KID BRANDS, INC

With respect to the foregoing, on May 19, 2014 the Lead Borrower received a notice of default and reservation of rights letter (the “Reservation of Rights Letter”) from the Agent. Pursuant to the Reservation of Rights Letter, the Agent informed the Borrowers that there are a number of failures of conditions to lending and events of default existing under the Credit Agreement and that effective immediately, all Loans under the Credit Agreement will bear interest at the default rate set forth in the Credit Agreement. Further, the Reservation of Rights Letter specifies that the Borrowers comply with certain requirements, including, without limitation, the immediate retention of a financial advisor and investment banker in order to prepare their assets and businesses for sale, and delivery of weekly rolling 13-week cash flow forecasts. According to the Reservation of Rights Letter, the Agent and the Lenders are presently evaluating all available courses of action that may be available under the Credit Agreement, law or in equity with respect to the existing events of default, such that their voluntary forbearance does not constitute a waiver of such events of default, and the Agent and Lenders expressly reserve all such rights and remedies with respect thereto. The Reservation of Rights Letter also indicates that while the Lenders are not obligated to make additional loans or otherwise extend credit to the Borrowers, to the extent a Lender makes any such loans or extensions of credit, such loans or extensions of credit shall be made at such Lender’s sole discretion, and shall not prevent such Lender from ceasing to make additional loans or other extensions of credit, or to exercise any rights or remedies.

The Company received a notice of breach dated April 25, 2014 from Serta, Inc. (“Serta”), with respect to the January 1, 2009 Trademark License Agreement between Serta and LaJobi resulting from LaJobi’s failure to fulfill shipments of certain licensed goods to Serta’s customers due to outstanding subcontractor invoices. The notice requires the breaches to be cured within 30 days from the date of the notice, in the manner specified therein to avoid termination of the license. Further, on May 14, 2014, the Company received a notice of amendment and material breach from The William Carter Company (“Carter’s”) with respect to the January 1, 2011 Amended and Restated License Agreement between Carter’s and Sassy, resulting from a late royalty payment (which was cured prior to receipt of the notice), and breaches arising from the cessation of certain shipping and distribution activities. The Carter’s notice also removes certain trademarks from the list of licensed trademarks under the agreement and certain accounts from the list of approved distribution channels. If either of these agreements is terminated, it is likely to have a material adverse effect on the Company’s financial condition and results of operations, and cause us to become bankrupt or insolvent.

^{As previously disclosed, as a result of the continued unprofitability of this business over recent periods, and in connection with the Company’s review of strategic and financing alternatives, the Board of Directors of the Company authorized the Company’s management to implement the suspension of LaJobi’s wood furniture operations. Management authorized the suspension as of May 22, 2014, and in connection therewith, terminated on such date (on mutually agreed terms), a related license agreement with Graco Children’s Products, Inc., including an immediate waiver of LaJobi’s obligation to pay additional guaranteed royalties. The suspension is expected to be completed during the third quarter of 2014, by which time the sell-down of remaining inventory under the Graco®} license is expected to be complete. LaJobi’s warehouse and corporate office lease expires in July 2014 and will not be renewed. In connection with these actions, the Company currently estimates that it will incur total costs of approximately $0.7 million, consisting primarily of the following: one-time termination benefits of approximately $0.2 million; the write-off of certain prepaid expenses in the approximate amount of $0.2 million; the write-off of fixed assets in the approximate amount of $0.1 million; and aggregate other expenses in the approximate amount of $0.2 million. The Company anticipates that approximately all of the $0.7 million in costs described above will be recognized as expenses in the second quarter of 2014, and cash expenditures in connection therewith are expected to be paid in the second and third quarters of 2014.

At March 31, 2014 and December 31, 2013 our cash and cash equivalents were $0.3 million and $0.2 million, respectively, our revolving loan availability was $0.9 million and $4.9 million, respectively, and such availability is currently expected to remain very tight for the remainder of 2014. As a result, the Company has had insufficient capital resources to satisfy outstanding payment obligations to certain of its suppliers/manufacturers and other service providers (in an aggregate amount of approximately $16.5 million), several of which have demanded payment in writing, are refusing to ship product, are requiring payment in advance of shipment or production, and/or are otherwise threatening to take action against the Company, including terminating their relationship with the Company and/or initiating legal proceedings for amounts owed (one such supplier has filed a complaint and another has made a demand for arbitration, as is described in Note 10 to the Notes to Unaudited Consolidated Financial Statements). In connection with these events, the Company received a notice of breach dated April 25, 2014 from one of LaJobi’s material licensors claiming that LaJobi failed to ship licensed goods to the licensor’s customers as a result of outstanding subcontractor invoices. All of the foregoing circumstances (referred to collectively as the “Events of Default”) constituted or may have constituted failures of conditions to lending and/or events of default under the Credit Agreement. Accordingly, the Borrowers, the Agent and the Required Lenders executed a Waiver and Fifth Amendment to Credit Agreement as of May 14, 2014 (“Amendment No. 5”), to waive any failures of conditions to lending and events of default resulting from the Events of Default. In addition, in order to increase the amount of eligible receivables under the Tranche A borrowing base, Amendment No. 5 further reduces the availability block from $3.5 million to $2.768 million for 30 days (such block will return to $3.5 million on June 14, 2014, and will revert to its original amount of $4.0 million on August 1, 2014). Notwithstanding the execution of Amendment No. 5, without a significant increase in available cash, we will continue to be unable to satisfy such obligations (or similar demands/proceedings instituted for payment, which are expected to continue) or make such advanced payments, which will negatively impact our ability to meet our customers’ product demands and likely result in further breaches of our license agreements and certain of our customers ceasing to purchase products from us. All of the foregoing will have a material adverse effect on our financial condition and results of operations, and may result in our bankruptcy or insolvency.

Subsequent to the execution of Amendment No. 5, the Company received a notice of breach and amendment from one of Sassy’s material licensors as a result of a late royalty payment (which was cured prior to receipt of the notice) and breaches arising from cessation of certain shipping and distribution activities. Also subsequent to the execution of Amendment No. 5, and as previously disclosed, the Company has determined to suspend LaJobi’s wood furniture operations, and in connection with such suspension, has terminated (on mutually agreed terms), a related license agreement with Graco.