrower is a party (all such Obligations being hereinafter referred to as “Guaranteed Obligations”). It is expressly understood and agreed that, if, at any time, the outstanding principal amount of Guaranteed Obligations is declared to be immediately due and payable for any reason whatsoever, then Guarantor shall, without demand but subject to the Intercreditor Agreement, pay to the holders of Guaranteed Obligations the entire outstanding Guaranteed Obligations due and owing to such holders. This guaranty is a guaranty of payment and performance and not a guaranty of collection.

2.             Notwithstanding any provision of this Agreement to the contrary, it is intended that this Agreement not constitute a “Fraudulent Conveyance” (as defined below). Consequently, Guarantor, Agent and Lenders each agrees that if this Agreement would, but for the application of this sentence, constitute a Fraudulent Conveyance, this Agreement shall be valid and enforceable only to the maximum extent that would not cause this Agreement to constitute a Fraudulent Conveyance as to Guarantor, and this Agreement shall automatically be deemed to have been amended accordingly at all relevant times. For purposes hereof, “Fraudulent Conveyance” means a fraudulent conveyance under Section 548 of Chapter 11 of Title 11 of the United States Code (11 U.S.C. §101, et seq.), as amended (the “Bankruptcy Code”) or a fraudulent conveyance or fraudulent transfer under the applicable provisions of any fraudulent conveyance or fraudulent transfer law or similar law of any state, nation or other governmental unit, as in effect from time to time.

3.             Guarantor hereby agrees that its obligations under this Agreement shall be unconditional, irrespective of (a) the validity or enforceability of Guaranteed Obligations or any part thereof, or of any promissory note or other document evidencing all or any part of Guaranteed Obligations, (b) the absence of any attempt to collect Guaranteed Obligations from Borrower or any other guarantor or other action to enforce the same, (c) the waiver or consent by Agent and/or Lenders with respect to any provision of any instrument evidencing Guaranteed Obligations, or any part thereof, or any other agreement heretofore, now or hereafter executed by Borrower and delivered to Agent and/or Lenders, (d) the institution of any proceeding under the Bankruptcy Code, or any similar proceeding, by or against Borrower, (e) any borrowing or grant of a security interest by Borrower or any other obligor as debtor-in-possession, under Section 364 of the Bankruptcy Code, (f) the disallowance, under Sections 502 or 506 of the Bankruptcy Code, of all or any portion of Agent’s or any Lender’s claim(s) for repayment of Guaranteed Obligations, or (g) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Loan Party.

4.             Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of a receivership or bankruptcy of Borrower or any other Loan Party, protest or notice with respect to Guaranteed Obligations and all demands whatsoever, and covenants that this Agreement will not be discharged, except by complete performance of the Guaranteed Obligations or upon Agent’s consent to discharge in writing. Upon the occurrence and during the continuance

2

of any Event of Default by Borrower as provided in any instrument or document evidencing all or any part of Guaranteed Obligations, including, without limitation, the Credit Agreement, Agent may, subject to the Intercreditor Agreement, at its sole election, or shall, at the request of the Required Lenders, proceed directly and at once, without notice, against Guarantor to collect and recover the full amount or any portion of Guaranteed Obligations due and payable, without first proceeding against Borrower any other Loan Party, or any other person, firm, or corporation.

5.             Agent and each Lender is hereby authorized, without notice or demand and without affecting the liability of Guarantor hereunder, to at any time and from time to time (a) renew, extend, accelerate or otherwise change the time for payment of, or other terms relating to, Guaranteed Obligations or otherwise modify, amend or change the terms of any promissory note or other agreement, document or instrument now or hereafter executed by Borrower or any other Loan Party and delivered to Agent and/or Lenders; (b) accept partial payments on Guaranteed Obligations; (c) take and hold security or collateral (other than from Guarantor) for the payment of Guaranteed Obligations guaranteed hereby or other liabilities of Borrower or any other Loan Party, and exchange, enforce, waive and release any such security or collateral; (d) apply such security or collateral and direct the order or manner of sale thereof as in its reasonable discretion it may determine; and (e) settle, release, compromise, collect or otherwise liquidate Guaranteed Obligations and any security or collateral therefor in any manner, without affecting or impairing the obligations of Guarantor hereunder.

6.             Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of Borrower, each other Loan Party, and any and all endorsers of any instrument or document evidencing all or any part of Guaranteed Obligations and of all other circumstances bearing upon the risk of nonpayment of Guaranteed Obligations or any part thereof that diligent inquiry would reveal and Guarantor hereby agrees that neither Agent nor any Lender shall have any duty to advise Guarantor of information known to Agent or such Lender regarding such condition or any such circumstances or to undertake any investigation not a part of its regular business routine. If Agent or any Lender, in its sole discretion, undertakes at any time or from time to time to provide any such information to Guarantor, neither Agent nor such Lender shall be under any obligation to update any such information or to provide any such information to Guarantor on any subsequent occasion.

7.             Guarantor agrees that, to the extent that Borrower makes a payment or payments to Agent and/or any Lender, or Agent or any Lender receives any proceeds of collateral, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to Borrower, its estate, trustee, receiver or any other party, including, without limitation, Guarantor or any debtor-in-possession, receiver or trustee of or for Guarantor, under any bankruptcy law, state or federal law, common law or equitable theory, then to the extent of such payment or repayment, Guaranteed Obligations or the part thereof which has been paid, reduced or satisfied by such amount, and Guarantor’s obligations hereunder with respect to such portion of Guaranteed Obligations, shall be reinstated and continued in full force and effect as of the date such initial payment, reduction or satisfaction occurred.

3

8.             Guarantor agrees that any and all claims of Guarantor against Borrower, any other Loan Party or any endorser of all or any part of Guaranteed Obligations, or against any of Borrower’s, any other Loan Party’s or any such other endorser’s properties, whether arising by reason of any payment by Guarantor to Agent pursuant to the provisions hereof, or otherwise, including any and all claims for subrogation, contribution or indemnity, whether arising out of contract or law shall be subordinate and subject in right of payment to the prior payment, in full, in cash, of all of Guaranteed Obligations (including any required payment or cash collateralization of outstanding Letters of Credit pursuant to the Credit Agreement, but excluding, contingent indemnification obligations not yet asserted to be due and payable) and the termination of the Credit Agreement, and no such action or claim therefor shall be brought or asserted prior to such time. Guarantor acknowledges and agrees that this subordination is intended to benefit Agent and Lenders and shall not limit or otherwise affect Guarantor’s liability hereunder or the enforceability of this Section 8, and that Agent and Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 8.

9.             Subject to the terms of the Credit Agreement, Agent and each Lender may, without notice to anyone, sell or assign Guaranteed Obligations or any part thereof, or grant participations therein, in connection with the assignment by Agent or Lender of its respective rights under the Credit Agreement, and Agent shall have an unimpaired right, prior and superior to that of any such assignee, holder or participant, to enforce this Agreement for the benefit of Agent and Lenders as to any part of Guaranteed Obligations retained by Agent or any Lender or held by such assignee, holder or participant.

B.            Binding Obligations

10.           This Agreement shall be binding upon Guarantor and upon its successors (including without limitation, any receiver, trustee or debtor in possession of or for a Guarantor) and assigns and shall inure to the benefit of Agent and Lenders and their respective successors and assigns.

C.            Remedies

11.           Upon the occurrence and during the continuance of an Event of Default, Agent, subject to the Intercreditor Agreement, may, and upon the direction of the Required Lenders shall, exercise from time to time any rights and remedies available to it under the Uniform Commercial Code and any other applicable law in addition to, and not in lieu of, any rights and remedies expressly granted in this Agreement, the Credit Agreement or in any of the other Loan Documents and all of Agent’s rights and remedies shall be cumulative and nonexclusive to the extent permitted by law. Guarantor recognizes that if Guarantor fails to perform, observe or discharge any of their Guaranteed Obligations under this Agreement or the other Loan Documents, no remedy at law will provide adequate relief to Agent and Lenders, and agrees that Agent and Lenders shall be entitled to temporary and permanent injunctive relief in any such case.

4

D.            Miscellaneous

12.           Guarantor agrees to pay reasonable costs and expenses, including, without limitation, all legal expenses and reasonable attorneys’ fees (whether for internal or outside counsel, without duplication), incurred by Agent in connection with the (i) collection of any Guaranteed Obligations after an Event of Default has occurred and is continuing and (ii) administration and enforcement of any of Agent’s and/or any Lender’s rights under this Agreement. In addition, following the occurrence of an Event of Default, Guarantor shall reimburse each Lender for all costs and expenses incurred by such Lender in connection with the (i) collection of any Guaranteed Obligations after an Event of Default has occurred and is continuing and (ii) administration and enforcement of such Lender’s rights under this Agreement, including the reasonable fees and disbursements of one counsel for all Lenders (unless there is an actual or perceived conflict of interest with respect to any other Lender, asserted in good faith, in which case each Lender affected thereby may retain its own counsel). Notwithstanding the foregoing, in no event shall Guarantor reimburse Agent for (i) costs or expenses constituting overhead of Agent other than allocated costs and expenses of internal legal counsel of Agent without duplication of expenses incurred by third parties or (ii) inspections, evaluations or audits performed by employees of Agent or its affiliates unless the Borrower is responsible for same pursuant to the Credit Agreement.

All such fees, costs or expenses required to be paid hereunder shall be payable by Guarantor (x) if no Event of Default shall then be existing, on no less than five (5) Business Days’ prior written notice to Guarantor thereof (such notice, a “Guarantor Fee Notice”) and (y) after the occurrence and during the continuance of an Event of Default, at Agent’s discretion. Guarantor shall have five (5) Business Days after the date of any Guarantor Fee Notice to request from Agent an invoice setting forth in reasonable detail such costs, fees and/or expenses requested to be paid by Agent and such costs, fees and/or expenses shall be due and payable by Guarantor to Agent no later than the fifth (5th) Business Day after delivery of such invoice to Guarantor. Notwithstanding the foregoing, in the event that Guarantor, in good faith and in its commercially reasonable judgment, provides written notice to Agent of its determination to contest such fees, costs and/or expenses within the later to occur of five (5) Business Days after: (i) the date of the Guarantor Fee Notice or (ii) delivery of the applicable invoice, Guarantor shall be permitted thirty (30) days from the date of the Guarantor Fee Notice to resolve such dispute, during which period, such costs, fees and expenses shall remain outstanding and after which period such costs, fees and expenses shall be immediately due and payable to Agent whether or not such dispute has been resolved. Any costs, fees or expenses owing hereunder which are not paid when due shall, to the extent permitted by applicable law, bear interest at a rate equal to the Revolving Loan Base Rate Margin applicable to Base Rate Loans plus two percent (2.0%) if such costs, fees and expenses are denominated in U.S. Dollars or at a rate equal to the Revolving Loan Canadian Base Rate Margin applicable to Canadian Base Rate Loans plus two percent (2.0%) if such costs, fees and expenses are denominated in Canadian Dollars.

13.           If the incurrence or payment of the Obligations by the Guarantor or the transfer to Agent or any Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors’ rights,

5

including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a “Voidable Transfer”), and if Agent or any Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Agent or any Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and reasonable attorneys fees of Agent and Lenders, the Obligations automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made, and if the Terminating Event (as defined below) had previously occurred, it shall be rescinded and this Agreement, the Credit Agreement, the other Loan Documents and all Liens granted thereunder shall be immediately reinstated until full and final payment of the Obligations, in cash, shall have been received by Agent.

14.           This Agreement shall continue in full force and effect, and Agent and Lenders shall be entitled to make loans and advances and extend financial accommodations to Borrower on the faith hereof until such time as Agent has, in writing, notified Guarantor that all of Guaranteed Obligations have been paid in full in cash and the Credit Agreement has been terminated (the “Terminating Event”), this Agreement and the obligations of Guarantor and its successors or assigns, shall remain in full force and effect with respect to all of Guaranteed Obligations incurred prior to the receipt by Agent of written notice of the Terminating Event.

15.           Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

16.           THIS AGREEMENT SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS (OTHER THAN CONFLICTS OF LAWS RULES) OF THE STATE OF NEW YORK.

17.           GUARANTOR IRREVOCABLY AGREES THAT, SUBJECT TO AGENT’S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE STATE OF NEW YORK. GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID STATE. GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST GUARANTOR BY AGENT IN ACCORDANCE WITH THIS PARAGRAPH.

6

18.           GUARANTOR HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT.

19.           Notwithstanding anything to the contrary contained in this Agreement, no payment made by or for the account of Guarantor including, without limitation, a payment made by Guarantor in respect of Guaranteed Obligations, shall entitle Guarantor by subrogation, or contribution or otherwise, to demand or receive any payment from Borrower, any other Loan Party or any other endorser of any instrument or document evidencing Guaranteed Obligations or from or out of any property of Borrower, any other Loan Party or any other such Person until the date following the Terminating Event and Guarantor shall not exercise any right or remedy against Borrower or any property of Borrower, any other Obligor or any other such Person by reason of any performance by Guarantor under this Agreement until the date following the Terminating Event.

20.           If in the recovery by Agent or any Lender of any amount owing hereunder in any currency, judgment can only be obtained in another currency and because of changes in the exchange rate of such currencies between the date of judgment and payment in full of the amount of such judgment, the amount of recovery under the judgment differs from the full amount owing hereunder, Guarantor shall pay any such shortfall to Agent or such Lender and such shortfall can be claimed by Agent or such Lender against Guarantor as an alternative or additional cause of action.

21.           Any and all payments by or on account of any of the Guaranteed Obligations shall be made free and clear of and without deduction for any taxes (including without limitation withholding taxes). If Guarantor shall be required to deduct any taxes from payments to be made to Agent or any Lender hereunder, then (i) the amount payable by Guarantor shall be increased as necessary so that, after making all required deductions, Agent or such Lender receives an amount equal to the sum it would have received had not such deductions been made, and (ii) the Agent or the Lender, as the case may be, shall use all commercially reasonable efforts (to the extent then permitted by applicable law) to deliver to the Guarantor, prior to any such payment, two accurate and complete original signed copies of an IRS Form W8BEN, W-8ECI, or W-8IMY (or any successor or other applicable forms prescribed by the IRS) to confirm or establish the entitlement of such Lender or the Administrative Agent to a complete exemption from, or a reduced rate of withholding with respect to, United States withholding tax on payments to be made hereunder by the Guarantor, and, if applicable, a certificate (in form and substance reasonably acceptable to the Guarantor) demonstrating that the Lender is entitled to a complete exemption from United States withholding tax on interest pursuant to Section 871(h) or 881(c) of the United States Internal Revenue Code of 1986, as amended. Guarantor shall make any and all required deductions and pay the full amount deducted to the appropriate governmental authority in accordance with applicable law.

22.           The parties hereto acknowledge and agree that none of the Guarantor’s obligations under this Agreement are secured by the assets or property of the Guarantor or any other person.

7

IN WITNESS WHEREOF, this Agreement has been duly executed by the undersigned as of this 14^th day of March 2006.

				RUSS BERRIE U.S. GIFT, INC.
				By:	/s/ John Wille
				Name:			John Wille
				Title:		Vice President, Chief Financial Officer
Acknowledged and agreed to by:
LASALLE BUSINESS CREDIT, a
Division of ABN AMRO N.V.
Canada Branch, as Agent and Lender
By:	/s/ Darcy Mack
Name:			Darcy Mack
Title:		First Vice President
By:	/s/ James Bruce
Name:			James Bruce
Title:		Vice President

Signature page to Canadian Guaranty Agreement

EX-4.16

Exhibit 4.16

CALIFORNIA KL HOLDINGS, INC.
2601 SEQUOIA DRIVE
SOUTH GATE, CA 90280

March 14, 2006

Russ Berrie and Company, Inc.
111 Bauer Drive
Oakland, NJ 07436

Kids Line, LLC
Sassy, Inc.

c/o Russ Berrie and Company, Inc.
111 Bauer Drive
Oakland, NJ 07436

Reference is hereby made to that certain Membership Interest Purchase Agreement dated as of December 15, 2004 (“Acquisition Agreement”) by and among Russ Berrie and Company Inc. (“Company”), Kids Line, LLC (“KL”), the Sellers identified therein and the Unitholders Representatives. Capitalized terms used herein and not defined shall have the meanings assigned to such terms in the Acquisition Agreement.

The parties to this letter agreement hereby agree that notwithstanding anything to the contrary provided in the Acquisition Agreement, all obligations of the Company to pay the Earnout Consideration and the Estimated Earnout Payment as set forth in Section 2.6(a) of the Acquisition Agreement are as of the date hereof hereby assumed by, and shall hereafter be the joint and several obligation of, each of KL and Sassy, Inc., an Illinois corporation. (“Sassy” and, together with KL, collectively, the “Substitute Obligors”). The obligations of each Substitute Obligor to pay the Earnout Consideration and the Estimated Earnout Payment shall be secured by a security interest and lien on substantially all of the assets of the Substitute Obligors granted pursuant to that certain Subordinated Security Agreement, dated as of December 15, 2004 (as amended by that certain Amendment Number One to Subordinated Security Agreement, dated as of May 10, 2005, and as further amended concurrently with the execution of this letter by that certain Amendment, Reaffirmation and Partial Release (Subordinated Security Agreement), dated as of the date hereof (the “New Security Agreement Amendment and Release”), and as further amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement”), which Security Agreement and all amendments thereto to date are attached hereto as Exhibit 1, and guaranteed pursuant to that certain Guaranty, dated as of May 10, 2005, as amended and modified concurrently with the execution of this letter by that certain Amendment and Release (Guaranty), dated as of the date hereof (the “Guaranty Amendment and Release”), which Guaranty and all amendments thereto to date are attached hereto as Exhibit 2. In addition, as security for each Substitute Obligor’s obligation hereunder to pay the Earnout Consideration and the Estimated Earnout Payment, each Substitute Obligor hereby grants to CKLH, for the benefit of the “Deferred Payout Sellers” (as defined in the Acquisition Agreement), (i) pursuant to the terms of that certain Trademark Security Agreement by and among the Substitute Obligors and CKLH dated as of December 15, 2004 (as amended and in effect on the date hereof, the “Trademark Security Agreement”), a continuing security interest in

all of such Substitute Obligor’s right, title and interest in, to and under the “Trademarks” and “Intellectual Property Licenses” (as each such term is defined in the Trademark Security Agreement) set forth on Exhibit 3 hereto, which shall constitute “Trademarks” and “Intellectual Property Licenses” for all purposes under the Trademark Security Agreement, and (ii) pursuant to the terms of that certain Patent Security Agreement by and among the Substitute Obligors and CKLH dated as of December 15, 2004 (as amended and in effect on the date hereof, the “Patent Security Agreement”), a continuing security interest in all of such Substitute Obligor’s right, title and interest in, to and under the “Patents” (as each such term is defined in the Patent Security Agreement) set forth on Exhibit 4 hereto, which shall constitute “Patents” for all purposes under the Patent Security Agreement.

Subject to the execution of the New Security Agreement Amendment and Release and the Guaranty Amendment and Release and the termination of the Prior Subordination Agreement (as defined below), and in consideration of the assumption by the Substitute Obligors of the obligations to pay the Earnout Consideration and the Estimated Earnout Payment, (hereafter, the “Assumed Obligations”), California KL Holdings Inc. (“CKLH”), on behalf of itself and the Deferred Payout Sellers, hereby releases the Company from all of its obligations and liabilities to pay the Earnout Consideration and the Estimated Earnout Payment and hereby terminates all liens, claims and encumbrances in its (or in the Deferred Payout Sellers) favor against any and all of the assets of the Company (other than “Continuing Pledged Collateral” as set forth in more detail in the New Security Agreement Amendment and Release) and agrees to execute and deliver all such instruments, documents or agreements as shall be reasonably requested by the Company to effect such release including, without limitation, the New Security Agreement Amendment and Release and the Guaranty Amendment and Release attached hereto as Exhibits 1 and 2. Notwithstanding the foregoing, for the avoidance of doubt, the Company’s pledge of the Continuing Pledged Collateral shall remain in effect as collateral security as set forth in more detail in the New Security Agreement Amendment and Release.

The parties to this letter agreement hereby agree that, in calculating “EBITDA” for all purposes under the Acquisition Agreement, the following shall be added back solely to the extent deducted in calculating KL’s earnings (in each case, without duplication):  (i) any restructuring and costs expensed during the Measurement Period in connection with (x) the Spin-Off (as defined in the New Credit Agreement (which is defined below)), or (y) the negotiation or consummation of the transactions contemplated by this letter agreement, the New Credit Agreement, the New Security Agreement Amendment and Release or the Guaranty Amendment and Release and each other document, agreement or instrument executed  in connection therewith (including without limitation any costs and expenses that KL would not incur or would not have incurred but for such Spin-Off or such transactions), (ii) the amount of any “Excess Corporate Charges”. “Excess Corporate Charges” means all costs and expenses incurred by the Company and its Affiliates which are not costs and expenses that, pursuant to the terms of the Acquisition Agreement as in effect on the date hereof, may be charged to KL, it being understood that KL will not be burdened with corporate charges, overhead or other allocated costs, other than its reasonable pro rata allocation of shared out-of-pocket third-party costs (e.g., insurance costs and audit fees), charged to KL in accordance with the Company’s past practices (i.e. 2005), and such other out-of-pocket costs incurred for the direct benefit of Company which are of a nature that have, consistent with Company’s past practice, been charged to KL.

2

Each of the Substitute Obligors and the Company hereby agrees that until such time as the Earnout Consideration is paid, it shall not request, consent or agree to any amendment, restatement or modification of (a) any of the covenants set forth in clause (vi), (vii) or (viii) of Section 11.3 (Restricted Payments) of the New Credit Agreement, as in effect on the date hereof, or (b) any of the covenants set forth in Section 11.10 (Investments) of the New Credit Agreement, as in effect on the date hereof, if such amendment, restatement or modification would permit the Substitute Obligors or any other “Loan Party” (as defined in the New Credit Agreement) to make or permit to exist any investment in, or loan or advance to, the Company or any Subsidiary or other Affiliate thereof (other than another “Loan Party” or Subsidiary thereof) and such investment, loan or advance is prohibited by Section 11.10 (Investments) of the New Credit Agreement, as in effect on the date hereof. Notwithstanding the above, the Substitute Obligors and the Company shall be permitted to request, consent or agree to any amendment, restatement or modification of Section 11.3(viii) to the extent permitted by the last sentence of Section 5(a) of the New Subordination Agreement (defined below), as in effect on the date hereof in the event that the Substitute Obligors have entered into, with CKLH’ s consent (not to be unreasonably withheld or delayed), an alternative financing arrangement (which may include an amendment to the New Credit Agreement) pursuant to which the Substitute Obligors are permitted to finance (in whole or in part) the payment in full when due of the Earnout Consideration.

Each of the Substitute Obligors hereby agrees jointly and severally to reimburse CKLH, on behalf of each of the Deferred Payout Sellers, for that portion of any payment made by CKLH (or any such Deferred Payout Seller) in connection with the exercise of the purchase option under the Section 4 of New Subordination Agreement, as in effect as of the date hereof, that is calculated by reference to any fee payable under Section 5.4 of the New Credit Agreement (Termination Fee),  Section 8.4 (Funding Losses) of the New Credit Agreement or other similar fees payable under the New Credit Agreement upon an acceleration of the maturity date of the obligations thereunder; provided that CKLH provides the Substitute Obligors with evidence of its (or any Deferred Payout Seller’s) payment of such fees.

CKLH hereby represents and warrants to the Company that it has the authority to execute and deliver this letter agreement, the  New Subordination Agreement (as defined below), the New Security Agreement Amendment and Release and the Guaranty Amendment and Release and release the Company and certain of its subsidiaries as set forth herein and therein on behalf of itself and each Deferred Payout Seller and that its execution and delivery does not require notice, consent, approval or other action on its behalf other than any that have been obtained. CKLH hereby further represents and warrants and agrees that promptly after it has reviewed all of the proposed terms and conditions of an alternative financing arrangement that will permit Substitute Obligors to pay when due the full Earnout Consideration, it shall immediately provide the Purchaser, Substitute Obligors and Senior Agent (as defined in the New Subordination Agreement) written notice of its agreement that the Substitute Obligors have obtained an alternative financing arrangement (which may include an amendment to the New Credit Agreement) to provide financing for the payment in full when due of the Earnout Consideration.

The parties to this letter agreement hereby further agree that notwithstanding anything to the contrary in the Acquisition Agreement or any other document,  the payment of the Earnout Consideration and the Estimated Earnout Payment shall be subject in all respects to the terms and provisions of the Subordination Agreement dated as of March       , 2006 (the “New

3

Subordination Agreement”) by and among LaSalle Bank National Association, CKLH and the Subordinated Creditors (defined therein),  and upon execution thereof, the terms and limitations contained in the Subordination Agreement dated as of June 28, 2005 (the “Prior Subordination Agreement”) by and among LaSalle Business Credit, LLC, CKLH and the Subordinated Creditors (as defined therein) shall be superseded in full.

Each of the Substitute Obligors hereby represents and warrants that the execution, delivery and performance of this letter and each of the agreements referenced herein or attached hereto, have been duly and validly authorized by all necessary action on its part, that no consent or authorization by any third party, not heretofore obtained, is required by such Substitute Obligor in order to make this letter a valid and binding obligation of such party except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) or to avoid a breach or default under any material note, instrument, agreement, mortgage, lease, license, franchise, permit to which such Substitute Obligor is a party or any of its assets or business is subject or by which such Substitute Obligor is bound. The Substitute Obligors further represent and warrant that immediately after giving effect to the forgoing assumption of the Assumed Obligations, the New Security Agreement Amendment and Release and the Guaranty Amendment and Release, the fair value of the assets of the Substitute Obligors and their subsidiaries on a consolidated basis, at a fair valuation on a going concern basis, will exceeds the debts and liabilities, as determined in accordance with GAAP, of the Substitute Obligors and their subsidiaries on a consolidated basis; the present fair saleable value of the assets of the Substitute Obligors and their subsidiaries on a consolidated basis, determined on a going concern basis, will be greater than the amount that will be required to pay the probable liability of the Substitute Obligors and their subsidiaries on a consolidated basis on their debts and other liabilities, as determined in accordance with GAAP, as such debts and other liabilities become absolute and matured; the Substitute Obligors and their subsidiaries on a consolidated basis will be able to pay their debts and liabilities, as determined in accordance with GAAP, as such debts and liabilities become absolute and matured; and the Substitute Obligors and their subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted after the date hereof.

This letter agreement shall be governed by, and be construed and interpreted in  accordance with, the law of the State of New York, without regard to conflict of laws provisions thereof.

Irrespective of whether the New Subordination Agreement, New Security Agreement Amendment and Release, the Guaranty Amendment and Release or the New Senior Credit Agreement (as defined below) or the transactions contemplated thereby are entered into or consummated as the case may be, each of the Substitute Obligors hereby agrees to pay all of CKLH’s reasonable attorneys fees and other reasonable out of pocket costs (in each case to the extent invoiced and promptly after review of such invoices) incurred in connection with (i) the review, negotiation and finalization of the New Subordination Agreement, the New Security Agreement Amendment and Release, the Guaranty Amendment and Release and the transactions contemplated thereby, and (ii) the review of all of the documents to be executed in connection with and the transactions contemplated by the Credit Agreement to be entered into concurrently

4

herewith by and among the Substitute Obligors, as borrowers, the subsidiaries of the foregoing borrowers from time to time party thereto, as guarantors, the financial institutions from time to time party thereto, as lenders, LaSalle Bank National Association, as administrative agent and arranger, Sovereign Bank, as syndication agent, and Bank of America, N.A., as documentation agent (the “New Credit Agreement”).

5

This letter agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of this letter agreement by telecopier (including Adobe Acrobat) shall be effective as delivery of a manually executed counterpart of this letter agreement.

			Very truly yours
			California KL Holdings, Inc., on behalf of itself and the Deferred Payoff Sellers
			By:	/s/ Michael Levin
				Michael Levin
				Chief Executive Officer
Accepted and Agreed.
Michael Levin, as Unitholders Representative
	By:	/s/ Michael Levin
	Michael Levin
Century Park Advisors, LLC, as Unitholders Representative
By:	/s/ Martin M. Jelenko
	Name: Martin M. Jelenko
	Russ Berrie and Company, Inc.
By:	/s/ John Wille
	John Wille,
	Vice President and Chief Financial Officer
Kids Line, LLC
By:	/s/ John Wille
	John Wille,
	Vice President, Treasurer and Assistant Secretary

California KL Holdings, Inc. Earnout Letter Signature Page

Sassy, Inc.
By:	/s/ John Wille
	John Wille,
	Vice President, Treasurer and Assistant Secretary

California KL Holdings, Inc. Earnout Letter Signature Page

EXHIBIT 1                     SUBORDINATED SECURITY AGREEMENT, AMENDMENT NUMBER ONE TO SUBORDINATED SECURITY AGREEMENT, AND AMENDMENT, REAFFIRMATION AND RELEASE      (SECURITY AGREEMENT)

EXHIBIT 2             GUARANTY AND AMENDMENT AND RELEASE (GUARANTY)

EX-4.17

Exhibit 4.17

FIRST AMENDMENT TO CREDIT AGREEMENT

This FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated as of April 11, 2006 and is entered into by and among Russ Berrie and Company, Inc. (the “Company”), Russ Berrie U.S. Gift, Inc., a Delaware corporation(“Russ Gift”), Russ Berrie & Co. (West), Inc. (“Russ West”), Russ Berrie and Company Properties, Inc. (“Russ Properties”), Russplus, Inc. (“Russplus”), and Russ Berrie and Company Investments, Inc. (“Russ Investments”) (Russ Gift, Russ West, Russ Properties, Russplus, and Russ Investments are sometimes referred to herein collectively as the “Borrowers” and individually as a “Borrower” and, together with the Company, being the “Credit Parties”), the financial institutions that are or may from time to time become parties hereto as “Lenders” (and each being a “Lender”), LASALLE BANK NATIONAL ASSOCIATION, in its capacity as “Issuing Bank,” and LASALLE BUSINESS CREDIT, LLC (in its individual capacity, “LaSalle”), as administrative agent (in such capacity, the “Administrative Agent”) for the Lenders.

RECITALS:

A.The Credit Parties, the Administrative Agent, the Lenders and the Issuing Bank (collectively, the “Parties”) have entered into that certain Credit Agreement dated as of March 14, 2006 (as the same may have been or may hereafter be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”).

B.The Parties desire to enter into this Amendment to modify certain of the terms and provisions of the Credit Agreement.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and subject to the terms and conditions set forth herein, the Parties hereby agree as follows:

AGREEMENTS:

SECTION  1           DEFINITIONS. Unless otherwise defined herein, capitalized terms used in this Amendment shall have the meanings ascribed to such terms in the Credit Agreement.

SECTION  2           AMENDMENTS. Subject to the satisfaction of the conditions precedent set forth herein, Section 11.13.2 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“11.13.2Minimum EBITDA. Not permit EBITDA for the following periods ending as of the last day of the following Fiscal Quarters, to be less than the respective amounts set forth below:

Period ending:	Minimum EBITDA
One Fiscal Quarter period ending March 31, 2006	$	(7,500,000	)
Two Fiscal Quarter period ending June 30, 2006	$	(15,200,000	)
Three Fiscal Quarter period ending September 30, 2006	$	(12,100,000	)
Computation Periods ending as of the last day of each of the following Fiscal Quarters:
December 31, 2006	$	(12,100,000	)
March 31, 2007	$	(7,800,000	)
June 30, 2007	$	(4,800,000	)
September 30, 2007	$	(3,000,000	)
December 31, 2007	$	1,500,000
March 31, 2008 and each Fiscal Quarter ending thereafter	$	4,000,000	.”

SECTION  3           CONDITIONS; REPRESENTATIONS AND WARRANTIES. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent (unless specifically waived in writing by the Administrative Agent):

3.1The Administrative Agent shall have received fully executed copies of this Amendment executed by each of the Credit Parties, the Lenders and the Issuing Bank.

3.2No Event of Default or, except as previously disclosed by the Credit Parties to the Administrative Agent in that certain letter dated as of April 3, 2006, Unmatured Event of Default has occurred and is continuing.

3.3As of the effective date of this Amendment, all representations and warranties of the Credit Parties set forth herein shall be true and correct, and all representations and warranties of the Credit Parties set forth in the Credit Agreement shall be true and correct in all material respects (or, with respect to those representations and warranties expressly limited by their terms by materiality or material adverse effect qualifications, all respects) and shall be deemed remade on such date, except to the extent any such representation and warranty expressly relates to an earlier date, in which case such representation and warranty shall be true and correct in all material respects (or, with respect to those representations and warranties expressly limited by their terms by

2

materiality or material adverse effect qualifications, all respects) as to the date to which it relates.

3.4All proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be reasonably satisfactory to the Administrative Agent.

SECTION 4REAFFIRMATION.

Each of the Credit Parties hereby expressly reaffirms and assumes all of their obligations and liabilities to the Administrative Agent, the Lenders and the Issuing Bank as set forth in the Credit Agreement and the other Loan Documents and agree to be bound by and abide by and operate and perform under and pursuant to and comply fully with all of the terms, conditions, provisions, agreements, representations, undertakings, warranties, indemnities, grants of security interests and covenants contained in the Credit Agreement and the other Loan Documents, as such obligations and liabilities may be modified by this Amendment, as though the Credit Agreement and the other Loan Documents were being re-executed on the date hereof, except to the extent that such terms expressly relate to an earlier date. The Borrowers hereby ratify, confirm and affirm without condition, all liens and security interests granted to the Administrative Agent pursuant to the Credit Agreement and the other Loan Documents and such liens and security interests shall continue to secure the Obligations under the Credit Agreement as amended by this Amendment, and all extensions, renewals, refinancings, amendments or modifications of any of the foregoing.

SECTION 5GENERAL PROVISIONS.

5.1No Changes. Except as expressly provided in this Amendment, the terms and provisions of the Credit Agreement shall remain in full force and effect and are hereby affirmed, confirmed and ratified in all respects.

5.2Fees and Costs. The Borrowers hereby jointly and severally agree to reimburse the Administrative Agent for all of its reasonable out-of-pocket legal fees and expenses incurred in the preparation and documentation of this Amendment and related documents.

5.3Governing Law. This Amendment shall be construed in accordance with and governed by the internal laws (without regard to the conflicts of law provisions, other than Section 5-1401 of the New York General Obligations Law) of the State of New York.

5.4Counterparts. This Amendment may be executed in one or more counterparts, each of which shall constitute an original, but all of which taken together shall be one and the same instrument. This Amendment may also be executed by facsimile and each facsimile signature hereto shall be deemed for all purposes to be an original signatory page.

5.5References. On or after the effective date hereof, each reference in the Credit Agreement to this “Agreement,” “hereof,” “herein”  or words of like import and

3

all references to the Credit Agreement in any other agreement, shall in either case unless the context otherwise requires, be deemed to refer to the Credit Agreement as amended hereby.

5.6Successors. This Amendment shall be binding on and inure to the benefit of the Parties hereto and their respective successors and assigns.

5.7Section Headings. Section headings used in this Amendment are for convenience of reference only and shall not affect the construction of this Amendment.

[Remainder of Page Intentionally Left Blank]

4

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered as of the date first written above.

CREDIT PARTIES:
RUSS BERRIE AND COMPANY, INC., a New Jersey corporation, as the Loan Party Representative
By:	/s/ John D. Wille
Name: John D. Wille
Title: Vice President and Chief Financial Officer
RUSS BERRIE U.S. GIFT, INC., a Delaware corporation
By:	/s/ John D. Wille
Name: John D. Wille
Title: Vice President and Chief Financial Officer
RUSS BERRIE & CO. (WEST), INC., a California corporation
By:	/s/ John D. Wille
Name: John D. Wille
Title: Vice President and Chief Financial Officer
RUSS BERRIE AND COMPANY PROPERTIES, INC., a New Jersey corporation
By:	/s/ John D. Wille
Name: John D. Wille
Title: Vice President and Chief Financial Officer

5

RUSSPLUS, INC., a New Jersey corporation
By:	/s/ John D. Wille
Name: John D. Wille
Title: Vice President and Chief Financial Officer
RUSS BERRIE AND COMPANY INVESTMENTS, INC., a New Jersey corporation
By:	/s/ John D. Wille
Name: John D. Wille
Title: Vice President and Chief Financial Officer

6

ADMINISTRATIVE AGENT:
LASALLE BUSINESS CREDIT, LLC, as Administrative Agent
By:	Peter M. Walther
Name: Peter M. Walther
Title: Vice President
ISSUING BANK:
LASALLE BANK NATIONAL ASSOCIATION, as Issuing Bank
By:	Peter M. Walther
Name: Peter M. Walther
Title: Vice President

7

EX-21.1

EXHIBIT 21.1

LIST OF SUBSIDIARIES OF RUSS BERRIE AND COMPANY, INC.

COMPANY NAME	JURISDICTION OF ORGANIZATION
Russ Berrie and Company, Inc.	New Jersey
Russ Berrie U.S. Gift, Inc.	Delaware
Russ Berrie & Co. (West), Inc.	California
Russ Berrie and Company Investments, Inc.	New Jersey
Russ Berrie and Company Properties, Inc.	New Jersey
BOA Done, Inc. (inactive)	West Virginia
Amram’s Distributing Ltd.	Canada
Russplus, Inc.	New Jersey
P/F Done, Inc. (inactive)	Pennsylvania
Fluf N’ Stuf, Inc. (inactive)	Pennsylvania
RBTACQ, Inc. (inactive)	Ohio
RBCACQ, Inc. (inactive)	California
Sassy, Inc.	Illinois
Kids Line, LLC	Delaware
Kids Line Australia Pty Ltd.	Victoria, Australia
Tri Russ International (Hong Kong) Limited	Hong Kong
Russ Consulting Service (Shenzhen) Co., Ltd.	People’s Republic of China
Russ Berrie (U.K.) Limited	England
Russ Berrie (Holdings) Limited	England
Russ Berrie España, S.L.	Spain
Russ Berrie (Deutschland) GmbH	Germany
Russ Berrie (Österreich) GmbH	Austria
Russ Berrie France S.A.R.L.	France
Russ Berrie (Benelux) B.V.	Holland
Russ Berrie (Ireland) Limited	Ireland
Russ Australia Pty Limited	New South Wales, Australia

1

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Russ Berrie and Company, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 2-96238, 2-96239, 2-96240, 33-10779, 33-26161, 33-27406, 33-27897, 33-27898, 33-51823, 333-70081, 333-76248 and 333-111853) on Form S-8, of Russ Berrie and Company, Inc. and subsidiaries of our reports dated April 13, 2006, with respect to the consolidated balance sheets of Russ Berrie and Company, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, and the related financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005 Annual Report on Form 10-K of Russ Berrie and Company, Inc.

Our report dated April 13, 2006, on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting as of December 31, 2005, expresses our opinion that Russ Berrie and Company, Inc. did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of the material weakness on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states that there was a material weakness as of December 31, 2005 as a result of the Company not maintaining sufficient personnel resources with the requisite technical accounting and financial reporting expertise.

/s/ KPMG LLP

Short Hills, New Jersey

April 13, 2006

1

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Andrew Gatto, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2005 of Russ Berrie and Company, Inc.

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

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

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

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date:  April 13, 2006	/s/ ANDREW GATTO
	Andrew Gatto
	President and Chief Executive Officer

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

1

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, John Wille, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2005 of Russ Berrie and Company, Inc.

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

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

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

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

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date:  April 13, 2006	/s/ JOHN D. WILLE
	John D. Wille
	Vice President and Chief Financial Officer

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

1

EX-32.1

Exhibit 32.1

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

In connection with the annual report of Russ Berrie and Company, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew Gatto, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

April 13, 2006

/s/ ANDREW GATTO

Andrew Gatto  President and
Chief Executive Officer

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

EX-32.2

Exhibit 32.2

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

In connection with the annual report of Russ Berrie and Company, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Wille, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date: April 13, 2006

/s/ JOHN D. WILLE

John D. Wille

Vice President and Chief Financial Officer

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