SEVENTH AMENDMENT AND TERMINATION AGREEMENT

 

                                                                    EXHIBIT 99.1

 

                   SEVENTH AMENDMENT AND TERMINATION AGREEMENT

 

 

     This Seventh Amendment and Termination Agreement (the "Agreement"), dated

this __ day of May, 2005, between PRECIOUS MOMENTS, INCORPORATED, an Illinois

corporation ("Licensor" or "PMI"), and ENESCO GROUP, INC., an Illinois

corporation ("Licensee" or "Enesco"), is to evidence:

 

     WHEREAS, pursuant to a License Agreement dated July 1, 1993 (the "License

Agreement"), Licensor granted Enesco Corporation, an Ohio corporation ("Enesco

Ohio"), certain rights with respect to the PRECIOUS MOMENTS property; and

 

     WHEREAS, the License Agreement was amended by First Amendment dated

December 29, 1997, effective January 1, 1998, and by Second Amendment dated

January 22, 1999, effective January 1, 1999; and

 

     WHEREAS, Enesco Ohio assigned the License Agreement to Licensee effective

January 21, 2000; and

 

     WHEREAS, since the License Agreement was signed, UNITED FEATURE SYNDICATE,

INC., d.b.a UNITED MEDIA has become the exclusive, worldwide licensing

representative of Licensor; and

 

     WHEREAS. The License Agreement was further amended by a Third Amendment

dated July 30, 2001, Fourth Amendment dated December 19, 2002, Fifth Amendment

dated May 5, 2003 and Sixth Amendment dated September 24, 2004 (the term

"License Agreement" as used herein shall mean the July 1, 1993 License Agreement

together with all amendments thereto); and

 

     WHEREAS, the parties wish to amend the License Agreement in certain

respects, including for the purpose of terminating the License Agreement in

accordance with the terms of this Agreement; and

 

     WHEREAS, capitalized terms used herein and not otherwise defined shall have

the same meaning as set forth in the License Agreement;

 

     NOW, THEREFORE, the License Agreement is amended and terminated and the

Business (as such term is hereinafter defined in Section 1.12) will be

transferred to PMI as follows:

 

     1. ESTIMATED TIMELINE.

 

     1.1 Term Sheet. PMI and Enesco entered into term sheet in February 2005

describing the proposed License Agreement release terms (the "Term Sheet").

Between the date of the Term Sheet and the date of this Agreement, the parties

have been using their best efforts to proceed with the following transactions

contemplated by this Agreement: (a) the amendment of the License Agreement as

provided in Section 2 and (b) the transition of the responsibilities for the

manufacturing, exporting, importing, distributing, marketing and selling the

Licensed Products of PMI (the "Business") from Enesco to PMI as provided in

Section 3 and the termination of the License Agreement. The parties agree the

Term Sheet shall have no force or effect.

 

     1.2 Agreement Execution. With the execution of this Agreement, the parties

will make a public announcement mutually agreed to by the parties regarding the

transactions contemplated by this Agreement as described in Section 1.1 above

and their expectation of completing the Transition (as such term is hereafter

defined in Section 4.1B) by no later than July 1, 2005 as provided in Section 3.

 

 

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     1.3 Transitional Services. Following the Transition Date (as such term is

hereinafter defined in Section 3.1), Enesco has agreed to provide certain

on-going services to PMI with respect to the Business on an as-needed basis

through December 31, 2006 as provided in the Transitional Services Agreement

attached as Exhibit A hereto (the "Transitional Services Agreement").

 

     1.4 Release of Certain Liens. Notwithstanding the foregoing, the parties

agree that this Agreement will be of no force and effect unless and until Enesco

obtains appropriate releases from its lenders related to the Acquired Assets to

be sold to PMI and such lenders consent to this Agreement.

 

     2. AMENDMENTS TO LICENSE AGREEMENT.

 

     2.1 2004 Royalty Payments. Enesco will make all royalty payments owed for

periods ending on or prior to December 31, 2004, including, but not limited to,

the 2004 Difference Payment of $7,170,410.44. Subparagraph 4(c) of the License

Agreement is amended to provide that the 2004 Difference Payment will be payable

$1,800,000 on March 31, 2005 which the parties acknowledge has been made,

$1,790,136.81 on July 1, 2005, $1,790,136.81 on October 1, 2005 and

$1,790,136.82 due on January 2, 2006. Upon any failure to pay such amounts when

due, such past due amounts will, after a three business day cure period, bear

interest at the annual rate of 18%.

 

     2.2 2005, 2006, 2007 Royalty Payments. Subparagraph 4(c) of the License

Agreement is amended to provide that the Annual Minimum Royalty for 2005 shall

be decreased from $15,000,000 to $4,000,000 and the Annual Minimum Royalty of

$15,000,000 for each of 2006 and 2007 is decreased to zero ($0). Royalty

payments for 2005 will be based upon payment of the higher of actual earned

royalties or the Annual Minimum Royalty calculated in accordance with the terms

of the License Agreement (as modified by the preceding sentence). The Annual

Minimum Royalty of $4,000,000 will be payable in quarterly installments as

follows: (a) $2,000,000 on March 31, 2005 which the parties acknowledge has been

made and (b) $2,000,000 on July 1, 2005. If the actual earned royalties for 2005

exceed the Annual Minimum Royalty paid for such six-month period, Enesco shall

pay PMI the Difference Payment within 90 days of the Transition Date. Upon any

failure to pay such amounts when due, such past due amounts will, after a three

business day cure period, bear interest at the annual rate of 18%.

 

     2.3 Termination of the License Agreement and Release.

 

     2.3.1 Paragraph 13 of the License Agreement is amended to provide that as

of the Transition Date the License Agreement hereby terminates. Only Section

12(a) of the License Agreement (limited to third party claims) and Section 15 of

the License Agreement (other than the sell-off right and references within such

section to other portions of the License Agreement) will survive this

termination. Sections, 2, 4.3, 4.4, 4.6, 4.10, 4.11, and 5 of this Agreement

will survive any termination or expiration hereof.

 

     2.3.2 (a) Upon the Transition Date, PMI expressly and completely releases

and forever discharges Enesco and its affiliates and parent corporations, their

administrators, successors, assigns, insurers, officers, directors, employees,

legal representatives and agents (collectively "Enesco Group") from liability

for any and all claims, costs, causes of action, damages, losses, obligations,

or liabilities of any nature whatsoever at law or in equity, past or present

whether or not now or heretofore known, suspected, or claimed against Enesco

Group arising out of or related to the License Agreement, or Enesco Group's

breach, performance or lack of performance under the License Agreement (the "PMI

Released Claim"), other than claims relating to this Agreement or to the

portions of the License Agreement which survive as set forth in Section 2.3.1

above.

 

 

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     (b) Upon the Transition Date, Enesco expressly and completely releases and

forever discharges PMI and its affiliates and parent corporations, their

administrators, successors, assigns, insurers, officers, directors, employees,

legal representatives and agents (collectively "PMI Group") from liability for

any and all claims, costs, causes of action, damages, losses, obligations, or

liabilities of any nature whatsoever at law or in equity, past or present

whether or not now or heretofore known, suspected, or claimed against PMI Group

arising out of or related to the License Agreement, or PMI Group's breach,

performance or lack of performance under the License Agreement (the "Enesco

Released Claim"), other than claims relating to this Agreement or to the

portions of the License Agreement which survive as set forth in Section 2.3.1

above.

 

     2.3.3 Each party covenants and agrees that it, its successors, assigns,

legal representatives and agents will not sue, institute, cause to institute,

assist in instituting any proceeding in any court or governmental agency against

the other to charge it with liability for or to recover any compensation or

money from Enesco Group or PMI Group, respectively, related to or arising from

the PMI Released Claim or the Enesco Released Claim, as applicable.

 

     2.3.4 Each party understands that each of Enesco Group and PMI Group,

hereby released, admits no liability or wrongdoing of any sort for any claims,

costs, causes of action, demands, losses, damages, obligations, or liabilities

of any nature whatsoever at law or in equity, past or present, which may be

claimed against Enesco Group or PMI Group, respectively, including, but not

limited to, the PMI Released Claim and Enesco Released Claim, respectively, and

any and all claims related to claims set forth in all previous correspondence

between PMI and Enesco Group.

 

     2.3.5 Each party warrants and represents that it has neither made nor

suffered to be made any assignment or transfer of any right, claim, demand or

cause of action covered by this release or related to or arising from the Enesco

Released Claim, in the case of Enesco and the PMI Released Claim, in the case of

PMI and that Enesco is the sole, absolute and equitable owner of the Enesco

Released Claim, and PMI is the sole, absolute and equitable owner of the PMI

Released Claim..

 

     3. TRANSITION OF THE BUSINESS.

 

     3.1 Completion of the Transition of the Business. Enesco and PMI have

agreed to complete the Transition on July 1, 2005 (the "Transition Date"). On

and after the Transition Date, the License Agreement shall terminate as provided

in Section 2.3.1.

 

     3.2 Parties' Responsibilities With Respect to the Transition of the

Business.

 

     3.2.1 From and after the date of this Agreement until the Transition Date,

Enesco and PMI will each cooperate in good faith with the other to prepare for

the Transition on the Transition Date. Following execution of this Agreement and

continuing during the Transition Period (as defined in the Transitional Services

Agreement), PMI will be given reasonable access during regular business hours at

Enesco at mutually agreed upon times for the purpose of preparing for the

Transition, including access to: (i) relevant Enesco reports and other documents

concerning the Business, (ii) Licensed Products, (iii) suppliers of the Business

and (iii) Enesco's Precious Moments customers and sales personnel. Preparation

for the Transition includes, but is not limited to, the following:

 

 

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     (a) provision of existing purchase order information in a format mutually

agreed upon by the parties.

 

     (b) allowing PMI to have reasonable access to records relating to customers

of the Business, suppliers, inventory and Licensed Products (subject to

applicable legal restrictions on confidentiality of confidential information).

 

     (c) upon request from PMI, relocating Licensed Product Inventory (as

defined in Section 4.1.1) from Enesco's warehouse to a warehouse owned by PMI;

provided, all risk of loss relating to such inventory shall transfer to PMI

immediately upon departure from Enesco's warehouse and such transfer will be

made at PMI's sole expense, excluding costs for palletizing and loading that

Licensed Product Inventory.

 

     3.2.2 Until the Transition Date, Enesco shall conduct the Business in the

ordinary course of business consistent with past practices. Specifically, and in

keeping with the preceding sentence, Enesco:

 

     (a) will continue to operate the Business consistent with Enesco's past

practices, including but not limited to, activities with respect to Licensed

Product development, pricing, marketing initiatives and pick, pack and shipping

operations and procurement (i.e., subject to Section 3.2.2A below, Enesco will

continue to order inventory in the ordinary course of business consistent with

past practices);

 

     (b) will not make adjustments in the timing of Licensed Product Inventory

shipments outside of the ordinary course of business, including but not limited

to directing vendors to change deliveries scheduled before the Transition Date

to after the Transition Date;

 

     (c) shall not engage in any activity with respect to the Licensed Products

and the Business that could reasonably be expected to harm the Precious Moments

brand, the Licensed Products and their future marketability, including, but not

limited to, any of the following: (i) bulk sales of inventory, (ii) loading the

trade through discounts, (iii) dating or other terms, (iv) other discounting, or

(v) directions to the sales force to limit or otherwise change their marketing

efforts with respect to the Licensed Products;

 

     (d) except as otherwise requested by PMI in writing, shall use commercially

reasonable efforts to (i) maintain intact and preserve the business organization

material to the Business, (ii) retain the employees specified in Schedule 3.2.5

who are material to the Business so that they will be available to PMI after the

Transition Date and (iii) continue all current sales, marketing and promotional

activities relating to the Business consistent with past practices;

 

     (e) shall not (i) sell, dispose or abandon any of the Acquired Assets

except in the ordinary course of the Business and consistent with past practices

or (ii) incur any Lien on any of the Acquired Assets except in the ordinary

course of the Business and consistent with past practices, subject to the

release thereof as required by Section 4.1; and

 

     3.2.2A Notwithstanding the foregoing, after execution of this Agreement,

Enesco will make no order of Licensed Product Inventory which is not likely to

be shipped until 2006 and will not be responsible for marketing or product

development of Licensed Product which is not likely to be shipped until 2006.

 

 

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     3.2.3 From and after the date hereof until the Transition Date PMI shall

have the right, using reasonable business judgment, to approve any major

business initiatives and/or programs relating to the Licensed Products and the

Precious Moments brand if those initiatives or decisions are different from

Enesco's past practices. Enesco shall have the right to examine PMI's business

plan for 2005 to the extent such plan involves the on-going use of the Enesco

name.

 

     3.2.3A Enesco will use commercially reasonable efforts on mutually

agreeable terms to separate out by June 1, 2005 non-EDI orders having a

requested shipment date of on or after the Transition Date.

 

     3.2.4 Enesco and PMI will agree upon a transition team (the "Transition

Team") whose responsibilities will include finalizing the timetable and

identifying and implementing all actions necessary to complete a successful

transition of the Business. The members of the Transition Team are set forth on

Schedule 3.2.4 hereto. From the date hereof through the Transition, Enesco will

provide PMI with access to and the right to participate in the weekly scheduled

meetings/calls with Enesco regional sales managers. PMI will, for items included

on that meetings agenda, be free to follow up with individual sales personnel

individually. For non-agenda items, PMI may call and meet with Precious Moments

sales force (consisting of national account executives, regional sales managers

and individual sales representatives) provided PMI notifies Enesco before such

meetings and PMI provides Enesco a reasonable opportunity to participate in that

meeting and provided PMI agrees to honor Enesco's reasonable requests relating

to the timing, frequency and subject matter of such meetings/calls. PMI

personnel may accompany Enesco national account executives on sales calls for

the purpose of meeting customers of Licensed Product. During the term of this

Agreement, Enesco will give PMI reasonable access to the broadcast function of

Enesco's voice mail system. PMI will copy Cynthia Passmore on all those messages

and on any mass mailings, electronic or otherwise, to Enesco's sales force.

Similarly, Enesco will copy Dan Huwel and John Brooks on any broadcast voice

mail message or mass mailing, including electronic mass mailings, excluding

those messages which are not product oriented and do not involve the Business.

Each party agrees for itself and its agents to maintain as strictly confidential

and not to use or disclose any information of the other party received pursuant

to the access to Enesco's internal communications granted in this Section and

elsewhere in this Agreement

 

     3.2.5 Subject to the provisions of this Section, from and after the date of

this Agreement PMI shall have the right to contact and solicit for employment

only those Enesco employees and former employees listed on Schedule 3.2.5

("Approved Employees"). Enesco agrees to release (a) any Approved Employees and

(b) other employees or former employees or independent contractors of Enesco who

Enesco subsequently approves for hiring or engaging by PMI who are, in fact,

hired or engaged by PMI from any non-competition or similar covenants that would

preclude such employees from working for or providing services to PMI.

 

     3.2.6 During the period from the date of execution of this Agreement to the

Transition Date and provided PMI executes any confidentiality agreement

reasonably requested by Enesco to preserve the non-public nature of such

information under Regulation FD, Enesco shall promptly notify PMI of the

following to the extent material to the Business:

 

     (a) any notice or other communication from any person alleging that the

consent of such person is or may be required in connection with the transactions

contemplated by this Agreement;

 

     (b) any notice or other communication from any governmental or regulatory

agency or authority in connection with the transactions contemplated by this

Agreement;

 

 

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     (c) any actions, suits, charges, complaints, claims, investigations or

proceedings commenced or, to the best of Enesco's knowledge, threatened against,

relating to, involving or otherwise affecting, the Business which, if pending on

the date of this Agreement, would have been required to have been disclosed

pursuant to Section 4.7.5 or which relate to the consummation of the

transactions contemplated by this Agreement;

 

     (d) any material adverse change in the Business, the Acquired Assets,

condition (financial or otherwise), operations or prospects of the Business or

of any event that would materially impair Enesco's ability to perform its

obligations under this Agreement;

 

     (e) the occurrence or non-occurrence of any event, of which Enesco has

knowledge, the occurrence or non-occurrence, of which would be likely to cause

any representation or warranty contained in this Agreement to be untrue or

inaccurate in any material respect at or prior to the Transition Date; or

 

     (f) any material failure on its part to comply with or satisfy any

covenant, condition or agreement to be complied with or satisfied by it

hereunder.

 

The delivery of any notice pursuant to this Section 3.2.6 shall not limit or

otherwise affect the remedies available hereunder to either party.

 

     3.2.7 Reserved.

 

     3.2.8 With respect to (i) Assigned Contracts (as defined in Section 4.1.11)

for which third consents are necessary to assign but have not been obtained by

the Transition Date and (ii) other agreements and contracts relevant to the

Business but which are not included within the Assigned Contracts, upon request

from PMI, Enesco agrees use its commercially reasonable efforts to provide

introductions to relevant contract parties in assisting PMI to obtain

replacement contracts. The failure to obtain such replacement contracts shall

not be deemed a breach of this Agreement or a failure to consummate the

Transition. In addition, Enesco will use its commercially reasonable efforts to

provide an introduction to Walt Disney Corporation relating to PMI entering into

a relationship with such company similar to Enesco's relationship with such

company.

 

     4. ENESCO TRANSFER OF THE BUSINESS TO PMI. In consideration for PMI's

payment of cash consideration referenced in Section 4.1B.2 below and PMI's

agreement to the amendments and termination of the License Agreement and the

adjustments in royalties contemplated in Sections 2.1 and 2.2 above, on the

Transition Date Enesco agrees to transfer the Business and the Acquired Assets

to PMI in accordance with the provisions of this Section 4.

 

     4.1 Acquired Assets. On the terms and subject to the conditions set forth

in this Section 4, Enesco will transfer, convey, assign and deliver to PMI on

the Transition Date all of the right, title and interest in, to and under all

the assets set forth below (collectively, the "Acquired Assets"), free and clear

of all mortgages, liens, security interests, encumbrances, claims, charges and

restrictions of any kind or character (collectively, "Liens"); provided,

however, the Acquired Assets shall not include any accounts receivable of the

Business as provided in Section 4.1A. The Acquired Assets shall consist of the

following:

 

 

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     4.1.1 All Licensed Product inventory ("Licensed Product Inventory") as of

the Transition Date owned by Enesco (i.e., excluding any inventory for which

title is owned by NC Cameron (a Canadian subsidiary of Enesco) and Enesco

Limited (a United Kingdom subsidiary of Enesco), other than inventory

transferred to those subsidiaries after the date hereof out of the ordinary

course of business). The parties acknowledge nothing in this Agreement affects

inventory owned by distributors which are not subsidiaries of Enesco. Schedule

4.1.1 hereto contains Enesco's Licensed Product Inventory as of the date of this

Agreement, including, but not limited to, the inventory for the Precious Moments

Clubs (as such term is hereinafter defined in Section 4.1.6) and any other

Licensed Products Inventory whether or not included on Enesco's balance sheet,

which Schedule will be updated by Enesco as of the Transition Date for the

Licensed Product Inventory included in the Acquired Assets. PMI shall have the

right at any time after the date of this Agreement to audit and verify the

Licensed Product Inventory at its sole expense by providing Enesco with seven

business days prior notice thereof. The parties currently intend to negotiate

distribution agreements by and between NC Cameron and Enesco Limited,

respectively, on the one hand and PMI on the other hand on or before the

Transition Date. Under those distribution agreements, Precious Moments products

manufactured in Asia will be sold, port of embarkation, to NC Cameron and Enesco

Limited by PMI at PMI's cost, plus twenty percent (20%). The parties will

negotiate pricing applicable to purchases by NC Cameron and Enesco Limited for

replenishment product not sourced from Asia.

 

     4.1.2 Historical archives of Licensed Products.

 

     4.1.3 The Precious Moments bronze statue in Enesco's lobby.

 

     4.1.4 Collateral marketing and promotional materials, including, but not

limited to, display materials.

 

     4.1.5 Customer lists and records for all Business customers only as they

relate to the purchase of Licensed Products, excluding, however, records related

to Wal-Mart and subject to applicable legal requirements relating to the

transfer of personal or confidential information;

 

     4.1.6 Subject to the provisions of Section 4.2, to the extent allowed by

law, lists ("Precious Moments Club Lists") of all current and past members of

the Precious Moments Collectors Club and Precious Moments Fun Club ("Precious

Moments Clubs"), including names, addresses and any other contact information

maintained by Enesco with respect to members of the Precious Moments Clubs.

 

     4.1.7 Those warehouse bins (and related equipment) currently being utilized

to ship Licensed Products; provided, PMI agrees that not all such bins/equipment

shall be included and PMI and Enesco shall reasonably agree prior to the

Transition Date which bins/equipment will be included consistent with prior

discussions.

 

     4.1.8 Copies of all PMI historical reports and records of the Licensed

Products, including, but not limited to, financial reports, sales reports and

customer research.

 

     4.1.10 All artwork and designs relating to all past, present and currently

being developed Licensed Products, which shall include, but not be limited to,

(a) all artwork and photographs related the development of Licensed Products

(all line drawings, painted or otherwise, pictures of clay sculptures, fired

porcelain bisque samples and photographs thereof), (b) all photographs in

Enesco's archives of all past, present and currently being developed Licensed

Products and (c) images libraries maintained by Enesco's creative services

department and by Occozzio in Augusta, Georgia.

 

 

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     4.1.11 Subject to the provisions of Section 4.5 below, an assignment of the

contracts, agreements and arrangements to which Enesco is a party relating to

the Business and listed individually or by category on Schedule 4.1.11 hereto

("Assigned Contracts").

 

     4.1.12 any toll-free phone number relating only to the Precious Moments

Clubs.

 

     4.1.13 Subject applicable privacy laws, the registration cards (and any

related databases created therefrom) received by Enesco in connection with

Licensed Product Inventory.

 

     4.1A Excluded Assets. Notwithstanding the foregoing and for the avoidance

of doubt, the term Acquired Assets will not include any accounts receivable or

other receivable arising prior to the Transition Date. For purposes of this

Agreement an account receivable will be deemed to have arisen on the date of

shipment of Licensed Product for which such account receivable relates.

 

     4.1B Business Transition. The consummation of the transition of the

Business as contemplated by this Agreement (the "Transition") shall take place

at the office of Wildman, Harrold, Allen & Dixon LLP, 225 West Wacker Drive,

Suite 3000, Chicago, Illinois 60606 on the Transition Date. The Transition shall

consist of the following deliveries by the parties.

 

     4.1B.1 Deliveries of Enesco. On the Transition Date, Enesco shall deliver

to PMI the following documents:

 

     (a) a Bill of Sale duly executed by Enesco in form sufficient to transfer

title to the Acquired Assets to PMI in form and substance reasonably acceptable

to the parties; and

 

     (b) an Assignment and Assumption Agreement duly executed by Enesco

assigning the Assigned Contracts to PMI in form and substance reasonably

acceptable to the parties (the "Assignment and Assumption").

 

For the avoidance of doubt, the parties acknowledge and agree that Enesco's

obligation to consummate the Transition will be deemed to have been completed

upon delivery of the items set forth above. Any breach of Enesco's other

obligations under this Agreement may give rise to indemnity or other claims

under this Agreement but will not be deemed to result in a failure on the part

of Enesco to consummate the Transit