Certificates of Coverage on Health Insurance

Creditable coverage letters will be mailed to Kiddie Kandids employees early next week. This is the certificate you need to get new health insurance. You should expect to receive these letters in the mail by the end of next week.

401K

Kiddie Kandids employees who were participants in the 401K plan can now rollover their investments into other accounts or take distributions. Soltis Investments Advisors is going to mail information to each plan participant on how to do this next week. Your 401K funds are safe and will not be affected in any way by the bankruptcy. To roll over your money to another account or to take a distribution, you can go to www.my401klink.com/kkp/ . Once you have logged into the site, go to the ‘Forms’ menu located under the ‘Plan Information’ heading. You will see a file available for download titled ‘Plan Termination Distribution Form’. This file contains a distribution form, a tax notice describing the tax consequences of the different distribution options, as well as a summary of the plan changes made to terminate the plan. You only need to complete and return the first page of this file. You can fax it to the Alliance Benefits Group- Rocky Mountain operations group at 801-483-1255. If participants have questions you can contact Rocky Mountain at 800-421-4758 or Soltis Investment Advisors at 800-735-1601.

W-2s for 2009

Kiddie Kandids W-2s will be mailed to all employees within the next five days. Employees should receive their W-2s in the next ten days.

Official Press Release:

Kiddie Kandids Announces Closure

Sandy, Utah – January 10, 2010 - Kiddie Kandids, a Sandy, Utah based chain of photography studios, has ceased operations, effective immediately. This shutdown occurred as the result of an abrupt and unforeseen loss of funding from is banks. Kiddie Kandids’ operations have been particularly challenged by the economic climate over the past 18 months and its lenders have informed the company that they will no longer provide funding for Kiddie Kandids’ immediate cash needs. Without continued funding, Kiddie Kandids was unable to meet its imminent financial obligations. We have exhausted all possible avenues for funding and have come to the end of the road. This is truly unfortunate in light of the great team of employees and the great customers that made Kiddie Kandids a leading national children’s photography studio. It is our hope that if the assets are purchased out of bankruptcy that the buyer will consider hiring back many of our employees.” In light of the unforeseen termination of funding by its lenders, Kiddie Kandids intends to file a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in the coming days.

Prior to its closure, Kiddie Kandids was one of the nation’s premier children’s portrait studios, specializing in newborn, infant, toddler, and pre-school portrait photography. Founded in 1974, Kiddie Kandids grew from a single camera in a mall kiosk to a nationwide network of 184 hi-tech portrait studios. The majority of Kiddie Kandids’ studios are located within Babies ‘R’ Us retail stores across the country.

To All Kiddie Kandids Employees:

In an abrupt and unforeseen turn of events, Kiddie Kandids’ lenders have informed management that they will no longer fund our operations. Without continued funding, Kiddie Kandids is unable to meet its financial obligations, including its payroll. As a result, it is my unfortunate duty to inform you that, effective immediately, Kiddie Kandids must completely cease operations and relieve all employees of their positions with the company.

In the coming days, Kiddie Kandids will file Chapter 7 bankruptcy, and all decisions will then be made by a trustee appointed by the Trustee’s Office of the Federal Bankruptcy Court in Salt Lake City. Between now and then, the company will work to maximize the Chapter 7 trustee’s capability to pursue a sale to another photography studio company that could possibly restart operations, but we have no control over these events, and can not assure you that any operations will be restarted.

We realize that this sudden and deeply unfortunate news will cause great concern to you and your families, and you have many questions. We will not have the capacity to answer each of your individual questions, but please keep this in mind: because of the unforeseen termination of funding by the lenders, there is no money to pay payroll (both past and future), there is no money to reimburse expenses, and there is no money to pay our suppliers.

In regards to health insurance, we regret to inform you there is no money to pay health related bills from the company’s self-insured plan, thus you do not have health insurance. There are no COBRA programs available from defunct plans such as ours either.

Subject to your particular state laws and your employment status, you are likely to be eligible for unemployment benefits, and we would encourage you to take this letter with you to the local unemployment office.

We will attempt to setup a blog at http://kiddiekandidsinfo.blogspot.com where management or the trustee can communicate future developments. If possible, we encourage you to consult the site for additional information as it becomes available.

I deeply regret that these unfortunate events have necessitated Kiddie Kandids’ closure. I thank you each for your loyal service.

Sincerely,

Dale Merrill

President, Kiddie Kandids