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
a
