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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

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KID BRANDS, INC.

One Meadowlands Plaza, 8^th Floor

East Rutherford, New Jersey 07073

July 3, 2012

Dear Shareholder:

It is my pleasure, on behalf of your Board of Directors, to extend to you a cordial invitation to attend our Annual Meeting of Shareholders, which will be held this year at our corporate headquarters located at One Meadowlands Plaza, East Rutherford, New Jersey 07073, in the first floor conference center, at 12:30 p.m. on Tuesday, August 14, 2012.

At the meeting, shareholders will be asked: (i) to elect six directors, (ii) to ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the 2012 calendar year; (iii) to approve, by a non-binding advisory vote, the compensation of our named executive officers; (iv) to approve the Company’s Incentive Compensation Bonus Program; and (v) to transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

We are pleased to once again provide our proxy materials to our shareholders over the Internet. We believe that this process lowers the costs of the Annual Meeting and helps to conserve natural resources. In connection therewith, on or about July 3, 2012, we will mail our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our 2012 proxy materials. The Notice also includes instructions on how to receive a paper copy of the proxy materials.

I look forward to greeting you at the meeting. Whether or not you expect to attend, I urge you to promptly cast your vote using the instructions provided in the Notice and in the 2012 Proxy Statement. You may vote your shares via a toll-free telephone number or over the Internet. If you requested and received a proxy card or voting instruction card by mail, you may submit your proxy card or voting instruction card by completing, signing, dating and mailing your proxy card or voting instruction card in the envelope provided. Any shareholder attending the Annual Meeting may vote in person, even if such shareholder has already voted via the telephone or over the Internet or returned a proxy card or voting instruction card.

Sincerely,

RAPHAEL BENAROYA

Executive Chairman of the Board of Directors

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KID BRANDS, INC.

One Meadowlands Plaza, 8^th Floor

East Rutherford, New Jersey 07073

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held Tuesday, August 14, 2012

The Annual Meeting of Shareholders of Kid Brands, Inc. (the “Company”) will be held this year at our corporate headquarters located at One Meadowlands Plaza, East Rutherford, New Jersey 07073, in the first floor conference center, at 12:30 p.m. E.D.T. on Tuesday, August 14, 2012 for the following purposes:

Only shareholders of record at the close of business on June 28, 2012 are entitled to notice of and to vote at such meeting.

BY ORDER OF THE BOARD OF DIRECTORS,

MARC S. GOLDFARB

Corporate Secretary

East Rutherford, New Jersey

July 3, 2012

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be held on August 14, 2012: The Proxy Statement, Annual Report on Form 10-K for the year ended December 31, 2011, and Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 2011 are available at www.cfpproxy.com/5404.

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KID BRANDS, INC.

One Meadowlands Plaza, 8^th Floor

East Rutherford, New Jersey 07073

PROXY STATEMENT

dated July 3, 2012

This Proxy Statement pertains to the Annual Meeting of Shareholders of Kid Brands, Inc. (the “Company”), which will be held this year at our corporate headquarters located at One Meadowlands Plaza, East Rutherford, New Jersey 07073, in the first floor conference center, on Tuesday, August 14, 2012, at 12:30 p.m. E.D.T. On or about July 3, 2012, proxy materials for the annual meeting, including (i) this Proxy Statement; (ii) our Annual Report on Form 10-K for the year ended December 31, 2011; and (iii) Amendment No.1 to our Annual Report on Form 10-K for the year ended December 31, 2011 will be made available to shareholders entitled to vote at the annual meeting.

SOME QUESTIONS YOU MAY HAVE REGARDING THIS PROXY STATEMENT

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We will also consider other business that properly comes before the meeting in accordance with New Jersey law and our Bylaws.

• Voting by the Internet or Telephone. You may vote using the Internet or telephone by following the instructions in the Notice to access the proxy materials, and then following the instructions provided to allow you to record your vote. The Internet and telephone voting procedures are designed to authenticate votes cast by using a personal identification number. These procedures enable shareholders to confirm their instructions have been properly recorded.

• Voting by Proxy Card. If you obtained a paper copy of our proxy materials, you may vote by signing, dating and returning your instructions on the proxy card in the postage-paid envelope provided.

To be effective, instructions regarding registered shares by Internet or telephone must be received by 11:59 p.m. E.D.T. on August 13, 2012; instructions by proxy card must be actually received prior to the 2012 Meeting.

You may also vote registered shares by attending the 2012 Meeting and voting in person; this will revoke any proxy you previously submitted.

All properly submitted voting instructions, whether submitted by the Internet, telephone or U.S. mail, will be voted at the 2012 Meeting according to the instructions given, provided they are received prior to the applicable deadlines described above. All properly submitted proxy cards not containing specific instructions will be voted “FOR” each of the nominees to the Board (Proposal 1); “FOR” ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the 2012 calendar year (Proposal 2); “FOR” approval, on an advisory basis, of the compensation of the Company’s named executive officers (Proposal 3); and “FOR” approval of the Company’s Incentive Compensation Bonus Program (Proposal 4).

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Please carefully consider the information contained in this Proxy Statement and, whether or not you plan to attend the 2012 Meeting, submit your vote promptly so that we can be assured of having a quorum present at the meeting and so that your shares may be voted in accordance with your wishes even if you later decide not to attend.

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Effect of Abstentions and Broker Non-Votes: If your shares are treated as an abstention or broker non-vote, your shares will be included in the number of shares represented for purposes of determining whether a quorum is present. However, abstentions and broker non-votes will not be considered in determining the number of votes cast on a particular matter. Therefore, with respect to any matter requiring the approval of the affirmative vote of a majority of the votes cast by holders of shares present in person or represented by proxy, abstentions and broker non-votes will be excluded when calculating the number of votes cast on the matter.

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Directions to One Meadowlands Plaza, East Rutherford, New Jersey:

From the North or South via the New Jersey Turnpike

Take the New Jersey Turnpike to Exit 16W (toward RT-3 E/RT-120/Lincoln Tunnel/Secaucus/Arena). After toll plaza, stay in the far right lane and turn slight right onto S. Service Road. Turn right into Meadowlands Plaza. Visitors’ parking is on the left.

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The Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 10-K”), including financial statements and the financial statement schedule, and Amendment No. 1 to the 2011 10-K, filed with the Securities and Exchange Commission, but excluding exhibits, have each been made available on the following website: www.cfpproxy.com/5404. The 2011 10-K, including financial statements and the financial statement schedule, and Amendment No. 1 thereto, is available without charge upon request. Exhibits to the 2011 10-K and Amendment No. 1 thereto will be provided upon request and payment of the Company’s reasonable expenses in connection therewith. Any such request should be addressed to the Company at One Meadowlands Plaza, 8^th Floor, East Rutherford, New Jersey 07073, Attention: Corporate Secretary.

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PROPOSAL 1

ELECTION OF DIRECTORS

Our Board and Director Nominees

Our current Bylaws permit the Board to have no fewer than three and no more than nine directors, and the Board has by resolution set the number of directors of the Company at six. Our Board currently consists of six members, including two Prentice Directors (defined below). Each of the current members of the Board has been nominated for election at the 2012 Meeting to hold office until the next Annual Meeting of Shareholders and until their respective successors are elected and qualified.

As of August 9, 2006, investment entities and accounts managed and advised by Prentice Capital Management, L.P. (“Prentice”) purchased 4,399,733 shares of the Common Stock of the Company from The Russell Berrie Foundation (the “Foundation”), pursuant to a share purchase agreement with the Foundation. The Company was not a party to this share purchase agreement nor did it receive any of the proceeds from such purchase.

In connection with such purchase, as of August 10, 2006, the Company entered into an Investors’ Rights Agreement (as amended, the “IRA”), with Prentice Capital Partners, LP, Prentice Capital Partners QP, LP, Prentice Capital Offshore, Ltd., GPC XLIII, LLC, S.A.C. Capital Associates, LLC, PEC I, LLC, Prentice Special Opportunities Master, L.P. and Prentice Special Opportunities, LP (collectively, the “Prentice Buyers”) and another purchaser of the Company’s Common Stock from the Foundation (which purchaser has sold all such shares, and is no longer a party to the IRA). Pursuant to the IRA, and subject to the limitations set forth therein, the Company has generally agreed, among other things, to nominate for election with respect to all shareholders meetings or consents concerning the election of members of the Board, two persons designated by Prentice (“Prentice Directors”), subject to decrease and specified independence requirements in addition to those specified by the New York Stock Exchange (“NYSE”), which specified independence requirements have been waived, all as set forth in the IRA.

As of April 13, 2010, all the shares of Common Stock of the Company owned by the Prentice Buyers other than S.A.C. Capital Associates, LLC were transferred to Prentice Consumer Partners, LP, an affiliate of Prentice and the Prentice Buyers. As a result, Prentice Consumer Partners, LP is bound by, and has become a party to, the IRA.

Messrs. Zimmerman and Ciampi are the current Prentice Directors.

The election of directors requires the affirmative vote of the holders of a plurality of the shares of Common Stock voting at the meeting. It is intended that proxies with respect to the 2012 Meeting which do not withhold the authority to vote for any or all of the nominees will be voted for the election as directors of all of the persons named below. All of the persons named below are currently directors of the Company. Messrs. Zimmerman and Ciampi were recommended by Prentice to be the Prentice Directors. Subject to the terms of the IRA, should any nominee become unable or unwilling to serve as a director, the proxies will be voted in favor of the remainder of those named and may be voted for substitute nominees nominated by the Board in place of those who are not candidates. At this time, the Board knows of no reason why any nominee might not be a candidate at the 2012 Meeting.

The information set forth below concerning the current directors and nominees to the Board of the Company has been furnished by them to the Company. Age and other information is as of June 30, 2012.

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Specific Nominee Attributes

Subject to the current rights of Prentice to designate two nominees to the Board, the Board seeks directors who represent a mix of backgrounds and experience that will enhance the quality of the Board’s deliberations and decisions. See “Board Qualifications” below for a description of the specific attributes we consider necessary to be an effective director. Below are some of the specific experiences and skills of our directors that led the Board to conclude, in light of our business and structure, that such individuals should serve as members of the Board.

Raphael Benaroya

Mr. Benaroya, as a director of the Company since 1993, has extensive knowledge of the Company’s business. In addition, through Mr. Benaroya’s long-standing tenure as Chairman of the Board, President and CEO of United Retail Group, Inc., a Nasdaq-listed company which operated a chain of retail specialty stores, as well as his prior experience as Executive Vice President of the Izod LaCoste division of General Mills, Executive Vice President of Jordache Enterprises, Inc., and President of several operating divisions of The Limited, he provides valuable business, leadership and management insights into driving the strategic direction for the Company, as well as a critical perspective with respect to the retail industry. Through Mr. Benaroya’s unique career path, he has attained significant international, wholesale, technology, marketing, product development, sourcing, logistics, licensing and financial/M&A expertise, all of particular value to the Board.

Mario Ciampi

Mr. Ciampi is a Prentice designee to our Board. His experience as a former President of Disney Store — North America, and his previous roles, including Senior Vice President — Operations, for The Children’s Place (an NYSE-listed company), each specialty retailers of children’s merchandise, result in a strong record of operational and strategy leadership in an industry complementary to ours, as well as extensive mergers and acquisitions and restructuring experience, all valued attributes for our Board. Mr. Ciampi, through his board membership with Bluefly, Inc. and Delia’s, Inc., also brings public board and corporate governance experience to the Company.

Frederick Horowitz

Mr. Horowitz, as the Chairman and CEO of A.P. Deauville, a manufacturer and distributor of personal care products, primarily in the value and mass markets, and managing partner of American Brand Holdings, LLC, an owner of consumer brands, brings to our Board his knowledge of managing complex operations, strategic planning and building a strong consumer brands focus. He is also the Chairman and CEO of Sumner Capital, LLC, and a founding investor in NetGrocer and joined management of NetGrocer in 1998 as President and CEO. Prior to NetGrocer, Mr. Horowitz was a co-founder of USA Detergents, Inc., a manufacturer and marketer of quality value brand laundry and household cleaning products which he built from startup in 1991 until its sale to Church and Dwight (NYSE: CD) in 2000. He has over twenty-five years of active entrepreneurial experience, combined with understanding of branding, licensing, logistics, and retail sales channels.

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Hugh R. Rovit

Mr. Rovit’s experience as the current Chief Executive Officer of Sure Fit Inc., a marketer and distributor of home furnishing products, and his previous roles as Chief Financial Officer for Best Manufacturing and Royce Hosiery Mills, each of which is involved in manufacturing textiles, result in a strong record of operational and strategy leadership in industries complementary to ours, which are valued attributes for our Board. Mr. Rovit also brings expertise in managing banking relationships and structuring credit facilities. Mr. Rovit, through his board membership with Spectrum Brands, Inc., also brings public board and corporate governance experience to the Company.

Salvatore Salibello

Mr. Salibello, with over 42 years of experience, including as a founder and managing partner of Salibello & Broder LLP, a certified public accounting firm, brings a high level of financial literacy to the Board. He is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants, and an audit committee financial expert, which also makes him a valued member of our Audit Committee, of which he currently serves as Chairman. Mr. Salibello also has extensive corporate governance experience through his multi-year service on the Board of Directors of three closed-end mutual funds.

Michael Zimmerman

Mr. Zimmerman is a Prentice designee to our Board. Mr. Zimmerman, as a founder and CEO of Prentice since May 2005, and as a manager of investments in the retail consumer sector for S.A.C. Capital, a Connecticut-based investment fund, from 2000-2005, brings a high level of both financial expertise and industry experience to our Board, and enables him to bring valuable insights to the Board’s deliberations. Mr. Zimmerman also has public company and corporate governance experience as a director of Delia’s Inc. (including as a member of its Corporate Governance and Nominating Committee) and a former director of The Wetseal, Inc., a national specialty retailer of contemporary apparel and accessory items.

BOARD QUALIFICATIONS AND CORPORATE GOVERNANCE

I. Board of Directors and Independence Determinations

Board Qualifications

Subject to the current rights of Prentice to designate two nominees to the Board, the Board seeks directors who represent a mix of backgrounds and experience that will enhance the quality of the Board’s deliberations and decisions. In addition, Board members should display the personal attributes necessary to be an effective director, including integrity, sound judgment, analytical skills, the ability to operate collaboratively, and commitment to the Company and its shareholders. In addition to considering a candidate’s background and accomplishments, candidates are reviewed in the context of the current composition of the Board and the evolving needs of our business. Our Board members represent a desirable mix of backgrounds, skills and experiences, and they all share the personal attributes of effective directors described above. See “Specific Nominee Attributes” above for a description of each nominee’s particular experience, skills and qualifications.

Board Leadership Structure

On an interim basis, our Board has combined the role of Chairman of the Board and the role of CEO as a result of the recent resignation of our former CEO, Bruce Crain. Mr. Benaroya, our current interim Executive Chairman and acting Chief Executive Officer, has been a member of our Board since 1993, was Chairman of the Board prior to his appointment as Executive Chairman (and remains Chairman of the Board), and possesses an in-depth knowledge of the Company and its operations. The Board believes that, at least until a successor Chief Executive Officer is identified and appointed, these experiences and other insights put Mr. Benaroya in the best position to provide broad leadership for the Board. Mr. Benaroya, a seasoned executive, is able to provide a wealth of knowledge and experience in addition to the unique ability to assume the role of CEO immediately, allowing the Board to focus on its CEO search. Importantly, based on his long-standing association with the Company, Mr. Benaroya provides stability and continuity during this transition period. We do not have a Lead Independent Director. A majority of the Board is comprised of independent directors who provide strong leadership for the Board and each of the committees of the Board. Each independent director has access to the Company’s executives, may call meetings of the independent directors, and may request agenda topics to be added or dealt with in more detail at meetings of the full Board or an appropriate Board committee. The independent directors meet from time to time, as deemed appropriate in their discretion, in their various capacities, and the Audit Committee members meet with our outside auditors on a regular basis. Further, the Board periodically reviews the Company’s leadership structure and retains authority to separate the positions of Chairman and Chief Executive Officer at any time. Neither our bylaws nor our corporate governance guidelines, however, require that we separate these roles and the Board does not have a policy on whether the same person should serve as both the CEO and Chairman of the Board or, if the roles are separate, whether the Chairman should be selected from the non-management directors. Our Board believes that it should have the flexibility to make these determinations from time to time in the way that it believes best to provide appropriate leadership for the Company under then-existing circumstances.

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Board Diversity Policy

The Nominating/Governance Committee and the Board believe that diversity along multiple dimensions, including opinions, skills, perspectives, personal and professional experiences and other differentiating characteristics, is an important element of its nomination recommendations. As stated in our policies with respect to minimum qualifications for Board members, the Board seeks a diverse group of candidates who possess the background, skills and expertise to make a significant contribution to the Board. Accordingly, Board candidates are considered based upon various criteria, including, but not limited to, their broad-based business and professional skills and experiences, concern for the long-term interests of the shareholders, and their reputation, personal integrity and judgment. In addition, directors must have sufficient time available to devote to Board activities and to enhance their knowledge of the consumer goods and related industries. The Board considers each nominee in the context of the Board as a whole, with the objective of assembling a Board that can best maintain the success of our business. Although the Board does not have a formal diversity policy, the Nominating/Governance Committee periodically reviews the Board’s membership in light of our business model and strategic objectives, considers whether the directors possess the requisite skills, experience and perspectives to oversee the Company in achieving those goals, and may seek additional directors from time to time as a result of its considerations. Qualified candidates are considered without regard to race, color, religion, sex, ancestry, national origin or disability.

Risk Oversight

Companies face a variety of risks. It is management’s responsibility to assess and manage the various risks that the Company faces, and the Board’s responsibility to oversee management in this effort. Management generally believes that the Company faces risks in the following categories: strategic, operational, financial and compliance. The Board believes that an effective risk management system should: (i) timely identify the material risks that the Company faces; (ii) communicate necessary information with respect to material risks to senior executives, and as appropriate, to the Board or relevant Board committee, (iii) implement appropriate and responsive risk management strategies consistent with the Company’s risk profile, and (iv) integrate risk management into the Company’s decision-making.

In exercising its oversight, the Board has allocated some areas of focus to its committees and has retained areas of focus for itself, as more fully described below. The Board as a whole has oversight responsibility for the Company’s strategic and operational risks (e.g., major initiatives, competitive markets and products, sales and marketing, and research and development). Throughout the year the CEO discusses these risks with the Board during strategy reviews that focus on a particular business or function. Our Audit Committee has oversight responsibility for financial risk (such as accounting, finance, internal controls and tax strategy). Oversight responsibility for compliance risk is shared among the Board committees. For example, the Audit Committee oversees compliance with the Company’s code of conduct and finance- and accounting-related laws and policies; the Compensation Committee oversees compliance with the Company’s executive compensation plans and related laws and policies, and annually evaluates whether the compensation arrangements of the Company’s employees incentivize unnecessary and excessive risk-taking; and the Nominating/Governance Committee oversees compliance with governance-related laws and policies, including the Company’s corporate governance guidelines. The Audit Committee oversees the Company’s approach to risk management as a whole. As set forth in our Audit Committee Charter, the Audit Committee reviews and discusses periodically with management the Company’s major financial risk exposures, the steps taken to monitor and control such exposures and policies with respect to risk assessment and risk management, including discussions of guidelines and policies to govern the process by which risk assessment and management is undertaken.

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Independence Determinations

The Board undertakes periodic reviews of director independence. The purpose of these reviews is to determine whether any such relationships or transactions are inconsistent with a determination that such director is “independent” in accordance with applicable rules and regulations of the NYSE, applicable law, and the rules and regulations of the SEC.

As a result of such reviews, as well as the directors’ responses to the Company’s questionnaire with respect to independence matters, the Board has affirmatively determined that all persons who served as directors of the Company during any part of the 2011 calendar year, and all current directors, were and are “independent” for purposes of Section 303A of the Listed Company Manual of the NYSE, with the exception of Mr. Crain (whose employment with the Company terminated as of September 12, 2011), and as of April 22, 2009, Mr. Benaroya. Each member of the Company’s Compensation Committee, Nominating/Governance Committee and Audit Committee is independent in accordance with such standards as well. Mr. Crain was not independent as a result of his prior employment as President and CEO of the Company. Mr. Benaroya is not independent as of April 22, 2009, as a result of his previous expanded role as Chairman of the Board (which terminated in October of 2009).

In making this determination, the Board considered transactions and relationships between (i) each director or nominee, entities with which such person is affiliated and/or any member of such person’s immediate family, and (ii) the Company and its subsidiaries and affiliates, in order to ascertain whether any such relationships or transactions were inconsistent with a determination that such person is “independent” in accordance with applicable rules and regulations of the NYSE, applicable law, and the rules and regulations of the SEC. The Board based its determinations primarily on a review of the responses of such persons to questions regarding employment and compensation history, affiliations and family and other relationships between the Company, the directors, and entities with which such persons are affiliated, discussions and analyses with respect to the foregoing, and the recommendations of the Nominating/Governance Committee.

In determining that each director other than Messrs. Crain and Benaroya is independent, in addition to confirming that none of the automatic disqualifications required by the NYSE are applicable to such persons, the Board also affirmatively determined that each such person has no direct or indirect material relationship with the Company or its subsidiaries. In making these determinations, the NYSE has noted that as its concern is independence from management, it does not view ownership of even a significant amount of stock, by itself, as a bar to an independence finding. As stated above, the Board determined that none of the automatic disqualifications were applicable to any individuals who were directors during 2011 (or are current directors) other than Messrs. Crain and Benaroya. Certain directors have relationships with other directors and/or shareholders of the Company and the Company from time to time has relationships with entities with which certain of such persons are affiliated. All such relationships were considered by the Board in making its independence determinations, whether or not expressly prohibited by the NYSE.

The Board’s specific determinations with respect to “material relationships” for current directors, and each individual who was a director at any time during 2011, other than Messrs. Crain and Benaroya, who were not deemed to be independent, are set forth below.

Mr. Ciampi (current director, Prentice designee):

Relevant Facts: Mr. Ciampi is a partner of Prentice, and a manager and member of an affiliate of Prentice.

Determination: Mr. Ciampi’s relationship with Prentice (and an affiliate of Prentice) do not constitute direct relationships with the Company or its subsidiaries (and the Company has no parents in a consolidated group). As a partner of Prentice, which owns approximately 20.2% of the Company’s outstanding stock and is a party to the IRA, and a manager and member of an affiliate of Prentice, he may be deemed to have an indirect relationship with the Company, but as the NYSE does not view ownership of even a significant amount of stock, by itself, as a bar to an independence finding, the Board determined that Mr. Ciampi’s positions with Prentice entities did not affect its determination that he is independent.

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Mr. Horowitz (current director): As Mr. Horowitz has no direct or indirect relationship with the Company or its subsidiaries (and the Company has no parents in a consolidated group), he was deemed independent.

Mr. Rovit (current director): As Mr. Rovit has no direct or indirect relationship with the Company or its subsidiaries (and the Company has no parents in a consolidated group), he was deemed independent.

Mr. Salibello (current director): As Mr. Salibello has no direct or indirect relationship with the Company or its subsidiaries (and the Company has no parents in a consolidated group), he was deemed independent.

Mr. Zimmerman (current director; Prentice designee):

Relevant Facts: Mr. Zimmerman is the Managing Member of the general partner of Prentice, the Chief Executive Officer of Prentice, and a manager of an affiliate of Prentice. According to the Prentice Schedule 13D (defined in footnote (1) to the “Security Ownership of Certain Beneficial Owners” chart herein), Mr. Zimmerman may be deemed to be the beneficial owner of the shares of Common Stock purchased by the Prentice Buyers (although he disclaims beneficial ownership of such shares).

Determination: Mr. Zimmerman’s relationships with Prentice entities do not constitute direct relationships with the Company or its subsidiaries (and the Company has no parents in a consolidated group). As an executive officer of Prentice, which owns approximately 20.2% of the Company’s outstanding stock and is a party to the IRA (and as the managing member of the general partner of Prentice as a manager and member of an affiliate of Prentice), he may be deemed to have indirect relationships with the Company, but as the NYSE does not view ownership of even a significant amount of stock, by itself, as a bar to an independence finding, the Board determined that Mr. Zimmerman’s positions with Prentice entities (including his potential deemed beneficial ownership of the Company’s Common Stock held thereby) did not affect its determination that he is independent.

II. Board Meetings and Committees; Annual Meeting Attendance

The Board held twenty-three (23) meetings during 2011. In 2011, no incumbent director attended fewer than 75% of the aggregate number of meetings of (i) the Board and (ii) any committees of the Board on which such director served (in each case, during the periods that such director served). It is the policy of the Company for Board members to attend the Company’s annual meeting of shareholders. All of our Board members were present at the Company’s 2011 Annual Meeting of Shareholders. See the “2011 Director Compensation” table herein and subsequent narrative for a description of the compensation paid to directors in 2011.

The Board maintains, among other committees, a standing audit committee (the “Audit Committee”), compensation committee (the “Compensation Committee”) and nominating/governance committee (the “Nominating/Governance Committee”). Links to the current charters for each such committee can be found on the Company’s website located at www.kidbrands.com, by clicking on the “Investor Relations” tab, and then the “Corporate Governance” tab. Such charters are available in print to any shareholder who makes a written request therefor to the Company at One Meadowlands Plaza, 8^th Floor, East Rutherford, New Jersey 07073, Attention: Corporate Secretary.

Audit Committee

The Audit Committee, established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), held seven (7) meetings during 2011. The Audit Committee currently consists of Messrs. Salibello (Chair), Horowitz and Rovit. The Audit Committee operates under a written charter adopted by the Board. The Audit Committee’s function is to assist the Board in fulfilling its oversight responsibility by monitoring: (1) the integrity of the financial statements of the Company; (2) the compliance by the Company with legal and regulatory requirements; (3) the independence, qualifications and performance of the Company’s independent auditors; (4) the performance of the Company’s internal audit function; (5) the investments made by the Company; and (6) any transactions between related parties (including, without limitation, officers, directors and principal shareholders) and the Company, other than normal and usual employment compensation arrangements with the Company. The Board has affirmatively determined that each current member of the Audit Committee (and each individual who served on such committee at any time during 2011 for the period that such individual so served), is independent (as defined in Section 303A of the listing standards of the NYSE and Section 10A(m)(3) of the Exchange Act, and Rule 10A-3 promulgated thereunder) and may serve on the Audit Committee. The Board has affirmatively determined that the Chair of the Audit Committee, Mr. Salibello, is an “audit committee financial expert”, as that term is defined in Item 407(d)(5) of Regulation S-K, and, as described above, is “independent” for purposes of the listing standards of the NYSE. The report of the Audit Committee is set forth in this Proxy Statement.

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Compensation Committee

The Compensation Committee, which held six (6) meetings during 2011, currently consists of Messrs. Horowitz, Ciampi and Rovit (who was appointed to the Committee as of July 19, 2011). Each current member of the Compensation Committee (and each individual who served on such committee at any time during 2011 for the period that such individual so served) is independent, as independence for such members is defined in the listing standards of the NYSE. The Compensation Committee operates under a written charter adopted by the Board. The function of the Compensation Committee is to: (i) review and approve remuneration arrangements for the Chief Executive Officer and the other executive officers of the Company (including annual base salary level, annual incentive opportunity level, long-term incentive opportunity level and any employment agreements, severance arrangements, and any change in control agreements/provisions) and make recommendations to the Board with respect to the compensation of directors, and all incentive compensation and equity based plans; (ii) review and discuss with the Company’s management the Compensation Discussion and Analysis (“CD&A”) and to determine whether to recommend to the Board that the CD&A be included in the Company’s applicable regulatory filings; and (iii) produce an annual Compensation Committee Report for inclusion in the Company’s applicable regulatory filings. The report of the Compensation Committee is set forth in this Proxy Statement. In accordance with its charter, the Compensation Committee may form and delegate authority to subcommittees when appropriate, but has not done so to date.

Processes and Procedures

The Compensation Committee is responsible for annually reviewing and approving goals and objectives relevant to CEO and executive officer (including NEO) compensation, evaluating their performance in light of those goals and objectives, and setting their compensation levels based on this evaluation. In assessing performance against the objectives, the Compensation Committee considers actual results against the specific deliverables associated with each objective for each executive officer (including the CEO), the extent to which such objective was a significant stretch goal for the Company and/or the individual, and whether significant unforeseen obstacles or favorable circumstances altered the expected difficulty of achieving the desired results. See the CD&A below for a detailed discussion of how various elements of compensation for our executives is determined. In evaluating executive officers other than the CEO, the Compensation Committee receives significant input from the CEO, whose recommendations weigh heavily in the Committee’s overall annual assessment for each such executive. See “Role of Management” in the CD&A below. Such executive assessment is used by the Committee in determining or approving, as applicable, base salary adjustments, equity award amounts, as well as potential cash incentive compensation award levels and performance objectives for the coming year. At the time of such executive assessments, the Compensation Committee also reviews and makes recommendations to the Board with respect to each element of the compensation of directors and all incentive-compensation plans and equity-based plans. The analysis of director compensation is based on a number of considerations, including prior practice, the periodic recommendations of our compensation consultants (discussed below) and competitive market and industry information. Management is not involved in determining the amount or form of director compensation.

The Compensation Committee’s charter grants it the sole authority to retain and terminate any compensation consultant used to assist in the evaluation of executive compensation (and grants the Compensation Committee sole authority to approve the consultant’s fees and other retention terms). Although we do not put a premium on “benchmarking,” the Committee has periodically engaged James F. Reda and Associates, LLC, a Division of Gallagher Benefits Services, Inc. (“REDA”), to review and compile certain publicly-available information with respect to the compensation of executives. However, REDA provided no such services in 2011. The Committee does not attempt to maintain specific target percentiles with respect to a specific list of benchmark companies, but instead periodically uses analyses of peer group companies to determine whether the Company’s compensation programs are generally competitive with that of others in similar industries. See “BENCHMARKING” below. Cash compensation to directors has not been changed to date from the arrangements approved in May of 2005, other than compensation for temporary special committees formed on an as-needed basis from time to time (the form and value of equity awards, however, does change periodically). In connection therewith, the Committee engaged REDA in March of 2011 to review and compile certain publicly-available information with respect to fees paid to special committees and the prevalence and nature of director stock ownership guidelines. The Committee considered the information provided by REDA when setting special committee fees for 2011, although this information constituted only one of several factors considered by the Committee in its determination. REDA serves at the discretion of the Committee. Other than as described above (in addition to a brief review of our CD&A), REDA provided no other services in 2011. It is the current intention of the Board to grant to each Non-Employee Director, on the date of each Annual Meeting of Shareholders immediately following which such Non-Employee Director is serving on the Board, awards under the Company’s Equity Incentive Plan (the “EI Plan”) with an aggregate value on the date of grant consistent with the Board’s then-current policy, to the extent such awards are available for issuance under such plan. See the sections captioned “How We Choose Amounts for Each Element of Our Compensation Program” and “Role of Management” in the CD&A below for a detailed description of the factors considered by the Compensation Committee in establishing the compensation of our key executives, as well as the role of management with respect thereto. The Compensation Committee also periodically engages independent counsel to advise on various legal issues affecting compensation programs and processes.

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Nominating/Governance Committee

The Nominating/Governance Committee, which held one (1) meeting in 2011, currently consists of Messrs. Ciampi, Salibello, and Rovit. Each current member of the Nominating/Governance Committee (and each individual who served on such committee at any time during 2011 for the period that such individual so served) is independent, as independence for such members is defined in the listing standards of the NYSE. The Nominating/Governance Committee operates under a written charter adopted by the Board. The function of the Nominating/Governance Committee is to develop corporate governance principles applicable to the Company and oversee the evaluation of the Board and the management of the Company. In addition, the Nominating/Governance Committee identifies and recommends to the Board individuals who are qualified, consistent with criteria approved by the Board, to be selected as nominees for election as a director of the Company, as well as members of the various committees of the Board.

Minimum Qualifications for Board of Directors Nominees

The Board seeks a diverse group of candidates who possess the background, skills and expertise to make a significant contribution to the Board. Accordingly, Board candidates will be considered by the Nominating/ Governance Committee based upon various criteria, including, but not limited to, their broad-based business and professional skills and experiences, concern for the long-term interests of the shareholders, and their reputation, personal integrity and judgment. In addition, directors must have sufficient time available to devote to Board activities and to enhance their knowledge of the consumer goods and related industries. Qualified candidates will be considered without regard to race, color, religion, sex, ancestry, national origin or disability. See “Board Qualifications”, “Specific Nominee Attributes” and “Board Diversity Policy” above for additional information with respect to qualifications of nominees to our Board and our analysis of diversity with respect to the composition of the Board.

Identification and Evaluation Process Related to Director Nominations

The Nominating/Governance Committee will recommend to the full Board the slate of directors to be nominated for election at the annual meeting of shareholders and shall recommend additional candidates to fill vacancies as needed, in accordance with the procedures set forth below. In the case of incumbent directors whose terms of office are set to expire, the Nominating/Governance Committee reviews such directors’ overall service to the Company during their term, including the number of meetings attended, level of participation and quality of performance. In the case of new director candidates, the Nominating/Governance Committee first determines whether the candidate must be “independent” as defined by applicable securities laws, the rules and regulations of the SEC and the listing standards applicable to the Company. The Nominating/Governance Committee will identify potential candidates and may also engage, if it deems appropriate, a professional search firm, but has not done so to date. The Nominating/Governance Committee will then meet to discuss and consider such candidates’ qualifications in light of the overall composition of the Board, the operating requirements of the Company, the long-term interests of the shareholders and the criteria for nominee selection approved by the Board. Contact will be initiated with preferred candidates, including, to the extent the Nominating/Governance Committee deems necessary, the requirement of the completion of informational questionnaires provided by the Nominating/Governance Committee to the candidate, as well as personal interviews of such candidates. After such procedure is complete, the Nominating/Governance Committee will meet to approve final candidates for recommendation to the full Board as set forth in its charter. The Nominating/Governance Committee will consider director candidates recommended by shareholders provided the published procedures established by the Company for such recommendations are followed by submitting shareholders. (See “Shareholder Recommendations for Director” below for such procedures and relevant provisions of the IRA.) The Nominating/Governance Committee does not intend to alter the manner in which it evaluates candidates based on whether the candidate was recommended by a shareholder.

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Shareholder Recommendations for Director

The Nominating/Governance Committee will consider qualified candidates for director who are recommended by the Company’s shareholders in written submissions to the Corporate Secretary, One Meadowlands Plaza, 8^th Floor, East Rutherford, New Jersey 07073. Written submissions of recommendations from a shareholder must be received at least 120 days before the date of release of the Company’s proxy statement to shareholders in connection with the previous year’s annual meeting (or if the current meeting has been moved by more than 30 days from the previous year’s meeting, or if no annual meeting was held during the previous year, at least 120 days before the date of release of the Company’s proxy materials in connection with the current year’s annual meeting) to be considered for the current year’s annual meeting, and should include the nominee’s qualifications and other relevant biographical information, including age, employment history with employer names and a description of the employer’s business, whether such individual can read and understand basic financial statements, and board memberships (if any). The submission must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected by the shareholders. Recommendations received after the 120 day period specified above will be considered for nomination at the next succeeding annual meeting of shareholders. The Nominating/Governance Committee will consider director candidates recommended by shareholders provided the procedures set forth above are followed by shareholders in submitting recommendations. The Nominating/ Governance Committee retains discretion in the recommendation of nominees to the Board, and has no obligation to nominate a candidate recommended by a shareholder or to include such candidate in the Company’s proxy materials.

Notwithstanding the foregoing, pursuant to the IRA, and subject to the limitations set forth therein, the Company has generally agreed, among other things, to nominate for election with respect to all shareholders meetings or consents concerning the election of members of the Board, two Prentice Directors, subject to decrease as specified therein, provided further, that at any time that Prentice shall have the right to designate more than one Prentice Director, at least one of such designees is required to be an Independent Director, defined generally as (i) “independent” for purposes of the governance rules of the New York Stock Exchange and (ii) “independent” under such rules if Prentice were the listed company with respect to which independence is being determined. The Company has waived the requirement set forth in clause (ii) above. In addition, the Company shall not be obligated to cause to be nominated for election to the Board or to recommend to the shareholders the election of any designee of Prentice: (i) who fails to submit to the Company on a timely basis such questionnaires as the Company may require of its directors generally and such other information as the Company may reasonably request or (ii) if the Board or the Nominating/Governance Committee determines in good faith that such action would be inconsistent with its fiduciary duties or applicable law; provided, that in such event, the Company shall promptly notify Prentice of the basis for such belief and, to the extent that the Board or the Nominating/Governance Committee continues to believe that such action is inconsistent with its fiduciary duties, shall permit Prentice to provide an alternate nominee or nominees sufficiently in advance of the meeting of the shareholders called with respect to such nominees. In connection with the foregoing, Prentice designated Messrs. Zimmerman and Ciampi as the Prentice Directors, each of whom were considered and recommended by the Nominating/Governance Committee to the Board and accepted for inclusion as nominees for election as directors at the 2012 Meeting.

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Communication with the Board of Directors

Shareholders and any other interested party who would like to communicate directly with the Company’s Board, including any individual director, the Chairman of the Board and/or the presiding director, a committee of the Board, the non-management directors as a group or the independent directors as a group may do so: (1) electronically by sending an e-mail to the following address: theboard@kidbrands.com; or, (2) by writing to: Board of Directors, Kid Brands, Inc., One Meadowlands Plaza, 8^th Floor, East Rutherford, New Jersey 07073, Attention: Corporate Secretary. All such communications, via e-mail or in writing, will be forwarded by the Corporate Secretary to the appropriate Board member(s).

Corporate Governance Guidelines

The Company has adopted a set of Corporate Governance Guidelines, a current version of which can be located on the Company’s website, www.kidbrands.com, by clicking on the “Investor Relations” tab and then the “Corporate Governance” tab. Such guidelines are available in print to any shareholder who makes a written request therefor to the Company at One Meadowlands Plaza, 8^th Floor, East Rutherford, New Jersey 07073, Attention: Corporate Secretary.

Executive Sessions of Non-Management and Independent Directors

Pursuant to the Company’s Corporate Governance Guidelines, non-management Board members will meet without management present at least quarterly at regularly scheduled executive sessions. “Non-management” directors are all those who are not Company officers. “Non-management” directors include such directors, if any, who are not independent by virtue of a material relationship with the Company, former status or family membership, or for any other reason. The Chairman of the Board presides at such meetings unless the Chairman is not a non-management director, or if the Board has no Chairman, in which case the presiding director will be chosen by the non-management directors. Currently, Salvatore Salibello, the Chairman of the Audit Committee, is the presiding director at such meetings (as Mr. Benaroya is currently serving as the Company’s Executive Chairman). In addition, an executive session including only the independent directors of the Board shall be held at least once annually. The Chairman of the Board presides at such meetings unless the Chairman is not an independent director, or if the Board has no Chairman, in which case the presiding director will be chosen by the independent directors. Currently, Salvatore Salibello, the Chairman of the Audit Committee, is the presiding director at such meetings.

Codes of Ethics

The Company has adopted a Code of Ethics for the Principal Executive Officer and Senior Financial Officers, as well as a more general Code of Business Conduct and Ethics. You can find links to current versions of each of these codes on the Company’s website located at www.kidbrands.com, by clicking on the “Investor Relations” tab and then the “Corporate Governance” tab, and such codes are available in print to any shareholder who makes a written request therefor to the Company at One Meadowlands Plaza, 8^th Floor, East Rutherford, New Jersey 07073, Attention: Corporate Secretary.

PROPOSAL 2

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Board has ratified the Audit Committee’s selection of KPMG LLP (“KPMG”) to serve as the Company’s independent registered public accounting firm for the 2012 calendar year. Services provided to the Company and its subsidiaries by KPMG are described under “Audit Fees”, “Audit-Related Fees”, “Tax Fees” and “All Other Fees” below.

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We are asking our shareholders to ratify the selection of KPMG as our independent registered public accounting firm for the 2012 calendar year. Although ratification is not required by our By-laws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders’ views on the Company’s independent registered public accounting firm, and as a matter of good corporate practice. In the event that our shareholders fail to ratify the selection, the Audit Committee will consider the selection of a different independent registered public accounting firm, but may retain KPMG in its discretion. Even if the selection of KPMG is ratified, the Audit Committee may in its discretion select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

Board Recommendation

The Board of Directors unanimously recommends a vote FOR the ratification of KPMG LLP as our independent registered public accounting firm for the 2012 calendar year.

EXECUTIVE COMPENSATION

ANALYSIS OF RISK IN OUR COMPENSATION STRUCTURE

As part of its responsibilities to annually review all incentive compensation and equity-based plans, and evaluate whether the compensation arrangements of the Company’s employees incentivize unnecessary and excessive risk-taking, the Compensation Committee evaluated the risk profile of our compensation policies and practices for 2011, and concluded that they do not motivate imprudent risk taking. In its evaluation, the Compensation Committee reviewed our employee compensation structures, and noted numerous design elements that manage and mitigate risk without diminishing the incentive nature of the compensation, including: (i) a balanced mix between cash and equity, and annual and longer-term incentives (although no equity grants were made to executives other than Mr. Schaub in 2011, such grants were made in 2012, as discussed below); (ii) a compensation mix that recognizes that while long-term success is critical, annual business and individual performance and adequate fixed compensation are also essential; (iii) caps on incentive awards at reasonable levels (as determined by a review of our economic position and prospects); (iv) linear payouts between target levels with respect to annual incentive awards; (v) goals that are set appropriately to be sufficiently challenging, but also reasonably achievable with good performance; (vi) discretion on individual awards; (vii) a portfolio of long-term incentives that have a retentive element and typically vest over a three to five year period; (viii) the existence of claw-back policies for payments made using materially inaccurate financial results; and (ix) the prohibition on hedging Company common stock without the approval of the Board. The Compensation Committee also reviewed our compensation programs for certain design features that may have the potential to encourage excessive risk-taking, including: over-weighting towards annual incentives, highly leveraged payout curves, unreasonable thresholds, and steep payout cliffs at certain performance levels that may encourage short-term business decisions to meet payout thresholds. The Compensation Committee concluded that our compensation programs do not include such elements. In addition, the Compensation Committee analyzed our overall enterprise risks and how compensation programs may impact individual behavior in a manner that could exacerbate these enterprise risks. For this purpose, the Compensation Committee considered the Company’s growth and return performance, volatility and leverage. In light of these analyses, the Compensation Committee concluded that it has a balanced pay and performance program that does not encourage excessive risk-taking that is reasonably likely to have a material adverse effect on the Company. We believe our compensation programs encourage and reward prudent business judgment and appropriate risk-taking over the long term.

COMPENSATION DISCUSSION AND ANALYSIS

The “Committee” as used in this section refers to the Compensation Committee of the Board. “Named executive officers” or “NEOs” refer to the individuals set forth in the Summary Compensation Table below, and the “CEO” refers to Bruce G. Crain, our President and Chief Executive Officer until September 12, 2011, and to Raphael Benaroya, our interim Executive Chairman and acting CEO thereafter. Note that the services of Mr. Benaroya as interim CEO are provided though an agreement between the Company and RB, Inc. Pursuant to such agreement, RB, Inc. provides the services of Mr. Benaroya to the Company. As a result, although Mr. Benaroya is the Company’s Executive Chairman and an NEO, he is an employee of RB, Inc. This Compensation Discussion and Analysis contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. The actual compensation programs that we adopt in the future may differ from the current or planned programs summarized in this discussion.

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COMPENSATION PHILOSOPHY AND OVERVIEW

We feel that the overall compensation levels of our executives (including our NEOs) should be sufficiently competitive to attract talented leaders and motivate those leaders to achieve superior results. At the same time, however, we believe that compensation should be set at responsible levels, reflecting our continued focus on improving sales and margins, controlling costs and creating value for our shareholders. At the core of our compensation philosophy is our belief that compensation should be linked to performance. We believe that offering a competitive total compensation package to executives that incorporates a reward-for-performance philosophy helps achieve these objectives. As a result, a significant portion of the compensation of our executive officers is based upon achievement of corporate objectives and (with respect to 2011) individual performance goals. We also believe that total compensation and accountability should generally increase with position and responsibility. Consistent with this view, opportunities under our incentive compensation program typically represent an increasing portion of total compensation as position and responsibility increase, as individuals with greater responsibility have greater ability to influence the Company’s achievement of targeted results and strategic initiatives. Similarly, equity-based awards (when they are granted) generally represent a higher portion of total compensation for persons with higher levels of responsibility, making a significant portion of their total compensation dependent on long-term stock appreciation. The Committee feels that it maintains a balanced compensation program that does not encourage excessive risk-taking. See “ANALYSIS OF RISK IN OUR COMPENSATION STRUCTURE” above.

ELEMENTS OF 2011 EXECUTIVE COMPENSATION

The material elements of our executive compensation program are: (i) base salary; (ii) annual cash incentive compensation; (iii) periodic equity awards; and (iv) perquisites and other benefits.

Although we fine-tune our compensation programs as conditions change, we believe it is important to maintain consistency in our compensation philosophy and approach. We recognize that value-creating performance by an executive or group of executives does not always translate immediately into appreciation in our stock price, particularly in periods of economic stress. However, the Committee believes that it may be appropriate for certain components of compensation to decline during such periods. Fiscal 2011 was a challenging year for the Company due to, among other things, various previously-reported events impacting the Company’s results for the year, as well as the continued difficult economic environment. As a result, the Company made the decisions set forth under “KEY DECISIONS FOR 2011” below with respect to its 2011 executive compensation program.

WHY WE CHOOSE TO PAY EACH ELEMENT

We provide cash compensation in the form of base salary and annual incentive compensation. The objective of base salary is to provide current compensation that reflects job responsibilities, value to the Company and individual performance, while maintaining market competitiveness.

The objective of cash incentive compensation is to assure that a significant portion of total compensation is based on a reward of superior performance with respect to specific objectives, initiatives and strategic goals. The opportunity for a more significant award increases when both the Company or a specific operating group and the executive achieve high levels of performance. Commencing in 2005, we initiated an Executive Incentive Compensation Program (the “IC Program”). The IC Program in 2011 provided designated employees of the Company and its subsidiaries with an opportunity to earn substantial cash remuneration beyond their base salary based on: (i) the attainment of specified operating objectives by the Company (or specified divisions thereof); and (ii) fulfillment of specified individual goals and objectives established for specified participants. The objectives of the IC Program were to, among other things: (1) more closely align participants’ interests with those of shareholders; (2) reward participants for contributing to the short and long-term growth of the business; (3) provide participants with a more meaningful role in the attainment of maximum compensation levels; (4) provide a competitive platform for compensation vis-à-vis the marketplace; and (5) serve as a recruitment and retention tool. Incentive compensation awards under the IC Program for 2011 were based on specified percentages of base salary. The determination of such percentages is discussed below, and with respect to our named executive officers in 2011, ranged from a maximum potential payment of approximately 75% to 130% of base salary in the event that the maximum targets and the highest level of individual objectives and initiatives were achieved. See “Operation of the 2011 IC Program” below for a detailed discussion of potential and actual cash incentive compensation awarded to the NEOs in 2011.

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Equity awards are used periodically to provide our executives with upside opportunity with the improvement of the Company’s stock price and to provide incentives for retention, as such awards vest over time. We feel that stock option and stock appreciation right (“SAR”) awards align the interests of our executives with those of our shareholders, support the Company’s pay-for-performance philosophy (e.g., all the value received by the recipient from a stock option or SAR is based on the growth of the stock price above the exercise price, and correspondingly, the recipient is both incentivized to perform in a manner designed to increase shareholder value and exposed to the risk of the effect of negative performance on the Company’s stock price), foster employee stock ownership, and focus the management team on increasing value for the shareholders. In addition, because executive decisions regarding such matters as product development, marketing, sales, and the like, can affect the Company’s performance over several years, the Committee believes it is important to structure equity-based awards so that executives will focus on the long-term consequences of their decisions. As a result, a substantial portion of most equity awards takes the form of stock options or SARs. In addition, stock options and SARs help to provide a balance to the Company’s overall compensation program, as our annual cash incentive program focuses on the achievement of annual performance objectives, whereas the vesting period of stock options and SARs generally encourages executive retention and creates incentive for increases in shareholder value over a longer term. We also use restricted stock or restricted stock unit (“RSU”) awards to help align the interests of executives with those of the shareholders, foster employee stock ownership, contribute to the focus of the management team on increasing value for the shareholders, and encourage executive retention (through a multi-year vesting period). Restricted stock or RSU awards typically also result in less share dilution than a comparable amount (in terms of value) of options or SARs.

HOW WE CHOOSE AMOUNTS FOR EACH ELEMENT OF OUR COMPENSATION PROGRAM

We structure the size of the various elements awarded to all of our executives (including the NEOs) by balancing the interests of shareholders with the competitive need to provide an attractive overall compensation program. Although we do not have an exact formula for allocating among the different elements of our executive compensation program, including the division between cash and non-cash compensation and short and long-term incentives, we do ensure that a significant percentage of any executive’s aggregate compensation package (including that of the NEOs) is contingent upon either Company or operating group results as well as (during 2011) individual behavior, as is more fully described below. In addition, with respect to the specific amount of equity grants (in periods in which such grants are made), the CEO and the Committee use long-term incentive multiples in order to determine preliminary equity award values (which are then subject to adjustment), as described in “ANALYSIS OF DECISIONS WITH RESPECT TO OUR 2011 COMPENSATION PROGRAM”, under the caption “Equity Awards” below.

We believe that the various components of our 2011 compensation package together provide a strong link between compensation and performance on both the individual and Company level. We do not believe that compensation should be based on the short-term performance of our stock, whether favorable or unfavorable, because we feel that the price of our stock will, in the long-term, reflect our operating performance, and ultimately, the management of the Company by our executives. Similarly, as we constantly strive for improved Company performance, amounts realizable from compensation awarded or earned in the past are treated as one factor of many considered in setting other elements of compensation. In general, when we do not achieve targeted performance levels and/or our stock does not appreciate over time, compensation that can be realized by our executives is substantially reduced. When we exceed targeted performance levels and/or our stock price appreciates over time, compensation that can be realized by our executives is substantially increased. We believe that this is the most effective means of aligning executive incentives with our shareholders’ interests.

The particular amount of each element of our executives’ compensation (including that of the NEOs) for a particular year is determined by or with the approval of the Committee, which uses the following “considerations”, among others, in making such determinations: (i) the performance of the Company or the relevant operational group; (ii) the results of an annual executive assessment for each executive for the previous year; (iii) the anticipated difficulty of achieving stated goals and objectives in the coming year; (iv) the value of each executive’s unique skills and capabilities to support long-term performance of the Company; (v) the contribution of each executive as a member of the executive management team; (vi) the scope and relative complexity of the individual’s responsibilities; (vii) competitive market and industry information, including periodic reports on performance versus a peer group of companies; (viii) the recommendations of our compensation consultant, if any; (ix) the contributions of such executive beyond his or her immediate area of responsibility; (x) compensation at former employers, in the case of new hires; and (xi) internal pay equity. Certain of these considerations are given greater weight depending on the element of compensation under consideration, as is discussed with respect to each element below.

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The Committee has periodically engaged REDA to review and compile certain publicly-available information with respect to the compensation of executives. However, REDA provided no such services in 2011. The Committee does not attempt to maintain specific target percentiles with respect to a specific list of benchmark companies, but instead periodically uses analyses of peer group companies to determine whether the Company’s compensation programs are generally competitive with that of others in similar industries. See “BENCHMARKING” below.

In addition to the foregoing, in making decisions with respect to any element of an executive’s compensation, the Committee considers the total compensation that may be awarded to such individual. The goal of the Committee is to set aggregate compensation levels that are reasonable, when all elements of potential compensation are considered. To aid in this analysis, the Committee uses various tally sheets for each executive officer detailing such officer’s base salary, annual cash incentive award opportunity and payout, equity-based compensation, perquisites and other benefits. The tally sheets also show holdings of the Company’s Common Stock by such executive, as well as amounts payable upon termination of employment under various circumstances. The 2011 tally sheet amounts differ from the amounts set forth in the Summary Compensation Table because, among other things: (i) base salary reflects current amounts, whereas the Summary Compensation Table reflects the base salary amount during the entire year (base salaries may have increased during the year); and (ii) annual incentive cash compensation amounts include potential awards, while the Summary Compensation Table reflects the actual amount earned in 2011. The Committee uses these tally sheets to estimate the total annual compensation of our executives, to review how a change in the amount of each compensation component affects each NEO’s total compensation, and to provide perspective on payouts under a range of termination scenarios.

As a general matter, if the Committee determines that the wealth accumulation of a particular executive and/or the potential payout resulting from the termination of his or her employment is excessive and/or unjustified, unless limited by contract, the Committee may use its discretion to adjust one or more elements of compensation for such executive. The Committee did not determine that any downward adjustments were required with respect to any NEO compensation packages or elements for 2011 as a result of wealth accumulation.

In general, we choose base salaries that are competitive relative to similar positions at companies of comparable size, including at companies in our industry, in order to provide us with the ability to attract, retain and motivate employees with a proven record of performance. However, we do not “benchmark” base salaries (see “BENCHMARKING” below). Amounts attainable under the IC Program were meant to assure that a significant portion of total compensation was based on a reward of superior performance with respect to specific objectives, initiatives and strategic goals. Our general policy for allocating between long-term and currently paid compensation is to establish adequate base compensation to attract and retain personnel, while providing sufficient incentives to maximize long-term value for our shareholders. As discussed above, the Company weights compensation for the executives with more responsibility (including the NEOs) more toward variable, performance-based compensation elements than for less senior employees.

Based on the Summary Compensation Table below, 2011 compensation for the NEOs was allocated as follows (reflecting the fact that performance goals under the IC Program for 2011 were not achieved by the NEOs):

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ONGOING PROCESS

Evaluation of executive performance and consideration of our business environment are year-round processes which culminate in the annual executive assessments discussed above. In addition to the involvement of the Committee in the determination of performance targets and objectives, meetings of the Committee or the full Board over the course of the year include reviews of financial reports on year-to-date performance versus budgeted performance and prior year performance, review of information on each executive’s stock ownership and equity award holdings and estimated grant-date values of equity awards and review of tally sheets setting forth the total compensation of the named executive officers.

ROLE OF MANAGEMENT

Senior management plays an important role in our executive compensation decision-making process, due to their direct involvement in and knowledge of the business goals, strategies, experiences and performance of the Company and its various operational units. With respect to our IC Program for 2011 (which is described in detail below), the Committee engaged in active discussions with the CEO concerning: (i) who should participate in the program and at what levels; (ii) which performance metrics should be used in connection with different operational groups and participants; and (iii) the determination of performance targets, as well as individual goals and initiatives, where applicable, and whether and to what extent criteria for the previous year were achieved. In addition, the CEO is advised by the other senior executives of the Company in recommending and determining the achievement of individual goals and initiatives for those executives that do not report directly to him. With respect to equity grants, the CEO makes recommendations to the Committee as to appropriate grant levels for executives. In making these recommendations, the CEO is advised by the other senior executives with respect to those executives that do not report directly to him. The Committee reviews the appropriateness of the recommendations of the CEO with respect to the foregoing and accepts or adjusts such recommendations in light of the “considerations” applicable to the relevant element of compensation (discussed with respect to each element below). In addition, the senior executives of the Company are involved in the compensation-setting process through: (i) their evaluation of employee performance used in connection with the annual executive assessments; and (ii) their recommendations to the CEO and/or Committee with respect to base salary adjustments. Senior executives also prepare meeting information for the Committee upon request.

KEY DECISIONS FOR 2011

In light of the Company’s recent financial performance, continued challenging economic conditions, and in order to emphasize our pay-for-performance philosophy discussed in “Compensation Philosophy and Overview” above, the Committee determined: (i) that it would not be appropriate to award equity to its executives during 2011, other than in the case of Mr. Schaub, who was granted an award of SARs and RSUs in January of 2011 pursuant to the terms of his current employment agreement with the Company; and (ii) to retain the following elements of our 2010 executive incentive compensation program for the 2011 plan year:

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KEY DECISIONS FOR 2012

With respect to 2012, except as set forth below, no material changes have been made to the Company’s overall compensation philosophy or structure discussed in this Compensation Discussion and Analysis:

ANALYSIS OF DECISIONS WITH RESPECT TO OUR 2011 COMPENSATION PROGRAM

For 2011, the Committee made compensation decisions that were intended to support continued motivation and retention of executives, while recognizing the Company’s recent financial performance as well as continued economic uncertainty, all as described below.

Base Salaries

A minimum base salary for Messrs. Crain (whose employment terminated as of September 12, 2011) and Schaub was determined by each of their respective employment agreements. In addition, the Company’s agreement with RB, Inc. provides for a specified fee for the services of Mr. Benaroya (who is an employee of RB, Inc. and not of the Company) as Executive Chairman of the Company. See the section captioned “Employment Contracts and Arrangements” following the Summary Compensation Table for a description of the material terms and conditions with respect to such employment agreements, and the fee arrangement with RB, Inc. for the services of Mr. Benaroya. The Committee annually reviews and approves base salary adjustments for the named executive officers as part of the annual executive assessments, and at the time of any promotion or other change in responsibilities. In this context, the Committee does not rely on predetermined formulas or a limited set of criteria, however, the following “considerations” factor most heavily in the determination of base salary adjustments: (i) the results of the executive assessment for such executive for the previous year; (ii) the value of such executive’s unique skills and capabilities to support long-term performance of the Company; (iii) periodic competitive market and industry information, including a review of national and regional compensation surveys with respect to base salary increases for the year; (iv) the nature and responsibility of the executive’s position; (v) the importance of retaining the individual along with the competitiveness of the market for the individual’s talent and services; (vi) the recommendations of our compensation consultant, if any, (vii) general economic conditions; and (viii) the consumer price index increase for the applicable geographic region for the applicable year. With respect to 2011, base salaries of employees (including NEOs other than Mr. Benaroya) were increased an average of 2.5%, which generally reflected a 15%-20% discount to average increases provided to other executives, based on a composite of various broad-based market surveys. See the “Summary Compensation Table” below for base salaries of our named executive officers during 2011. With respect to 2012, there were no increases to the base salaries of most of the Company’s executives (including the NEOs).

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2011 Cash Incentive Compensation

The IC Program was in effect for 2011, but to the extent shareholder approval therefor at the 2012 Meeting is obtained, will be superseded by the Company’s new ICBP for 2012 (discussed in Proposal 4 of this Proxy Statement). All named executive officers (other than Mr. Benaroya) participated in the IC Program during 2011. To the extent shareholder approval of the ICBP is obtained at the 2012 Meeting, all named executive officers (other than Mr. Benaroya, who is not an employee of the Company and will not participate in the ICBP, and Mr. Crain, whose employment terminated as of September 12, 2011) will be participants therein for 2012.

Operation of the 2011 IC Program

(a) General

Subject to certain specified exclusions set forth in the IC Program, participants consisted of senior employees who work in specified operational groups of either the Company or its subsidiaries selected by the CEO in his sole discretion in consultation with the heads of business units and certain senior executives of his choice, in each case as approved by the Committee. Participants generally had the rank of vice president (or its functional equivalent at certain subsidiaries) or above, but titles were not determinative. The operational groups in 2011 consisted of: (i) Corporate participants; (ii) Sassy participants; (iii) Kids Line participants; (iv) LaJobi participants; and (v) CoCaLo participants.

Participants were eligible to participate in the IC Program at specified levels (expressed as a percentage of annual base salary). The percentage for each participant (such participant’s “Applicable Percentage”) was recommended for 2011 by the CEO and approved by the Committee (unless determined pursuant to the relevant individual’s employment agreement, as in the case of Mr. Crain prior to the termination of his employment).

Towards that end, the Applicable Percentages of all participants in the IC Program in 2011 ranged from 15% to 75% of base salary. Unless a specified percentage is set forth in an employment agreement, approval of a participant’s Applicable Percentage is based primarily on the following “considerations”: (i) the results of the annual executive assessment for such executive for the previous year; (ii) the anticipated difficulty of achieving stated goals and objectives in the coming year; (iii) the value of such executive’s unique skills and capabilities to support long-term performance of the Company; (iv) the contribution of such executive as a member of the executive management team; (v) the contributions of such executive beyond his immediate area of responsibility; and (vi) the importance of retaining the individual along with the competitiveness of the market for the individual’s talent. NEOs, as a result of their higher responsibility levels and greater ability to impact Company performance, generally have Applicable Percentages in excess of those of less senior executives. During 2011, the Applicable Percentage and participant group for each NEO (other than Mr. Benaroya, who is not an employee of the Company and does not participate in the IC Program) was as set forth in the table in paragraph (b) below.

Each participant’s annual base salary multiplied by such participant’s Applicable Percentage equals a number (the “IC Factor”) that is used to determine such participant’s total potential incentive compensation for 2011. As is explained below, however, the maximum amount of compensation that could have been earned under the IC Program in 2011 was greater than the IC Factor in the event that “stretch” goals were achieved by the Company.

With respect to the 2011 IC Program, potential incentive compensation for all participants was comprised of two separate components: a corporate performance component and an individual goals and objectives component. Basing a portion of awards on individual goals and objectives allowed the Committee to play a more proactive role in identifying performance objectives beyond purely financial measures in 2011, including, for example, exceptional performance of an individual’s functional responsibilities as well as leadership, innovations, creativity, collaboration, growth initiatives and other activities that are critical to driving long-term value for shareholders. Each component entitled a participant to earn a specified percentage of the IC Factor, as described below.

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Note that as a result of the focus of the Company on objective measures of financial performance discussed above, the individual goals and objectives component has been eliminated from the ICBP (subject to shareholder approval) commencing in 2012. To the extent such shareholder approval for the ICBP is not obtained, and the IC Program remains in effect for 2012, the individual goals and objectives component will be eliminated therefrom as well.

(b) Establishing Corporate Objectives and Calculating the Corporate Component

Corporate objectives for each operational group under the IC Program consisted of three separate levels of achievement (“Targets”) with respect to one or several specified measures of operating performance each year, such as operating income, Adjusted EBITDA, etc. (the “Chosen Metric”). Both the Chosen Metric and the Targets required were recommended by the CEO on an annual basis and approved by the Committee. The Chosen Metric for all participant groups during 2011 was Adjusted EBITDA (either consolidated or that of a specified operating group, as applicable), which was defined for this purpose as net income before net interest expense, provision for income taxes, depreciation, amortization and other non-cash, special or non-recurring charges. The Committee believes Adjusted EBITDA to be an appropriate metric by which to measure performance because it is a measure of cash flow that provides the flexibility needed to adjust for special circumstances that affect the Company from time to time and therefore provides an opportunity to measure performance from different periods in a more consistent manner. For 2011, the Committee made no additional adjustments (beyond those already incorporated into the definition of Adjusted EBITDA) for any participant in the IC Program. Targets were typically based on budgets for the relevant year (although this was not required). Targets were calculated to include a reserve to fund IC Program payments. We have not disclosed target levels for the corporate component of the IC Program because we believe such disclosure will cause competitive harm to the Company with regard to various short-term business strategies and goals. The Targets for 2011 were set at amounts that exceeded 2010 results. The Targets for 2011 were based on consolidated Company Adjusted EBITDA for Corporate participants. Targets for the corporate component for Sassy, Kids Line, LaJobi and CoCaLo participants were based on their respective Adjusted EBITDAs.

For most participants (and all NEOs) during 2011, 75% of such participant’s IC Factor was designated the “Part A Amount”. The Targets consisted of the following: (i) a specified minimum level of achievement in the Chosen Metric (the “Minimum Target”) required to earn an amount equal to 20% of a participant’s Part A Amount; (ii) a specified level of achievement in the Chosen Metric in excess of the Minimum Target (the “Target”) required to earn an amount equal to 100% of a participant’s Part A Amount; and (iii) a specified level of achievement in the Chosen Metric in excess of the Target (the “Maximum Target”) required to earn an amount equal to 150% of a Participant’s Part A Amount (other than for Mr. Crain, where achievement of the Maximum Target would have entitled him to an amount equal to 65% of his annual base salary, or 173.3% of his Part A Amount). In general, the Minimum Target rewarded achievement of a significant percentage of budgeted performance targets (typically 90% of Target in 2011). Achievement of the Target generally represents a slight “stretch”, representing how the Company would perform if it achieved budgeted amounts, recognizing that the budgets are generally set at slightly optimistic levels, whereas the Maximum Target is designed to be a true “stretch” goal for the Company or the relevant operational group (typically 120% of Target). From 2005 (the first year that the IC Program was in effect) through 2011, with respect to the corporate objectives, current participant groups achieved performance as follows (where “X” signifies that the Minimum Target was not reached; and a designation of “Min. Target”, “Target” or “Max. Target” signifies that that such respective Target level was either reached or exceeded):

The Maximum Target was not achieved by any participant group in any year. Generally, the Company seeks to maintain the relative difficulty of achieving the target levels from year to year.

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Amounts earned for achievement of results between (i) the Minimum Target and the Target and (ii) the Target and the Maximum Target, are in each case determined by a straight-line interpolation. No amounts are paid for achievement of results in excess of the Maximum Target. No amounts are paid for achievement of results below the Minimum Target. The Chosen Metric may change from year to year, different measurements may be used for different operating groups within the same year, and the Targets are expected to change each year. In determining whether any of the Targets were achieved for the year, the Committee may exercise its judgment whether to reflect or exclude the impact of changes in accounting principles and extraordinary, unusual or infrequently occurring events reported in the Company’s public filings that it believes were not driven by the current performance or that otherwise had a distorting positive or negative impact relative to the performance of our executives. For 2011, the Committee made no additional adjustments (beyond those already incorporated into the definition of Adjusted EBITDA) for any participant in the IC Program. To the extent appropriate, the CEO or a participant’s direct supervisor, as applicable, may also consider the nature and impact of unusual or extraordinary events in the context of ascertaining whether and to what extent the individual goals and objectives discussed below have been achieved. No such discretion was applied with respect to the NEOs in 2011.

The following table sets forth information with respect to potential and actual awards under the corporate performance component of the IC Program for the NEOs during 2011 (other than Mr. Benaroya, who is not an employee of the Company and does not participate in this program):

The following table sets forth information with respect to potential and actual awards under the corporate performance component of the IC Program for the NEOs during 2011 (other than Mr. Benaroya, who is not an employee of the Company and does not participate in this program):

(c) Calculating the Individual Goals and Objectives Component

The individual goals and objectives for each participant under the IC Program were determined each year by the CEO in his sole discretion in the event that the CEO is the participant’s direct supervisor or, in the event that the CEO is not the direct supervisor of the participant, by the CEO in consultation with the participant’s direct supervisor (and by the Committee with respect to Mr. Crain), and may be modified mid-year. The individual goals and objectives were based primarily upon individual performance and activities within each participant’s primary areas of responsibility that the Company wished to incentivize.

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Each participant’s individual goals and objectives were evaluated by the participant’s direct supervisor, who recommended in his/her sole discretion whether and to what extent such goals and objectives had been achieved and what, if any, percentage of the Part B Amount (25% of the IC Factor) had been earned, as approved by the Committee. Subject to the forfeiture provision discussed below, each participant could have earned between 0% and 150% of such participant’s Part B Amount (or 125% of the Part B Amount with respect to Sassy participants and 173.3% of the Part B Amount in the case of Mr. Crain), with respect to this component. Not all goals and objectives were given equal weight in such determination. The individual goals and objectives were intended to be difficult to achieve, representing exemplary performance in areas within and outside of each participant’s daily activities. The particular payout level awarded, if any, in each case depended on the assessment of the applicable supervisor and the Committee as to the degree of achievement attained and performance beyond specified goals, and accounted for the difficulty of the particular goal, the scope of responsibility of the applicable individual and the complexity of the required tasks. Mr. Crain’s individual goals and objectives for 2011 are discussed under “2011 Incentive Compensation for Mr. Crain” below.

Amounts between 100% and 150% of the Part B Amount (125% for Sassy participants, and 173.3% in the case of Mr. Crain) were reserved for superior performance, or for exemplary performance on special initiatives beyond the participant’s daily responsibilities; provided, however, that: (i) eligibility for any potential earnings under this component for all participants was forfeited if 80% of the Target for the corporate component of the relevant participant group was not achieved; and (ii) for performance of between 80% and 90% of Target for the corporate component of the relevant participant group, participants were entitled to earn up to a maximum of 25% of the Part B Amount. This provision was added because, although the Company rewards superior individual behavior apart from corporate performance, it was deemed inappropriate to award individuals the maximum potential payout under this component of the IC Program in the event that a minimum level of corporate performance for the year was not achieved. This forfeiture provision was triggered during 2011 with respect to all NEOs.

The following table sets forth information with respect to potential and actual awards under the individual goals and objectives portion of the IC Program for the named executive officers during 2011 (other than Mr. Benaroya, who is not an employee of the Company and does not participate in the IC Program):

See the Summary Compensation Table for total amounts of incentive compensation earned by the named executive officers under the IC Program and otherwise during 2011, including a discretionary bonus in the amount of $30,000 awarded to Mr. Schaub.

2011 Incentive Compensation for Mr. Benaroya

The agreement between RB, Inc., a Delaware corporation, and the Company for Mr. Benaroya’s services as Executive Chairman specifies that he will not participate in any bonus program, employee benefit plan or other compensation arrangement maintained by the Company. As a result, no incentive compensation was payable or paid to Mr. Benaroya in 2011. See “CEO COMPENSATION” below.

2011 Incentive Compensation for Mr. Crain (employment terminated as of September 12, 2011)

In accordance with the employment agreement between Mr. Crain and the Company, Mr. Crain was eligible for an annual cash incentive compensation opportunity in an amount not less than 75% of his base salary at target and 130% at maximum. Mr. Crain’s performance goals in respect of such incentive compensation opportunity, which were established by the Committee annually in consultation with Mr. Crain, were not permitted to be established at levels more difficult to achieve than for other bonus participants who have identical performance measures.

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For 2011, the Compensation Committee determined that 75% of Mr. Crain’s incentive compensation opportunity would be based upon achievement by the Company of specified consolidated Adjusted EBITDA levels equivalent to those pertaining to Corporate participants under the IC Program, and 25% would be based on achievement in five distinct categories of personal goals.

With respect to Mr. Crain’s corporate performance goals: (i) achievement of the Minimum Target would have entitled Mr. Crain to earn an amount equal to 11.25% of his annual base salary; (ii) achievement of the Target would have entitled Mr. Crain to earn an amount equal to 56.25% of his annual base salary; and (iii) achievement of the Maximum Target would have entitled Mr. Crain to earn an amount equal to 97.5% of his annual base salary (or 20%, 100% and 173.3% of his Part A Amount, respectively). Other elements generally applicable to the corporate component of the IC Program were also applicable to Mr. Crain.

With respect to Mr. Crain’s personal goals, five different categories were applicable for 2011 as follows: (i) strategic organic growth; (ii) operational efficiencies and business practice enhancements; (iii) management development and reporting; (iv) financing and investor relations; and (v) strategic alternatives, which would entitle Mr. Crain to receive from 0% to 32.5% of his annual base salary at the maximum level of achievement in each of the five categories (or up to 173.3% of his Part B Amount). Amounts between 100% and 173.3% of the Part B Amount were reserved for superior performance, or for exemplary performance on special initiatives beyond his daily responsibilities. Not all goals and objectives were given equal weight. The individual goals and objectives were intended to be difficult to achieve, representing exemplary performance in each of the areas identified. The particular payout level awarded, if any, in each case would have depended on the assessment of the Committee as to the degree of achievement attained, and would have accounted for the difficulty of the particular goal, the scope of responsibility of the applicable individual and the complexity of the required tasks. As Corporate Participants did not achieve 80% of the Target under the corporate component of the IC Program, even if his employment had not terminated in September of 2011, Mr. Crain would not have been entitled to any award under this or the corporate component of his incentive compensation program for 2011.

Potential amounts payable to Mr. Crain with respect to his incentive compensation program for 2011 were as follows:

Equity Awards

The specific amount of an equity grant to an executive depends on the individual’s position, scope of responsibility, ability to affect profits and shareholder value, the individual’s historic and recent performance, the value of equity awards in relation to other elements of total compensation, as well as the performance of the Company or the relevant operational group. Other than the Severance Policy (until its termination as of April 26, 2012) and the 401k plans maintained by the Company and each of its subsidiaries (each discussed below), we do not currently maintain any supplemental retirement plans for executives or other executive programs that reward tenure (however, we may consider the implementation of such plans in the future if deemed appropriate, and Mr. Goldfarb has an individual severance arrangement with the Company described in “Employment Contracts and Arrangements” below). We consider that equity awards and the resulting stock ownership are our method of providing for a substantial part of an executive’s retirement and wealth creation. Since equity awards are our primary contribution to an executive’s potential long-term wealth creation, we determine the size of the grants with that consideration in mind. We intend that our executives will share in the creation of value in the Company but will not have substantial guaranteed benefits at termination if value has not been created for shareholders.

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As a result of the evolution of regulatory, tax and accounting treatment of equity incentive programs and because it is important to us to retain our executive officers and key employees, the Committee now utilizes forms of equity awards in addition to stock options and restricted stock. In granting equity awards, the Committee typically determines a dollar value of equity awards to grant to each recipient. This dollar value is based on long-term incentive multiples (“LTI Multiples”) previously established for the Company’s executive positions (as described below). During 2007, REDA was retained by the Compensation Committee to review, among other things, proposed equity grants for the Company’s executives as part of a broader executive compensation market study prepared for the Committee by REDA. In connection with such study, REDA established LTI Multiples for specified Company executive positions, based on multiples applicable to various high-level executive positions measured in their study. With respect to Company executive positions not measured in REDA’s study, LTI Multiples were established based on typical market relationships between the CEO, the measured positions, and the Company’s non-measured positions (taking into account individual Company and position circumstances, as well as salary band information). Such LTI Multiples are applied to current salaries of the Company’s top executives, including its NEOs, in order to determine market-based equity grant values for such executives. For executives, this dollar value is translated into a number of stock options or SARs based on a Black-Scholes analysis and/or restricted stock or RSUs based on the fair market value of the Company’s common stock on the date of grant. As discussed in “KEY DECISIONS FOR 2011” above, a grant of SARs and RSUs was made to Mr. Schaub in January of 2011, but no other equity grants were made to NEOs in 2011. In March of 2012, however, the NEOs other than Messrs. Benaroya and Crain (Mr. Crain’s employment with the Company terminated as of September 12, 2011), received a grant of SARs and RSUs.

In connection with the determination of the amount of such grants for 2012, the CEO prepared equity grant recommendations for executives, including all NEOs, for presentation to the Compensation Committee. Such recommendations began with an analysis of whether the existing LTI Multiples required further adjustment based on the current circumstances applicable to the Company, as well as the individual NEO or other executive in question (in 2010, a 40% across-the board reduction in such multiples was implemented as a result of the significantly reduced Black Scholes valuation from the time the LTI Multiples were originally established in order to prevent unwarranted dilution). In order to limit the size of potential grants and to again prevent unwarranted dilution, the CEO recommended that the existing reduced LTI Multiples be further reduced (the “2012 LTI Multiples”). Using such further reduced 2012 LTI Multiples, an aggregate equity-award value for each NEO and other executive was determined, and a 75% SAR/25% RSU split, consistent with prior years, was applied to determine specific preliminary award recommendations. Additional adjustments were then made to individual awards to “round” the proposed amounts. The CEO then considered whether other modifications were required to be made to individual grants, based on the subjective factors described above. Once the final award recommendations were determined by the CEO, the relative appropriateness of the proposed grants was presented to the Compensation Committee for confirmation or further adjustment. With respect to the 2012 grants, the Compensation Committee confirmed the proposals with respect to the NEOS (and other executives to whom grants were made), after an assessment as to the appropriateness of the individual awards based on various metrics including the size of relative grants across business units, a review of total grants to each business unit relative to overall financial contribution of such business units, comparison to prior grants in size, scope and value, and comparison to budgets and other factors.

The Company granted SARs because such instruments provide greater flexibility to the Company than options, as SARs may be settled in cash, stock or a combination of both. The Committee felt that the amounts of SARs awarded in 2012 represented a significant and appropriate level of long-term compensation for 2012 in light of the other elements of the 2012 executive compensation program. The Company elected to include RSUs as a portion of these grants (approximately 25%) because RSUs create less dilution to shareholders (fewer RSUs as compared to stock options or SARs need to be granted to achieve a specified value), retain their incentive characteristics regardless of movements in the price of the stock and are increasingly becoming a standard part of comprehensive equity awards at other companies with whom the Company may compete for talented executives. Such awards also provide flexibility similar to SARs.

See the “2011 Outstanding Awards at Fiscal Year End” table and accompanying footnotes below for a description of the material terms and amounts of outstanding equity held as of December 31, 2011 by the named executive officers.

OTHER ELEMENTS OF COMPENSATION AND RELATED BENEFITS

Perquisites

We limit the perquisites that we make available to our executive officers. Executives are entitled to few benefits that are not otherwise available to all of our employees. The perquisites provided to the CEO and the other NEOs in 2011 are described in footnote (6) to the Summary Compensation Table below. The Company and its subsidiaries currently maintain separate health insurance plans, which are the same for all employees within a particular company.

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40l(k) Plan

The Company and each of its subsidiaries offer eligible employees the opportunity to participate in a retirement plan (the “401(k) Plans”) that is based on employees’ pretax salary deferrals pursuant to Section 401(k) of the Code. The Company, LaJobi and Sassy match a portion (either one-half of any amount up to 6%, or 100% of any amount up to 3%, of salary contributed) of the compensation deferred by each employee, and Kids Line contributes 3% of eligible salary pursuant to the safe harbor provisions of Section 401(k) of the Code. Matching contributions are fully vested after four years of employment at the rate of 25% per year of employment (after six years of employment for LaJobi). See the section captioned “Termination of Employment and Change in Control Arrangements” below for a more detailed description of the 401(k) Plans. See the Summary Compensation Table for amounts contributed to the named executive officers under the 401(k) Plans during 2011. The objective of these programs is to help provide financial security into retirement, and to reward and motivate tenure and recruit and retain talent in a competitive market.

Employee Stock Purchase Plan

Under the Company’s 2009 Employee Stock Purchase Plan (the “2009 ESPP”), eligible employees, including the NEOs, were provided the opportunity to purchase the Company’s common stock at the lesser of 85% of the closing market price of the Company’s common stock on either the first trading day or the last trading day of the plan year. We felt that offering the opportunity to purchase our stock at a discount to our employees (including our executives) encouraged the alignment of their interests with those of our shareholders. “Options” were granted to participants as of the first trading day of each calendar year, and may be exercised as of the last trading day of each plan year, to purchase from the Company the number of shares of common stock that may be purchased at the relevant purchase price with the aggregate amount contributed by each participant. In each plan year, an eligible employee could elect to participate in the plan by authorizing a payroll deduction of up to 10% (in whole percentages) of his or her compensation. No participant had the right to purchase Company common stock under this plan that has a fair market value in excess of $25,000 or the right to purchase more than 25,000 shares in any plan year. If an employee did not elect to exercise his or her “option”, the total amount credited to his or her account during that plan year is returned to such employee without interest, and his or her “option” expires. With respect to the NEOs, Messrs. Goldfarb and Paglinco participated in the 2009 ESPP for the 2011 plan year. The 2009 ESPP has been suspended for the 2012 and 2013 plan years (and barring further action by the Committee, will expire by its terms at the conclusion of the 2013 plan year).

POST-TERMINATION BENEFITS

Severance Policy

The Company’s severance policy was applicable in 2011 (but terminated as of April 26, 2012), and applied generally to employees who were domestic vice presidents or above and who were designated as participants in the plan by the Committee (other than Messrs. Benaroya and Crain in 2011, who were not participants in this plan). This severance policy, which is described in further detail in the section captioned “Termination of Employment and Change in Control Arrangements” below, generally provided that in the event of a termination by the Company without cause, participants would be granted specified severance benefits. In addition, effective March 30, 2007, the severance policy specified that in the event that the employment of eligible vice presidents was terminated in connection with the consummation of certain corporate transactions, the severance payments and benefits applicable to such terminated individual would be extended by an additional 4 months up to a maximum severance period of 12 months. This trigger was deemed appropriate to provide a limited degree of income protection to our executives in the event of a termination of employment by the Company other than for cause. We felt that the amounts provided pursuant to this plan were appropriately based on years of service and were reasonable in the context of our total compensation program. See the “Potential Payments Upon Termination or Change in Control” table and subsequent narrative below for a description of the potential amounts payable pursuant to this plan as of the end of 2011 to participating named executive officers under specified assumptions.

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Change in Control Letters

The Company issued letters, effective April 26, 2012, to each of Messrs. Paglinco and Goldfarb, stating that if the employment of the executive officer is terminated by the Company without Cause, or by such executive officer for Good Reason (each as defined in such letters) within the 365-day period following the consummation of a Change in Control (as defined in such letters), such executive officer will be entitled to the benefits set forth below, notwithstanding anything to the contrary in any other benefit or compensatory plan maintained by the Company, including, but not limited to, any other severance arrangements between the executive and the Company, the IC Program or the ICBP, as applicable, any award agreement governing the relevant equity, or the plan pursuant to which such equity was issued:

In order to receive any payments or benefits under such letters, the executive officer must execute the Company’s general form of release within 21 days following his termination.

The Company will require any successor or assignee to all or substantially all of the business or assets of the Company to assume the obligations of the Company under such letters, and maintain such letters for a period of 365 days.

We executed these letters because we deemed it reasonable to provide this benefit to critical members of our senior corporate staff in order to help ensure their cooperation and the continuity of management should any of the aforementioned events occur, and to help eliminate from any decision-making process potential distractions caused by concerns over personal financial and employment security. The elements of the change in control definition were chosen to cover a diverse range of circumstances where either the ownership or leadership of the Company changed to a degree sufficient in our view to warrant the provision of protections to the specified executives in order to encourage them to continue their employment through a change in control to ensure a smooth transition when and if required.

CEO COMPENSATION

Mr. Benaroya (acting CEO)

The Company entered into an agreement with RB, Inc., a Delaware corporation, effective September 12, 2011, to provide for the full-time services of Mr. Benaroya as interim Executive Chairman and acting CEO until the earlier of: (i) December 31, 2011; and (ii) the appointment of a new chief executive officer or written notice from the Company. A fee of $300,000 was payable by the Company to RB, Inc. for Mr. Benaroya’s services during this period.

On February 14, 2012, this agreement was modified and extended (by letter agreement), pursuant to which RB, Inc. agreed to continue to provide the full-time services of Mr. Benaroya as interim Executive Chairman and acting CEO of the Company on a month-to-month basis, effective as of January 1, 2012, subject to termination by either the Company or RB, Inc. at any time upon ten days written notice to the other party. In connection therewith, RB, Inc. will be paid a fee of $100,000 per calendar month during such continuation period. Upon termination of the agreement, any fee payable for the month of termination will be prorated to reflect the actual number of days in such month during which such agreement was in effect. Mr. Benaroya will not be paid directors’ fees during the term of his engagement as interim Executive Chairman, nor will he participate in any bonus program, employee benefit plan or other compensation arrangement with the Company.

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Mr. Crain (employment terminated as of September 12, 2011)

In determining the various components of Mr. Crain’s compensation package at the time of the commencement of his employment, the Committee reviewed a variety of factors it deemed appropriate, including, but not limited to, Mr. Crain’s prior responsibilities and experience, most current compensation, scope of the position, the then-current operational position of the Company, the recommendations of REDA as well as the Company’s then-current challenges and future plans. As a result of this analysis and negotiations between Mr. Crain and the Company, as of December 4, 2007, the Company entered into an employment agreement with Mr. Crain as President and Chief Executive Officer of the Company, at an annual base salary of $550,000 (which salary could not be decreased during the term of his agreement). Mr. Crain’s annual base salary during 2011 was $577,844. See “Internal Pay Equity” below.

In addition, pursuant to his employment agreement, and as further inducement to his joining the Company, the Company made specified equity grants to Mr. Crain, and agreed to provide Mr. Crain with specified incentive compensation opportunities and perquisites. See the section captioned “Employment Contracts and Arrangements” for a description of the material provisions of Mr. Crain’s employment agreement, as amended, including incentive compensation, equity grants, perquisites and post-termination benefits. See the Summary Compensation Table for a description of the elements of Mr. Crain’s compensation during 2011.

OTHER COMPENSATION POLICIES AND CONSIDERATIONS

2011 “Say -on-Pay” Advisory Vote on Executive Compensation and Frequency of Say-on-Pay Votes

At the Annual Meeting of Shareholders of the Company held on July 19, 2011 (the “2011 Annual Meeting”), we provided shareholders a “say on pay” advisory vote on our executive compensation. At the 2011 Annual Meeting, approximately 98.5% of the votes cast on this “say-on-pay” vote were voted in favor of the proposal. The Committee believes that the results of this vote indicate that our shareholders are generally supportive of our approach to executive compensation. As a result, the Committee did not make any changes to our executive compensation program and policies as a result of the 2011 “say on pay” advisory vote. In the future, we will continue to consider the outcome of our say-on-pay votes when making compensation decisions regarding our NEOs, as well as the other factors described in this Compensation Discussion and Analysis as impacting the evaluation of our executive compensation programs, including our assessment of the interaction of our compensation programs with our compensation philosophy, and whether such programs meet our stated objectives. See “KEY DECISIONS FOR 2012” above.

At the 2011 Annual Meeting, the Company’s shareholders (by a plurality of votes cast) recommended, on an advisory basis, that the Company’s future advisory votes on executive compensation be held every year. Based on the shareholders’ recommendation and other factors, on December 6, 2011, the Board determined that it will include advisory votes on executive compensation in its proxy materials every year until the next advisory vote on the frequency of shareholder advisory votes on executive compensation, which will occur no later than the Company’s Annual Meeting of Stockholders in 2017.

Periodic Review

We periodically review each element of our compensation program described above to ensure that each such element continues to meet our stated objectives.

Internal Pay Equity

We believe that internal equity is one factor of many to be considered in establishing compensation for our executives. We have not established a policy regarding the ratio of total compensation of the CEO to that of the other executive officers, but do review compensation levels to ensure that appropriate equity exists. The difference between the Chief Executive Officer’s compensation and that of the other named executive officers reflects the difference in their relative responsibilities. The CEO’s responsibilities for management and oversight of all functions of an enterprise are significantly higher than those of other executive officers. As a result, the market pay level for our CEO is substantially higher than the market pay for most other officer positions. We intend to continue to review internal compensation equity and will adopt a formal policy once the SEC issues rules in this area, as it has been directed by The Dodd-Frank Wall Street Reform and Consumer Protection Act.

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Timing of Stock Option (and Other Equity) Grants

Our practices with respect to equity grants include the following:

(i) except for inducement awards to new executives, we plan stock option and other equity grant dates in advance of any actual grant;

(ii) except for inducement awards, the grant date for all awards is made an appropriate period in advance of or is deferred until after the Company has released earnings for the fiscal year or latest relevant fiscal quarter (with respect to inducement awards, such awards are usually made some period after the commencement of employment, typically between one and ninety days after announcement or commencement); grants are typically made to all employees receiving awards (other than inducement awards) at the same time;

(iii) the Company’s executives do not determine the grant date of equity awards;

(iv) the grant date of equity awards is generally the date of approval of the grants;

(v) the exercise price with respect to grants of stock options and SARs is the market closing price of the underlying common stock on the grant date;

(vi) if at the time of any planned equity grant date any member of the Board or senior executive is aware of material non-public information, we would not generally make the grant; and

(vii) regarding the grant process, the Committee does not delegate any related function, however, as is described above, the Committee receives significant input and recommendations from the CEO with respect to appropriate grant levels. See “Role of Management” above.

ACCOUNTING CONSIDERATIONS

The Committee considers the accounting and cash flow implications of various forms of executive compensation. In its consolidated financial statements, the Company records salaries and performance- based compensation in the amount paid or to be paid to the named executive officers. Accounting rules also require the Company to record an expense in its financial statements for equity awards, even though equity awards are not paid as cash to employees and may not vest or be earned by such employees. The accounting expense of equity awards to employees is calculated in accordance with current accounting rules under GAAP, which require stock-based compensation expense to be measured at the grant date based on the fair value of the award. The Committee believes that the many advantages of equity compensation, as discussed above, more than compensate for the associated non-cash accounting expense required relevant accounting rules; however, the Committee considers the amount of this expense in determining the amount of equity compensation awards.

TAX CONSIDERATIONS

Section 162(m) of the Code generally disallows a tax deduction to public companies for compensation in excess of $1 million paid to the CEO and to the other covered employees in a calendar year. Performance-based compensation arrangements may qualify for an exemption from the deduction limit if they satisfy various requirements under Section 162(m), which requirements include shareholder approval of specified provisions of such compensation arrangements. Although the Company considers the impact of this rule when developing and implementing its executive compensation programs, tax deductibility is not a primary objective of our compensation programs. In our view and the view of the Committee, meeting the compensation objectives set forth in this Compensation Discussion and Analysis is more important than the benefit of being able to deduct the compensation for tax purposes. Accordingly, the Company has not adopted a policy that all compensation must qualify as deductible under Section 162(m), although it has considered Section 162(m)’s performance-based compensation requirements in the design of its annual cash incentive award programs. However, we are recommending that our shareholders vote to approve the ICBP at the 2012 Meeting. If so approved, the ICBP is generally intended to allow compensation paid under the ICBP to specified employees to qualify as performance-based compensation within the meaning of Section 162(m) of the Code, thereby preserving the ability for compensation awarded under the ICBP to qualify as deductible under Section 162(m). For more information, see Proposal 4 of this Proxy Statement. Note that we reserve the right to use our judgment to authorize compensation payments that do not comply with the exemptions of Section 162(m) when we believe that such payments are appropriate to award performance and/or enhance retention.

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If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A of the Code, and such benefits do not comply with Section 409A, then the benefits are taxable in the first year they are not subject to a substantial risk of forfeiture. In such case, the executive is subject to regular federal income tax, interest and an additional federal income tax of 20% of the benefit includible in income. Our plans that are subject to Section 409A are generally designed to comply with the requirements of such section so as to avoid possible adverse tax consequences that may result from noncompliance with Section 409A.

BENCHMARKING

We do not believe that it is appropriate to establish compensation levels primarily based on benchmarking. Therefore, we do not attempt to maintain a specific target percentile with respect to a specific list of benchmark companies in determining compensation for NEOs or other executives. Nevertheless, we do believe that information regarding pay practices at other companies is useful in two respects. First, we recognize that our compensation practices must be competitive in the marketplace. Second, this marketplace information is one of the “considerations” used by the Committee in assessing the reasonableness of compensation. Accordingly, the Committee periodically reviews compensation levels for our named executive officers and other key executives against compensation levels at companies in our industry or industries similar to ours, and the Company does factor in the results of compensation surveys and the periodic recommendations of compensation consultants in establishing compensation for our NEOs and other key executives.

STOCK OWNERSHIP GUIDELINES

Although we encourage stock ownership in the Company by our executives and directors, we have not established a formal policy regarding such stock ownership. We may explore whether the adoption of such a policy in the future would be appropriate.

FINANCIAL RESTATEMENT

To the extent permitted by governing law, the Committee has the sole and absolute authority to make retroactive adjustments to any cash or equity based incentive compensation paid to executive officers and certain other officers where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement. Where applicable and appropriate, the Company will seek to recover any amount determined to have been inappropriately received by the individual executive. In addition, this policy may be expanded once the SEC issues rules in this area, as it has been directed by The Dodd-Frank Wall Street Reform and Consumer Protection Act.

As has been previously disclosed, the Company has restated specified historic financial statements to reflect the recording of certain anticipated anti-dumping and other customs duty payment requirements (and related interest), previously recorded in prior periods, into the respective periods to which such liabilities relate. Although it was the initial determination of the Company’s management (in which the Company’s independent auditors concurred) that the impact of the aggregate charges was immaterial to prior periods, after various submissions to and discussions with the Staff of the SEC on this matter, and in recognition of the Staff’s position with respect thereto, management and the Audit Committee of the Board determined that such restatement would be required. As a result of the fact that: (i) such restatement was implemented at the request of the SEC, based on their view of the application of relevant accounting standards to our particular circumstances; and (ii) the Committee would have had the discretion to exclude the impact of the charges in question from the calculation of Adjusted EBITDA in all relevant years, the Committee determined that it would not be necessary or appropriate to make retroactive adjustments to incentive compensation paid to the Company’s officers during the relevant prior periods (provided, however, that with respect to Mr. Bivona, the Company does intend to seek reimbursement of incentive compensation paid to him during the relevant period through its pending arbitration over his employment agreement, the LaJobi earnout and related issues).

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HEDGING

We consider hedging an inappropriate trading practice. Our Insider Trading Policy prohibits our directors, officers or employees from investing in derivatives of our securities, including trading in puts, calls and options, without the prior approval of our Board.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included herein with management, and based on such review and discussions, the Compensation Committee recommended to the Board that such Compensation Discussion and Analysis be included in its Annual Report on Form 10-K for the year ended December 31, 2011, Amendment No. 1 thereto, and the Proxy Statement for the 2012 Annual Meeting of Shareholders of the Company.

Kid Brands, Inc. Compensation Committee

Frederick Horowitz, Mario Ciampi and Hugh R. Rovit

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 2011, the following were members of the Compensation Committee: Messrs. Horowitz, Ciampi and Rovit (Mr. Rovit became a member of the Compensation Committee on July 19, 2011). Mr. Benaroya is an observer of such committee, but is not a member thereof. Mr. Ciampi, a Prentice Director, is a partner of Prentice, and a manager and member of an affiliate of Prentice. No member of the Compensation Committee is or ever has been an officer or employee of the Company or any of its subsidiaries, and no “compensation committee interlocks” existed during 2011.

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Summary Compensation Table

The following table sets forth compensation for the years shown awarded to, earned by, paid to or accrued for the benefit of both the current and former principal executive officer of the Company, the principal financial officer of the Company, and the three most highly compensated executive officers of the Company during 2011 other than the foregoing, who were in each case serving as executive officers on December 31, 2011 (collectively, the “named executive officers”, or the “NEOs”).

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With respect to Mr. Benaroya, $131,500 of the total in the salary column in the table above represents amounts paid to him in consideration for his service as Chairman of the Board (including special committee fees) prior to his appointment as interim Executive Chairman and acting CEO as of September 12, 2011. See the “Director Compensation” table and related footnotes below. The remainder represents amount paid to RB, Inc. pursuant to its agreement with the Company for the provision of Mr. Benaroya’s services as interim Executive Chairman and acting CEO. During the term of such engagement, Mr. Benaroya will not receive directors’ fees, nor will he participate in any bonus program, employee benefit plan or other compensation arrangement with the Company. See “Employment Contracts and Arrangements” below.

A grant of 5,000 RSUs was made to all continuing non-employee directors (including Mr. Benaroya) on July 19, 2011. See the “Director Compensation” table and related footnotes below.

A grant of 14,250 SARs was made to all continuing non-employee directors (including Mr. Benaroya) on July 19, 2011. See the “Director Compensation” table and related footnotes below.

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2011 Grants of Plan-Based Awards

The following table provides information with respect to non-equity incentive plan awards to the NEOs in 2011 as well as equity awards made to the NEOs in 2011.

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Employment Contracts and Arrangements

Mr. Benaroya (acting CEO)

The Company entered into an agreement with RB, Inc., a Delaware corporation, effective September 12, 2011, to provide for the full-time services of Mr. Benaroya as interim Executive Chairman and acting CEO until the earlier of: (i) December 31, 2011; and (ii) the appointment of a new chief executive officer or written notice from the Company. A fee of $300,000 was payable by the Company to RB, Inc. for Mr. Benaroya’s services during this period.

On February 14, 2012, this agreement was modified and extended (by letter agreement), pursuant to which RB, Inc. agreed to continue to provide the full-time services of Mr. Benaroya as interim Executive Chairman and acting CEO of the Company on a month-to-month basis, effective as of January 1, 2012, subject to termination by either the Company or RB, Inc. at any time upon ten days written notice to the other party. In connection therewith, RB, Inc. will be paid a fee of $100,000 per calendar month during such continuation period. Upon termination of the agreement, any fee payable for the month of termination will be prorated to reflect the actual number of days in such month during which such agreement was in effect.

Mr. Benaroya has not and will not be paid directors’ fees during the term of his engagement as interim Executive Chairman, nor will he participate in any bonus program, employee benefit plan or other compensation arrangement with the Company.

A grant of 5,000 RSUs and 14,250 SARs was made to each continuing non-employee director (including Mr. Benaroya) on July 19, 2011, which each vest ratably over a period of five years commencing July 19, 2012. See the “Director Compensation” table and related footnotes below.

Mr. Crain (employment terminated as of September 12, 2011)

As of December 4, 2007 (the “Commencement Date”), Mr. Crain entered into an agreement, amended as of August 10, 2009 (the “Crain Agreement”) with the Company, with respect to his employment as President and Chief Executive Officer of the Company, at an annual base salary of $550,000. Mr. Crain’s base salary could not be decreased during the term of his employment with the Company, and was subject to annual increase in the discretion of the Compensation Committee (his annual base salary for 2011 was $577,844). The Company also agreed to nominate Mr. Crain as a member of the Board during the term of the Crain Agreement. Commencing in 2008, Mr. Crain became eligible for an annual cash incentive compensation opportunity in an amount not less than 75% of his base salary at target and 130% at maximum. Mr. Crain’s performance goals in respect of such incentive compensation opportunity, which were established by the Compensation Committee annually in consultation with Mr. Crain, could not be established at levels that were more difficult to achieve than for other IC Program participants who had identical performance measures. The Compensation Committee determined that 75% of Mr. Crain’s incentive compensation opportunity for 2011 would be based upon achievement by the Company of the consolidated Adjusted EBITDA Targets applicable to corporate participants under the IC Program, and 25% would be based on achievement in five distinct categories of personal goals. No incentive compensation was awarded to Mr. Crain for 2011 (See CD&A above under the caption “2011 Incentive Compensation for Mr. Crain”).

Also pursuant to the Crain Agreement, various awards of restricted stock and options were made to Mr. Crain in connection with the commencement of his employment (collectively, the “Equity Awards”, and as to the options only, the “Options”). No equity was granted to Mr. Crain in 2011. See the “2011 Outstanding Equity Awards at Fiscal Year End” table below for a description of the acceleration, exercise and/or forfeiture of all equity awarded to Mr. Crain as a result of the termination of his employment.

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Pursuant to the Crain Agreement, Mr. Crain was entitled to participate in the Company’s employee benefit plans and programs applicable to senior executives generally and on a basis no less favorable than those provided to other senior executives. In addition, Mr. Crain was entitled to life insurance coverage equal to 200% of his annual base salary (or the life insurance benefit under the Company’s life insurance program for senior executives if the latter would provide for a higher level of coverage), long-term disability benefits during the period of disability equal to 50% of his base salary (prior to offsets provided in the Company’s long-term disability plan) through the Company’s long-term disability plan and a supplemental disability program (the Company agreed to use commercially reasonable best efforts to arrange for the provision of all or part of the supplemental disability benefit on a non-taxable basis to Mr. Crain), reimbursement for tax preparation and financial planning services not to exceed $5,000 annually, reimbursement for an annual physical examination and director’s and officer’s liability insurance coverage during the term of his employment and for six years thereafter in an annual amount equal to at least the greater of $5.0 million or the coverage provided to any other present or former senior executive or director of the Company. Mr. Crain was also entitled to reimbursement for his legal fees in connection with the Crain Agreement and the consulting arrangement he had with the Company prior to execution of the Crain Agreement, up to a maximum of $25,000, and outplacement services in the event of his termination without Cause or termination for Good Reason for a period of six months following such termination in an amount not to exceed $10,000. Mr. Crain was not a participant in the Company’s Severance Policy. Mr. Crain was entitled to three week’s vacation annually. See footnote 6 of the “Summary Compensation Table” above for a description of perquisites received by Mr. Crain during the period covered by the table.

Provisions Applicable to Actual Termination

If the Company terminated the employment of Mr. Crain without Cause or he terminated his employment for Good Reason (not within the 120 day period prior or subsequent to a Change of Control, as defined in the Crain Agreement), Mr. Crain would be entitled to receive his base salary earned through the date of termination and for a period of six months thereafter, bonus amounts earned for any prior year and not yet paid, continued life insurance coverage (as set forth in the Crain Agreement) for a period of six months following the date of termination, coverage under the Company’s medical and dental, if any, programs during the twelve-month period following the date of termination, and in the event of termination without Cause only, the pro-rata portion of his bonus for the year in which the date of termination occurs based on actual performance for such year. Also in the event of any such termination, the Equity Awards would become immediately vested and/or non-forfeitable, as applicable, to the same extent as if Mr. Crain had completed an additional two years of service after the date of termination, and the Options would remain exercisable for the shorter of 90 days following the date of termination and the remainder of their term. In connection with his departure as of September 12, 2011, Mr. Crain received these benefits (see “Actual Terminations in 2011” below). In consideration of the foregoing (and pursuant to the provisions of the Crain Agreement), Mr. Crain has executed a release substantially in the form previously filed with his employment agreement, with the additional agreement that, until September 12, 2013, he will not, either personally or as an owner, director, employee, agent or consultant of another entity, engage in any proceeding intended to effect a Change in Control of the Company that has not been approved by the Board. The other restrictions in his employment agreement surviving termination remain applicable, including a restriction against specified competitive activities during Mr. Crain’s employment by the Company and for a period of one year thereafter and a non-solicitation agreement for a period of two years.

Mr. Crain is under no obligation to seek other employment, and there shall be no offset against any amounts due him on account of any remuneration attributable to any subsequent employment that he may obtain.

Provisions not Applicable to Actual Termination

If the employment of Mr. Crain had been terminated by the Company for Cause or by Mr. Crain without Good Reason (each as defined in the Crain Agreement), he would have been entitled to receive his base salary earned through the date of termination, bonus amounts earned for any prior year and not yet paid, and other amounts and benefits, if any, provided under applicable Company programs and policies (collectively, the “Accrued Benefits”). In addition, the unvested portion of all equity awards would have been cancelled or immediately forfeited, as applicable, and any unexercised, vested portion of the Options would have remained exercisable for the shorter of 90 days following the date of termination and the remainder of their term.

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If Mr. Crain’s employment had been terminated without Cause by the Company or by Mr. Crain with Good Reason, in either case within the 120 day period prior to or the 120 day period following a Change in Control, he would have been entitled to receive: (i) his base salary for a period of 21 months after the termination date (instead of 6 months); and (ii) coverage under the Company’s life insurance programs for 12 months following the termination date (instead of 6 months). In addition, bonus calculations with respect to such termination would have been applied to the year in which the earlier of the termination date or the Change in Control occurred (the earlier of such dates, the “Trigger Date”), and would have been based on actual targets (pro rated through the Trigger Date) and performance achieved through the Trigger Date (provided, if targets had not been set by the Company for the year in which the Trigger Date occurred, such bonus would have been based on actual targets and performance achieved for the year prior to the year in which the Trigger Date occurs, and prorated as set forth above as if the Trigger Date occurred in such prior year), in each case with the amount of the bonus prorated for the period of the relevant year through the Trigger Date. Subject to the following paragraph, other benefits to which Mr. Crain was entitled in the event of a termination without Cause by the Company or for Good Reason by Mr. Crain (including with respect to the acceleration of the Equity Awards), would generally have applied.

In the event of a Change in Control, all equity granted to Mr. Crain as of the date of August 10, 2009, including the Equity Awards (“2009 Equity”) would have become immediately vested or non-forfeitable, as applicable, and if a Change in Control occurred within 6 months following a termination of the employment of Mr. Crain without Cause, the remaining unvested portion of the 2009 Equity would have vested, and any unexercised portion of the 2009 Equity would have remained exercisable for one year following the Change in Control, or their respective expiration dates, whichever was earlier.

If the employment of Mr. Crain had been terminated by the Company as a result of his Disability (as defined in the Crain Agreement), he would have been entitled to receive the Accrued Benefits, as well as the long-term disability benefit described above. If the employment of Mr. Crain had been terminated as a result of his death, his estate would have been entitled to receive the Accrued Benefits, and his designated beneficiary (or his estate in the absence of such designation) would have been entitled to receive the life insurance benefit described above. In addition, in the event that the employment of Mr. Crain was terminated as a result of his death or Disability, he, his estate, or his designated beneficiary, as applicable, would have been entitled to the pro-rata portion of the bonus for the year in which the date of termination occurred based on actual performance for such year, and the Equity Awards would have become immediately vested and/or non-forfeitable, as applicable, to the same extent as if Mr. Crain had completed an additional two years of service after the date of termination, and the Options would have remained exercisable for the shorter of one year following the date of termination and the remainder of their term.

Mr. Paglinco

Mr. Paglinco was hired as Vice President – Corporate Controller of the Company in September 2006. He was promoted to Vice President and Chief Accounting Officer in November 2007, and assumed the additional role of interim Chief Financial Officer as of January 30, 2009. Effective August 14, 2009, he was promoted to Vice President and Chief Financial Officer of the Company. During 2011, his annual base salary was $271,625, and his Applicable Percentage under the IC Program was 45%. Equity grants are in the discretion of the Compensation Committee. Mr. Paglinco was not awarded equity in 2011. His employment is “at will”.

Pursuant to his current arrangement with the Company, Mr. Paglinco is also entitled to participate generally in all retirement, savings, welfare and other employee benefit plans and arrangements provided to other executive officers of the Company, including the Company’s Severance Policy, including the March 30, 2007 amendment thereto (prior to the termination of such policy as of April 26, 2012), and receives a monthly car allowance. Mr. Paglinco is also entitled to three weeks annual vacation.

Mr. Paglinco was issued a Change in Control Letter, described in detail in the Compensation Discussion and Analysis under the caption “Change in Control Letters”.

See footnote 6 of the “Summary Compensation Table” above for a description of perquisites received by Mr. Paglinco during the period covered by the table. The terms of equity awarded to Mr. Paglinco are described in the “2011 Outstanding Equity Awards at Fiscal Year End” table below.

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Mr. Goldfarb

On September 26, 2005, Marc S. Goldfarb was hired as Vice President, General Counsel and Secretary of the Company at an annual base salary of $260,000. In accordance with the terms of his current employment arrangement with the Company, Mr. Goldfarb serves as Senior Vice President and General Counsel of the Company (as of May 31, 2006) and during 2011, his annual base salary was $341,537. Mr. Goldfarb participated in the IC Program in 2011 with an Applicable Percentage of 50%. Other than stock options awarded to Mr. Goldfarb in connection with the commencement of his employment, equity grants are at the discretion of the Compensation Committee. No equity was granted to Mr. Goldfarb in 2011. His employment is “at will”.

Pursuant to his arrangement with the Company, Mr. Goldfarb is also entitled to participate generally in all retirement, savings, welfare and other employee benefit plans and arrangements provided to other executive officers of the Company, including the Company’s Severance Policy, including the March 30, 2007 amendments thereto, prior to the termination of such policy (with a guaranteed minimum of 8 months of severance), and receives a monthly car allowance. Mr. Goldfarb is also entitled to three weeks annual paid vacation.

A Change of Control Letter was issued to Mr. Goldfarb, described in detail in the Compensation Discussion and Analysis under the caption “Change in Control Letters”.

See footnote 6 of the “Summary Compensation Table” above for a description of perquisites received by Mr. Goldfarb during the period covered by the table. The terms of equity awarded to Mr. Goldfarb are described in the “2011 Outstanding Equity Awards at Fiscal Year End” table below.

Mr. Sabin

Mr. Sabin serves as the President of Kids Line (since January 2010) and CoCaLo (since September 2010) pursuant to an employment agreement dated December 7, 2009. His employment agreement provides for an annual base salary of $475,000 (applicable in 2011). Mr. Sabin participated in the IC Program in 2011 with an Applicable Percentage of 50%. A grant of SARS and RSUs was made to Mr. Sabin in connection with the commencement of his employment. Further equity grants are at the discretion of the Compensation Committee. No equity was granted to Mr. Sabin in 2011. Mr. Sabin’s employment is “at will”.

Pursuant to his arrangement with the Company, Mr. Sabin was also entitled to participate generally in the Company’s Severance Policy, including the March 30, 2007 amendments thereto, prior to the termination of such policy (provided, that he was at all times entitled to a severance period equal to two times (2X) the severance period provided in the Severance Policy up to a maximum of twelve months, and that such benefits would be provided for a termination by the Company without cause. Mr. Sabin is also entitled to three weeks annual paid vacation (during 2011, one week more than he would be entitled to based on tenure).

Mr. Sabin is also eligible to participate in all benefit programs made generally available to executives of Kids Line, as the same may be modified from time to time.

See footnote 6 of the “Summary Compensation Table” above for a description of perquisites received by Mr. Sabin during the period covered by the table. The terms of equity awarded to Mr. Sabin are described in the “2011 Outstanding Equity Awards at Fiscal Year End” table below.

Mr. Sabin’s employment agreement contains a confidentiality, non-disparagement and one-year post-employment non-solicitation provision with respect to any person who is to his knowledge then employed or retained by the Company or any of its subsidiaries.

Mr. Schaub

Mr. Schaub became the President of Sassy in February 2010 pursuant to an employment agreement dated February 19, 2010 and amended as of November 23, 2010, and also became the President of LaJobi in March of 2011. In June of 2011, Dean Robinson was appointed as the President of Sassy, and Mr. Schaub became the group head of Sassy (to whom Mr. Robinson reports), as well as continuing as President of LaJobi. Mr. Schaub’s current annual base salary is $375,000 (commencing March 2011, prior to which it was $350,000), and cannot be lowered below $350,000 without his consent. Pursuant to the terms of his employment agreement, Mr. Schaub received a guaranteed of a minimum bonus of $100,000 in 2010 (of which, he earned approximately $90,000 pursuant to the terms of the IC Program). Mr. Schaub participated in the IC Program during 2011 with an Applicable Percentage of 50%.

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A grant of SARS and RSUs was made to Mr. Schaub in connection with the commencement of his employment. In addition, a grant of SARS and RSUs was made to Mr. Schaub on January 3, 2011 in accordance with the terms of the amendment to his employment agreement as of November 23, 2010. Further equity grants are at the discretion of the Compensation Committee.

Mr. Schaub is eligible to participate in all benefit programs made generally available to executives of LaJobi, as the same may be modified from time to time. In addition, Mr. Schaub was entitled to participate in the Company’s Severance Policy, including the March 30, 2007 amendments thereto, prior to the termination of such policy (provided, that such benefits would be provided for a termination by the Company without cause or a resignation as a result of any decrease in his base salary below $350,000).

Pursuant to Mr. Schaub’s employment agreement, he was reimbursed for temporary housing and coach class transportation expenses associated with his required business travel to Kentwood, Michigan until December 31, 2011. In addition, relocation expense reimbursement provisions contained in his employment agreement (applicable to a relocation of Sassy) were applied to his relocation to New Jersey in connection with his appointment as the President of LaJobi. Mr. Schaub was also reimbursed an additional amount equal to the income taxes payable in connection with the inclusion of such relocation allowance in his ordinary income.

Mr. Schaub’s employment agreement contains a confidentiality, non-disparagement, non-compete for the period of employment and any period thereafter during which Mr. Schaub receives any severance payments, and one year post-employment non-solicitation provision with respect to any person who is to his knowledge then employed or retained by the Company or any of its subsidiaries.

See footnote 6 of the “Summary Compensation Table” above for a description of perquisites received by Mr. Schaub during 2011, including the relocation expense reimbursements described above. The terms of equity awarded to Mr. Schaub are described in the “2011 Outstanding Equity Awards at Fiscal Year End” table below. Mr. Schaub is entitled to three weeks annual paid vacation (equivalent to one additional week based on tenure), and his employment is “at will”.

See the Summary Compensation Table above for information with respect to compensation received by the NEOs under their employment agreements and arrangements during the periods covered by the table.

Termination of Employment and Change-In-Control Arrangements

(i) 40l(k) Plans

The Company offers eligible employees the opportunity to participate in a 401(k) Plan based on employees’ pretax salary deferrals with Company matching contributions. As a result of the Company’s historical acquisition strategy, the 401(k) Plans may differ among the Company and its subsidiaries. Participating employees may elect to contribute from 1% to 80% (but not in excess of the amount permitted by the Code, i.e., $16,500 in 2011, and $22,000 in 2011 for employees age 50 and older who elect to make catch-up contributions) of their compensation, on a pretax basis, to the relevant 401(k) Plan. Because the 401(k) Plans are qualified defined contribution plans, if certain highly compensated employees’ contributions exceed the amount prescribed by the Code, such contributions will be reduced or limited. Employees’ contributions are invested in one or more of several funds (as selected by each participating employee). The Company, LaJobi and Sassy match a portion (either one-half of any amount up to 6%, or 100% of any amount up to 3%, of salary contributed) of the compensation deferred by each employee, and Kids Line contributes 3% of eligible salary pursuant to the safe harbor provisions of Section 401(k) of the Code. Matching contributions are fully vested after four years of employment at the rate of 25% per year of employment (after six years of employment for LaJobi). Under certain circumstances, the 401(k) Plans permit participants to make withdrawals or receive loans therefrom prior to retirement age.

(ii) Severance Policy

Effective February 11, 2003, the Compensation Committee adopted a severance policy (as amended, the “Severance Policy”), applicable in general only to employees who were domestic vice presidents or above and who were designated by the Committee as eligible participants in the plan (collectively, “DVPs”). The Severance Policy was in effect during 2011, and was terminated effective as of April 26, 2012.

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Benefits. If a DVP’s employment with the Company was terminated by the Company without “Cause” (defined generally as refusal or repeated failure to perform such DVP’s duties as an employee of the Company; gross negligence or willful misconduct in connection with such DVP’s employment by the Company; misappropriation or fraud with regard to the Company or its assets; or conviction of, or the pleading of guilty or nolo contendere to, a felony, or to the extent involving the assets or business of the Company, a misdemeanor or other criminal offense), such DVP was paid “Severance Payments” ranging from a minimum amount equal to 4 months of such DVP’s base salary in effect on the date of termination, exclusive of any bonuses or commissions (“Current Salary”) to a maximum amount equal to 12 months of such DVP’s Current Salary, depending on the period of time that such DVP was employed by the Company at the time of such termination. The time period on which Severance Payments were based (i.e., 4 months of total employment, 6 months of total employment, etc.) was the “Severance Period”. Severance Payments were paid over the course of the relevant Severance Period in accordance with the Company’s regular salary payment schedule (not in a lump sum), unless otherwise required by Section 409A of the Code (in which case payments were made in the manner set forth in the Severance Policy). As of March 30, 2007, the Company amended the Severance Policy to specify that notwithstanding anything to the contrary therein, in the event that the employment of specified DVPs was terminated in connection with the consummation of certain corporate transactions, the severance payments and benefits applicable to such terminated DVP would be extended by an additional 4 months up to a maximum Severance Period of 12 months.

During the relevant Severance Period, the Company would continue to provide the terminated DVP with medical and other insurance benefits, in each case to the extent and on substantially the same basis (including relevant payroll deductions) as provided immediately prior to the termination (subject to provisions intended to address Section 409A of the Code). In addition, for a period of 60 days following the DVP’s termination, the Company continued to provide to the DVP use of an automobile or an equivalent payment therefor.

Termination of Severance Payments. If the terminated DVP obtains gainful employment during the Severance Period, the Amendment provided that Severance Payments will terminate on the date that such new employment commences.

Amendment. The Company reserved the right to amend, in whole or in part, or terminate, the Severance Policy, provided that no amendment to the Severance Policy would become effective (as to a person covered thereby prior to such amendment) prior to the date which is six months from the date such amendment was approved by the Board or the Compensation Committee, and provided further that an amendment may become effective earlier if it will result in the avoidance of the excise tax and/or interest imposed under Section 409A of the Code without materially diminishing the economic benefit to a DVP.

General Release. As a condition to the receipt of any Severance Payments, each terminated DVP was required to execute the Company’s form of General Release.

Rights Under Other Agreements. The Amendment superseded any other agreement between the Company and a DVP that provided for lesser benefits with respect to the type of termination covered thereby in effect on the effective date of the Amendment or thereafter.

(iii) Change in Control Letters. See the description of change in control letters issued to each of Messrs. Paglinco and Goldfarb in the Compensation Discussion and Analysis under the caption “Change in Control Letters”.

Equity Incentive Plan

The Board adopted the Equity Incentive Plan (the “EI Plan”) on June 3, 2008, and the EI Plan was approved by the Company’s shareholders as of July 10, 2008. The EI Plan is a successor to the 2004 Plan (defined below), which terminated as of the date of such approval (although outstanding awards thereunder will continue to be covered by its terms).

Awards

The EI Plan provides for awards in any one or a combination of: (a) Stock Options, (b) SARs, (c) Restricted Stock, (d) RSUs, (e) non-restricted stock, and/or (f) dividend equivalent rights. Any award under the EI Plan may, as determined by the committee administering the EI Plan (the “Plan Committee”) in its sole discretion, constitute a “Performance-Based Award” (an award that qualifies for the performance-based compensation exemption of Section 162(m) of the Code). All awards granted under the EI Plan will be evidenced by a written agreement between the Company and each participant (which need not be identical with respect to each grant or participant) that will provide the terms and conditions, not inconsistent with the requirements of the EI Plan, associated with such awards, as determined by the Plan Committee in its sole discretion.

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Reserved Shares

A total of 1,500,000 shares of Common Stock have been reserved for awards under the EI Plan. Unissued shares underlying forfeited, terminated or cancelled awards (including with respect to awards outstanding under the 2004 Plan on the effective date of the EI Plan, up to an additional 1,750,000 shares) will again be available for awards under the EI Plan, as described therein. Subject to the terms of the EI Plan, assumed or replacement awards in connection with the acquisition of any business by the Company or any of its subsidiaries shall be in addition to those available thereunder.

Participants

Participants are officers (including directors), non-employee (outside) directors, employees and specified consultants of the Company or any of its subsidiaries selected by the Plan Committee in its sole discretion to receive an award under the EI Plan.

Administration of the Plan

The Plan Committee must be a committee comprised of at least two (2) directors, each of whom shall be, to the extent applicable, an “outside director” within the meaning of Section 162(m) of the Code. The Plan Committee is currently the Compensation Committee, except regarding awards to outside directors, with respect to whom the Board acts as the Plan Committee. The Plan Committee, subject to the limitations set forth in the EI Plan, has absolute discretion and authority: (i) to make and administer grants under the EI Plan, (ii) to determine when and to which individuals awards will be granted, (iii) to determine whether, to what extent and under what circumstances awards may be settled, paid or exercised in cash, Common Stock or other property, or canceled, forfeited or suspended, (iv) to determine the terms and provisions of any award agreement and any amendment of such award agreement, and (v) to establish, amend, waive and/or rescind any rules and regulations as it deems necessary for the proper administration of the EI Plan.

Grant Date

The grant date is the date designated by the Plan Committee as the date of an award under the EI Plan, which will not be earlier than the date the Plan Committee authorizes (by resolution or written action) the grant of such award.

Limitations on Grants

Grants under the EI Plan can be made to any eligible individual at the discretion of the Plan Committee at any time. All grants of Stock Options are subject to a 350,000 shares per participant per plan year limit. Grants of Incentive Stock Options are subject to additional restrictions set forth in the EI Plan.

Vesting, Term and Acceleration Provisions

Stock Options. Each Stock Option will be subject to such terms and conditions, including vesting, as the Plan Committee may determine from time to time in its discretion, provided that no Stock Option shall be exercisable later than 10 years from the date of grant (5 years in the case of an Incentive Stock Options granted to a Ten-Percent Stockholder (as defined in the EI Plan)). Notwithstanding the foregoing, unless otherwise provided in the award agreement relating to such award, each Stock Option shall vest and become exercisable ratably over five years (20% per year), commencing on the first anniversary of the date of grant, and shall continue to be exercisable for a period of 10 years from the date of grant.

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Unless otherwise provided in the award agreement governing such Stock Options (other than with respect to awards of Stock Options to outside directors, which is discussed in the following sentence), (i) upon Disability (as defined in the EI Plan) or death, all unvested options vest, and all unexercised options may be exercised for up to one year or the remaining term of the Stock Option, if earlier; and (ii) if a participant’s employment is terminated for any other reason, all unexercised Stock Options are cancelled as of the termination date; provided however, if a participant’s employment is terminated for reasons other than Cause (as defined in the EI Plan), vested unexercised Stock Options may be exercised within 90 days of termination, or the remaining term of the Stock Option, if earlier, and if a participant retires (as defined in the Company’s 401(k) plan), vested unexercised Stock Options may be exercised within 1 year of such retirement, or the remaining term of the Stock Option, if earlier. With respect to awards of Stock Options to outside directors, unless otherwise provided in the award agreement governing such Stock Options, in the event of the death or Disability (as defined in the EI Plan) of a participant while serving as a member of the Board, all unexercised options vest, and may be exercised for up to one year or the remaining term of the Stock Option, if earlier; if a participant ceases to serve as a member of the Board for any other reason, vested options shall be exercisable for a period of 90 days following termination, or the remaining term of the Stock Option, if earlier.

Stock Appreciation Rights. Each SAR will be subject to such terms and conditions, including vesting, as the Plan Committee determines in its sole discretion. Provisions with respect to SARs granted in tandem with Stock Options are set forth in the EI Plan.

Restricted Stock Awards. Awards of Restricted Stock may be subject to such restrictions, terms and conditions as the Plan Committee determines in its sole discretion. Notwithstanding the foregoing, unless otherwise provided in the award agreement relating to the award of Restricted Stock, such awards will vest ratably over five years (20% per year), beginning on the first anniversary of the date of grant, and upon vesting, shall not be subject to any further restrictions. The Plan Committee may, in its sole discretion, accelerate the time at which any or all restrictions will lapse or remove any or all of such restrictions. Unless otherwise provided in an agreement governing the award, upon a participant’s termination of employment for any reason (not including an authorized leave of absence) all non-vested restricted stock is forfeited, except in the event of Disability (as defined in the EI Plan) or death, in which case all restrictions lapse as of the date of the relevant event.

Stock Units. Stock Units may be subject to such terms and conditions including, but not limited to, vesting, acceleration of vesting and forfeiture as the Plan Committee determines in its sole discretion.

Dividend Equivalent Rights. Dividend Equivalent Rights may be granted in tandem with another award or as a separate award. The terms and conditions applicable to each Dividend Equivalent Right, including vesting, risks of forfeiture and other restrictions, will be determined by the Plan Committee in its sole discretion.

Exercise Price

Each Stock Option granted under the EI Plan will have a per-share exercise price as the Plan Committee determines on the date of grant, but not less than 100% of the fair market value of a share of Common Stock on the date of grant (or 110% of fair market value in the case of a Ten Percent Stockholder).

Adjustments

In the event of changes in the outstanding Common Stock or in the capital structure of the Company as a result of events specified in the EI Plan, awards granted under the EI Plan and any award agreements, the maximum number of shares of Common Stock deliverable under the EI Plan, and/or the maximum number of shares of Common Stock with respect to which Stock Options may be granted to or measured with respect to any one person under the EI Plan shall be subject to adjustment or substitution, as determined by the Plan Committee in its sole discretion, including, without limitation, accelerating the vesting, settlement and/or exercise period pertaining to any award thereunder.

Outstanding awards and award agreements, and the maximum number of shares of Common Stock with respect to which Stock Options may be granted to or measured with respect to any one person during any period, shall be subject to adjustment or substitution, as determined by the Plan Committee in its sole discretion, including, without limitation, accelerating the vesting, settlement and/or exercise period pertaining to any such award, in the event of any change in applicable laws or any change in circumstances resulting in any substantial dilution or enlargement of the rights granted to, or available for, participants, or which otherwise warrants equitable adjustment in the sole discretion of the Plan Committee because it interferes with the intended operation of the EI Plan.

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In connection with a Business Combination (as defined in the EI Plan), the Plan Committee, in its sole discretion, may provide for: (i) the continuation of the EI Plan and/or the assumption of the awards granted thereunder by a successor corporation (or a parent or subsidiary thereof), (ii) the substitution for such awards of new awards covering the stock of a successor corporation (or a parent or subsidiary thereof), with appropriate adjustments as to the number and kind of shares and exercise prices, (iii) upon 10 days’ advance notice from the Plan Committee to the affected participants, the acceleration of the vesting, settlement and/or exercise period pertaining to any award thereunder, or (iv) upon 10 days’ advance notice from the Plan Committee to the affected participants, (x) the cancellation of any outstanding awards that are then exercisable or vested and the payment to the holders thereof, in cash or stock, or any combination thereof, of the value of such awards based upon the price per share of stock received or to be received by other shareholders of the Company in connection with the Business Combination, and (y) the cancellation of any awards that are not then exercisable or vested. In the event of any continuation, assumption or substitution contemplated by the foregoing clauses, the EI Plan and/or such awards shall continue in the manner and under the terms so provided.

Transferability

Awards granted under the EI Plan (other than Non-Restricted Stock Awards and Restricted Stock Awards with respect to which all restrictions have lapsed) are not transferable otherwise than by will or the laws of descent and distribution, and are exercisable, during a participant’s lifetime, only by such participant. Notwithstanding the foregoing, the Plan Committee in its sole discretion may permit the transferability of an award (other than an Incentive Stock Option) by a participant to specified related parties set forth in the EI Plan.

Rights of Holders of Restricted Stock

A holder of restricted stock has all rights of a shareholder with respect to such stock, including the right to vote and to receive dividends thereon, except as otherwise provided in the award agreement relating to such award.

Additional Limitations

The grant of any award under the EI Plan may also be subject to such other provisions as the Plan Committee in its sole discretion determines appropriate. Participants may be required to comply with any timing or other restrictions with respect to the payment, settlement or exercise of an award, including a window-period limitation, as may be imposed in the sole discretion of the Plan Committee.

Amendment, Termination and Duration of the Plan

The Plan Committee may at any time: (i) amend, modify, terminate or suspend the EI Plan, and (ii) alter or amend any or all award agreements to the extent permitted by the EI Plan and applicable law. Amendments of the EI Plan are subject to the approval of the shareholders of the Company only as required by applicable law, regulation or stock exchange requirement. The EI Plan will remain in effect until all stock subject to it is distributed or all awards have expired or lapsed, whichever is latest to occur, or the EI Plan is earlier terminated by the Plan Committee. No awards may be granted under the EI Plan after the fifth anniversary of its effective date.

2004 Stock Option, Restricted and Non-Restricted Stock Plan (the “2004 Plan”)

The 2004 Plan provided for awards of options to officers, directors and key employees designated by the Compensation Committee to purchase Common Stock of the Company (including options designated as incentive stock options under Section 422 of the Code, and options not so designated), restricted stock and non-restricted stock (outside directors may be awarded options only). A total of 2,750,000 shares of Common Stock were reserved for the grant of options and awards of Common Stock under the 2004 Plan for all eligible plan participants. Awards could no longer be granted under the 2004 Plan after July 10, 2008, the date the EI Plan became effective.

Acceleration of Vesting/Exercise Period

Subject to the following, options and restricted stock generally vest ratably over five years, commencing on the first anniversary of the date of grant and are generally exercisable for a period of ten years from the date of grant. With respect to awards of options (other than awards to outside directors, which is discussed below), upon retirement (as defined in the Company’s 401(k) plan), Disability (as defined in the 2004 Plan) or death (either while employed or within the year after retirement), all unexercised options vest, and may be exercised for up to one year (unless provided otherwise in an option agreement evidencing the award) or the term of the unexpired option, if earlier; unless otherwise provided in an option agreement, (i) if a participant’s employment is terminated for reasons other than Cause (as defined in the 2004 Plan), vested unexercised options may be exercised within either: (a) 30 days of termination (for grants issued prior to August 2007); or (b) 90 days of termination (for grants issued subsequent to August 2007), or the term of the unexpired option, if earlier, and (ii) if a participant’s employment is terminated for any other reason, all options are cancelled as of the termination date.

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With respect to awards of options to outside directors, in the event of the death or Disability (as defined in the 2004 Plan) of a participant while serving as a member of the Board, all unexercised options vest, and may be exercised for up to one year (unless provided otherwise in an agreement evidencing the award) or the term of the unexpired option, if earlier; if a participant ceases to serve as a member of the Board for any other reason, vested options shall be exercisable for a period of 30 days following termination (unless otherwise provided in an agreement evidencing the award).

With respect to awards of restricted stock, unless otherwise provided in an agreement governing the award, all non-vested restricted stock is forfeited (at the time of termination) if the participant has not remained in the continuous employment of the Company for the period during which the restrictions are applicable, generally five years from the date of grant, except in the event of retirement, Disability (as defined in the 2004 Plan) or death, in which case all restrictions lapse as of the date of the relevant event.

Adjustments

In the event of any change in the outstanding Common Stock as a result of events specified in the 2004 Plan, the Committee may adjust the aggregate number of shares of Common Stock available for awards under the 2004 Plan, the exercise price of any options granted under the 2004 Plan, and any or all other matters deemed appropriate by the Committee, including, without limitation, accelerating the vesting and/or exercise period pertaining to any award thereunder.

For a more complete description of the 2004 Plan, see the Company’s Proxy Statement for its 2008 Annual Meeting of Shareholders.

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2011 Outstanding Equity Awards at Fiscal Year End

The following table sets forth information with respect to outstanding equity awards for the NEOs as of December 31, 2011 other than Mr. Crain* (the table does not include equity grants made in 2012). See “Grants Under the 2004 Plan” and “Grants Under the EI Plan” following the footnotes to this table for a description of general terms applicable to equity granted to NEOs by the Company as described in this table under the 2004 Plan and the EI Plan, respectively.