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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

|         
|---------
|         
|         
|FORM 10-K
|         
|         

(Mark One)

| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| | x | ANNUAL REPORT PURSUANT TO
 SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
 the fiscal year ended December 29, 2007
| | o | TRANSITION REPORT PURSUANT
 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                         
| |   | For the transition period from __________ to __________.                                                                          

Commission file
number 1-11908

|
|
|

LENOX GROUP INC.

(Exact name of
registrant as specified in its charter)

|                                                                                                     |  |                    
|---------------------------------------------------------------------------------------------------- |  | -------------------
|Delaware                                                                                             |  | 13-3684956         
|(State or other
 jurisdiction of                                                                     |  | (I.R.S. Employer   
|incorporation or
 organization)                                                                      |  | Identification No.)
|                                                                                                     |  |                    
|One Village Place
 6436 City West Parkway 
 Eden Prairie, MN(Address of principal executive offices) |  | 55344
 (Zip Code)  

(952) 944-5600(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the
Act:

|                                        |  |                         
|--------------------------------------- |  | ------------------------
|                                        |  | Name of each exchange   
|Title of each class                     |  | on which registered     
|                                        |  |                         
|                                        |  |                         
|Common
 Stock, par value $.01 per share |  | New
 York Stock Exchange
|                                        |  |                         
|Preferred
 Stock Purchase Rights        |  | New
 York Stock Exchange

Securities registered pursuant to Section 12(g) of the
Act:None

|
|
|

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yeso Nox

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yeso Nox

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes xNoo

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.

|                           |  |                     |  |                            
|-------------------------- |  | ------------------- |  | ---------------------------
|Large
 accelerated filer o |  | Accelerated filer x |  | Smaller reporting company o

|                         |  |                                               
|------------------------ |  | ----------------------------------------------
|Non-accelerated
 filer o |  | (Do not check if a smaller reporting company.)

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yeso Nox

The aggregate market value of the voting and
non-voting common stock held by non-affiliates of the registrant as of June 30,
2007 (the last trading day of the registrants most recently completed second
fiscal quarter) was $97,128,308 (based on the closing price of the registrants
Common Stock as reported on the New York Stock Exchange on June 29, 2007).

Number of Shares of Common Stock, par value $.01 per
share, outstanding as of February 29, 2008: 14,192,297





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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Companys definitive Proxy Statement for the 2008 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report
on Form 10-K (the 2008 Proxy Statement) are incorporated by reference in Part III.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

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|           |  |                                                                                                                    |  | Page
|           |  |                                                                                                                    |  |     
|Part
 I    |  |                                                                                                                    |  |     
|           |  |                                                                                                                    |  |     
|Item 1.    |  | Business                                                                                                           |  | 1   
|Item 1A.   |  | Risk Factors                                                                                                       |  | 7   
|Item 1B.   |  | Unresolved Staff Comments                                                                                          |  | 10  
|Item 2.    |  | Properties                                                                                                         |  | 10  
|Item 3.    |  | Legal Proceedings                                                                                                  |  | 11  
|Item 4.    |  | Submission of Matters to a Vote of
 Security Holders                                                               |  | 12  
|           |  |                                                                                                                    |  |     
|Part II    |  |                                                                                                                    |  |     
|           |  |                                                                                                                    |  |     
|Item 5.    |  | Market
 for the Registrants Common Equity, Related Stockholder Matters and Issuer
 Purchases of Equity Securities |  | 13  
|Item 6.    |  | Selected Financial Data                                                                                            |  | 15  
|Item 7.    |  | Managements Discussion and Analysis
 of Financial Condition and Results of Operations                             |  | 16  
|Item 7A.   |  | Quantitative and Qualitative
 Disclosures about Market Risk                                                        |  | 31  
|Item 8.    |  | Financial Statements and
 Supplementary Data                                                                       |  | 31  
|Item 9.    |  | Changes in and Disagreements with
 Accountants on Accounting and Financial Disclosure                              |  | 31  
|Item 9A.   |  | Controls and Procedures                                                                                            |  | 31  
|Item 9B.   |  | Other Information                                                                                                  |  | 32  
|           |  |                                                                                                                    |  |     
|Part III   |  |                                                                                                                    |  |     
|           |  |                                                                                                                    |  |     
|Item 10.   |  | Directors, Executive Officers and
 Corporate Governance                                                            |  | 33  
|Item 11.   |  | Executive Compensation                                                                                             |  | 34  
|Item 12.   |  | Security
 Ownership of Certain Beneficial Owners and Management and Related Stockholder
 Matters                   |  | 35  
|Item 13.   |  | Certain Relationships and Related
 Transactions, and Director Independence                                         |  | 35  
|Item 14.   |  | Principal Accountant Fees and Services                                                                             |  | 35  
|           |  |                                                                                                                    |  |     
|Part IV    |  |                                                                                                                    |  |     
|           |  |                                                                                                                    |  |     
|Item 15.   |  | Exhibits and Financial Statement
 Schedules                                                                        |  | 36  
|           |  |                                                                                                                    |  |     
|Signatures |  |                                                                                                                    |  | 40  

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Table of Contents

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|PART I
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|ITEM 1. | BUSINESS

General

Lenox Group Inc. (the Company) is a leading designer, distributor, wholesaler and retailer
of fine quality tableware, collectible and other giftware products marketed under the Lenox®, Department 56®,
Dansk® and Gorham® brand names. These products are sold through gift and specialty retailers, department
stores, and general merchandise chains, as well as through the Companys own retail stores and consumer-direct channels of
distribution, including Internet, catalog and mail order.

The Company was incorporated in Delaware under the name Department 56, Inc. in 1992. On November
14, 2005, the legal name of the Company was changed to Lenox Group Inc. The Companys principal executive offices
are located at One Village Place, 6436 City West Parkway, Eden Prairie, MN, 55344. The Companys telephone number is (952)
944-5600.

The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended (the Exchange Act), available free of charge through a direct link to the Securities and Exchange
Commission (the SEC) on the Companys corporate website www.lenoxgroupinc.com, as soon as is reasonably
practicable after such material is electronically filed with or furnished to the SEC.

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Exchange Act. See
Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations 
Forward-Looking Statements and Factors Affecting Future Earnings herein.

Major Acquisition

On September 1, 2005, the Company completed the acquisition of all of the capital stock of Lenox,
Incorporated (Lenox) from Brown-Forman Corporation (the Acquisition), for $204 million, which included
transaction costs of $7.6 million. The Acquisition of Lenox added strong, market-leading brands and complementary product lines
and distribution channels to the Companys portfolio. The Company funded the payment of the purchase price and related
transaction costs of the Acquisition through a $275 million senior secured credit facility consisting of a $175 million revolving
credit facility and a $100 million term loan.

Recent Developments

On January 14, 2008, the Company announced the comprehensive review of strategic, financial and
operational alternatives to enhance stockholder value, including a potential merger, sale of all or part of the Company or
recapitalization of the Company. The Company also adopted a stockholder rights plan. The Board of Directors retained Berenson
& Company LLC as its financial advisor to assist with this process.

Refinancing of Term Loan and Revolving Credit Facility

On February 9, 2007, the Company entered into waivers
and amendments to the revolving credit facility and the term loan credit facility in connection with the Companys
noncompliance with the financial covenants under the credit agreements for the period ended December 30, 2006. Pursuant to the
waivers and amendments, the lenders granted the Company a limited waiver of noncompliance through and including April 30, 2007,
and temporarily amended the agreements to adjust the leverage ratio and interest coverage ratio levels for the first quarter of
2007. In addition, the amendment to the term loan facility increased the applicable margin for loans by 0.25% per annum. As
consideration for the amendments, the Company paid amendment fees of $0.2 million.

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On April 20,
2007, the Company completed the refinancing of its credit facilities by
entering into amended and restated revolving and term loan facilities. The
amended and restated revolving credit facility, which expires on April 20,
2012, provides for borrowings up to $175 million, which may be in the form of
letters of credit and revolving credit loans to be used for working capital and
general corporate purposes. The amended and restated term loan facility, which
expires on April 20, 2013, provides for term loans in the aggregate principal
amount of up to $100 million. The Company used the proceeds of the amended and
restated term loan facility to refinance the $47.4 million of term debt
outstanding and $42.2 million of the revolver debt outstanding at April 20,
2007, to pay $1.2 million of accrued interest and fees payable under the
existing credit facilities and to pay $9.2 million of fees and expenses in
connection with the refinancing.

Sale of Sterling Silver Business

On July 19,
2007, the Company entered into an Asset Purchase Agreement (the Sale
Agreement) with Lifetime Brands, Inc. (Lifetime) for the sale of certain
assets of the Companys sterling silver flatware and sterling silver giftware
business conducted primarily under the Gorham
and Kirk Stieff brand names.
Simultaneously with the execution of the Sale Agreement by the parties, the
Company closed on this transaction.

The purchase
price paid by Lifetime was $8.8 million, subject to a post closing adjustment
based on the price and quantity of silver transferred at closing. At closing,
the Company received an initial payment of $8.5 million and $0.3 million was
transferred to an escrow account for a six-month period ended January 2008. On
August 2, 2007, the parties agreed to a price adjustment reduction of $0.3
million based on the quantity of silver actually transferred at closing and the
price of silver. Accordingly, the net purchase price was $8.5 million. The
Company transferred title to sterling silver finished goods inventory, work in
process, raw materials, samples, selective pieces of machinery and equipment,
books and records and pattern trademarks and copyrights associated with
sterling silver products.

In addition,
the Company granted a long-term exclusive license to Lifetime to utilize the Gorham, Kirk Stieff, Whiting and Durgin
brands on and in connection with
sterling silver products. The Company has retained all rights to utilize these
brands on non-sterling silver products.

Products

The Company is
a market leader in quality tabletop, giftware and collectibles. It markets its
products primarily under the, Lenox, Gorham,
Department 56, andDansk brands.
Together, these brands represent over 450 years of tabletop and giftware
experience.

The tabletop
business consists of a portfolio of consumer brands that have a rich heritage
in the domestic market. The Company sells dinnerware, crystal stemware,
stainless steel flatware, and giftware under the Lenox and Gorham
brands. Dansk is the Companys
contemporary tabletop and giftware brand. The Company also sells collectibles
under the Lenox brand. The
Company believes that it is the largest domestic marketer of fine tabletop
products.

The Department 56 brand is best known for its
use in connection with the Village Series
of collectible, handcrafted, lighted ceramic and porcelain houses, buildings
and related accessories that depict nostalgic scenes. The Company introduces
new pieces, limited edition pieces, figurines and other accessories each year
to complement and provide continuity to the collections.

The Company
offers a wide range of other decorative giftware and home accessory items under
(i) the Department 56 brand,
including the Companys Snowbabies
line of figurines and holiday and seasonal decorative items; and (ii) the Willitts
brand, including Thomas Blackshears Ebony Visions and Possible Dreams, which
adds a broad range of diversity and contemporary expression to the Companys
collectible portfolio.

Giftware
product lines are developed around either a seasonal or unique design theme.
The Company continues to build its general giftware business by developing new
product lines and signing license agreements with nationally recognized
artists.

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Operating Segments

In connection
with the Companys acquisition of Lenox, the Company redefined its operating
segments to include three reportable segments  Wholesale, Retail and Direct.
Although the product produced and sold for each segment is similar, the type of
customer for the product and the method used to distribute the product are
different. The segmentation of these operations also reflects how the Company
currently reviews the results of these operations. Financial data for the last
three fiscal years by segment is set forth in detail in Managements
Discussion and Analysis of Financial Condition and Results of Operations
included in this Annual Report on Form 10-K and in Note 16 to the Consolidated
Financial Statements.

The Wholesale
Segment

The Company
sells its products through a wide range of wholesale channels including
department stores, large specialty retailers, mass merchants, national chains
and clubs, small independent specialty accounts and other wholesale accounts.

As of December
29, 2007, the Companys Wholesale segment had order backlog of approximately
$13.7 million compared to $18.4 million as of December 30, 2006. Of the $13.7
million in order backlog as of December 29, 2007, the Company expects to ship
approximately $12.8 million in fiscal 2008.

Approximately 26% of the Wholesale segments sales in fiscal 2007 (17% of consolidated sales)
were to one customer: Macys, Inc.

The Retail Segment

As of February
1, 2008, the Companys Retail segment operated 32 retail stores, including
eight stores operated under the Department
56 trade name and 24 stores operated under the Lenox trade name. In 2007, the Company
converted its three All the Hoopla
concept stores to Department 56
stores.

This segment
experiences no significant unfilled orders and is not dependent on a single
customer or group of customers.

The Direct Segment

The Company
markets and sells its products directly to consumers through the following
methods of direct marketing: (i) traditional direct-to-consumer methods (media
advertising, direct mail and telemarketing); (ii) catalogs and (iii) the
Companys various Internet sites, including those located at
www.department56.com, www.lenox.com and www.dansk.com.

As of December
29, 2007, the Companys Direct segment had order backlog of approximately $1.7
million compared to $1.5 million as of December 30, 2006. Of the $1.7 million
in order backlog as of December 29, 2007, the Company expects substantially all
to ship in fiscal 2008.

This segment
is not dependent on a single customer or group of customers.

Cessation of Time to Celebrate Business

In October
2005, the Company committed to a plan to cease operations of its Time to Celebrate direct selling business.
This business marketed giftware and home decor products to consumers through a
network of independent sales consultants who sold these products through the
home show sales method.

In accordance
with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company recorded Time to Celebrates results in continuing operations until
the run-off of operations was completed in the fourth quarter of 2005. The Time to Celebrate results have been
reclassified into discontinued operations for all periods presented.

Manufacturing & Sourcing

The Company owns
and operates one manufacturing facility in the United States. The Company
manufactures its Lenox branded,
bone china dinnerware at its plant located in Kinston, NC.

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On July 19,
2007, the Company entered into an Asset Purchase Agreement with Lifetime
Brands, Inc. for the sale of certain assets of the Companys sterling silver
flatware and sterling silver giftware business conducted primarily under the Gorham and Kirk Stieff brand names.
Accordingly, in 2007 the Company
discontinued manufacturing sterling silver flatware in its facility in Pomona,
New Jersey.

Clay, feldspar
and bone ash are the principal raw materials used to manufacture china
products. Gold and platinum are significant raw materials used to decorate
china products. Sand, potash and lead are used in the manufacture of crystal
products. Steel is the principal raw material used to manufacture stainless
steel flatware. The Company anticipates, but cannot guarantee that these raw
materials will be in adequate supply. However, the acquisition price of gold,
platinum and steel is influenced significantly by worldwide economic events and
commodity trading.

The Company
also sources product from external manufacturers. Of the total value of product
sourced in 2007, 96% was imported from abroad, primarily from manufacturing
sources located in the Pacific Rim area, including the Peoples Republic of
China (China), Indonesia, Thailand and the Philippines. The Company also
imports a portion of its products from sources in India and Europe.

Distribution

The imported
products sold by the Company to its wholesale customers, direct response
customers and through its Company-owned retail stores are generally shipped by
ocean freight from abroad and then by rail or truck to the Companys
distribution centers located in Hagerstown, MD and Langhorne, PA. Certain
overseas shipments to some wholesale customers are sent directly to those
customers. The products manufactured in the Companys Kinston, NC factory are
sent via commercial trucking lines to the Hagerstown, MD warehouse or directly
to its wholesale customers. Shipments from the Company to its wholesale and
direct response customers are handled primarily by parcel post or commercial
trucking lines.

On February
26, 2007, the Company announced its intention to close its distribution center
located in Rogers, MN in October 2007, and later extended that date to February
29, 2008, at which time it discontinued operations at that facility. The
Company transferred the distribution activities at the Rogers facility to its
distribution center located in Hagerstown, MD.

The Companys
systems maintain order processing from the time a product enters the Companys
system through shipping and ultimate payment collection from its various
customers. The Company uses handheld optical scanners and bar coded labels in
accepting orders at its wholesale showrooms. In addition, systems for the
Company-operated retail stores monitor and transmit to the Company on a daily
basis the POS (point of sales) data for those retail stores.

Seasonality

The Companys
business is highly seasonal. The Company records its highest Wholesale segment
sales during the third and fourth quarters of each year as wholesale customers
stock merchandise in anticipation of the holiday season. In addition, the
Company records its highest Retail and Direct segment sales in the fourth
quarter during the peak holiday shopping season. However, the Company can
experience fluctuations in quarterly sales and related net income compared with
the prior year due to the timing of receipt of product from suppliers and
subsequent shipment of product from the Company to customers, as well as the
timing of orders placed by customers. Due to the seasonality of segment sales
as indicated above, the Company has historically operated at a loss during the
first nine months of the fiscal year. The Company is not managed to maximize
quarter-to-quarter results, but rather to achieve annual objectives designed to
achieve long-term growth consistent with the Companys business strategy.

Competition

The Company
competes generally for the discretionary income of consumers with other
producers of tabletop, collectibles, giftware and home decorative accessory
products. These areas are affected by, among other things, changing consumer
tastes and interests, changing consumer shopping habits, consolidation of
channels of distribution and the shift in supply to Asian sources of
manufacture.

The
tabletop/giftware industry is highly competitive, with a large number of both
large and small participants. The Companys competitors distribute their
products through their company-owned retail stores, independent gift retailers,
department stores, mass market and specialty chain stores, televised home
shopping networks, Internet commerce and mail order houses, and through the
home show sales method or other direct response marketing methods.

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The Company
believes that the principal elements of competition in the tabletop/specialty
giftware industry are design, product assortment, brand loyalty, quality,
display and price. The Company believes that its competitive position is
enhanced by a variety of factors, including the design, uniqueness, quality and
enduring themes of the Companys products, its in-house design expertise, its
reputation among retailers and consumers, its sourcing and marketing
capabilities, and the pricing of its products.

Financial Information Relating to
Geographical Areas

Approximately
2% of the Companys total revenue is derived from customers outside the United
States. In addition, approximately 2% of all long-lived assets are located
outside the United States.

Trademarks and other Proprietary Rights

The Company
owns 205 U.S. trademark registrations and has pending four U.S. trademark
applications for registration. These registrations cover the Companys brand
names, logos and important product names. In addition, the Company owns
trademark registrations in select foreign countries where the Companys
products are manufactured, marketed and/or sold.

The Company
regards its trademarks and other proprietary rights as valuable assets. The
registrations for the Companys trademarks are currently scheduled to be
cancelled at various times over the next ten years, but can be maintained and
renewed provided that the trademarks are still in use for the goods and
services covered by such registrations. The Company has historically renewed
its registered trademarks and expects to continue to do so, as business needs
dictate.

Employees

As of January
1, 2008, the Company had 1,344 full-time employees and 797 part-time and
seasonal employees in the United States, four employees in Canada and 12 in
China.

Local Union
No. 638 of the Teamsters Union represents 29 of the Companys employees who
work at its warehouse facility located in Rogers, MN. The agreement with this
union expired on December 31, 2007; and will not be renewed due to the fact
that Rogers, MN warehouse facility closed on February 29, 2008.

The Company
believes that its labor relations are good. It has not experienced a work
stoppage.

Environmental Matters

The Company is
subject to various federal, state and local laws and regulations governing the
use, discharge and disposal of hazardous materials.

The Company is
responsible for the cleanup and/or monitoring of two environmental sites
located in New Jersey pursuant to an Administrative Consent Order dated
September 29, 1994 and a Memorandum of Agreement dated October 11, 1995, with
the New Jersey Department of Environmental Protection (NJDEP). The Company is
also responsible for monitoring solid waste management units at its Pomona, NJ
manufacturing facility pursuant to a Hazardous & Solid Waste Amendment
(HSWA) permit with the U.S. Environmental Protection Agency. The Company
accrues for losses associated with environmental cleanup obligations when such
losses are probable and can be reasonably estimated.

At one of the
NJDEP sites there are other potentially responsible parties who bear part of
the cost of the cleanup, in which case the Companys accrual is based on the
Companys estimated share of the total costs. A portion of the cleanup costs
with respect to the two NJDEP sites is paid by insurance. The estimated
recovery of cleanup costs is recorded as an asset when receipt is deemed
probable.

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As of December
29, 2007, the Company estimated, based on engineering studies, total
remediation and ongoing monitoring costs to be $3.3 million, including the
effects of inflation. Accordingly, the Company recorded a liability of
approximately $2.3 million in other noncurrent liabilities, which represents
the net present value of the estimated future costs discounted at 5.25%. In
accordance with Statements of Position (SOP) 96-1, Environmental Remediation
Liabilities, the Company measures this liability on a discounted basis as it
believes the amount and timing of cash payments for the liability are reliably
determinable. The estimated insurance recovery assets as of December 29, 2007
were $1.2 million and are included in other assets.

Executive Officers of the Registrant

Marc L. Pfefferle,
51, has been Interim Chief Executive Officer of the Company since January 5,
2007. He has been a partner in the firm of Carl Marks Advisory Group LLC
(CMAG) since November 1997. Mr. Pfefferle has 25 years of management consulting,
interim executive and restructuring officer experience and is a certified
Turnaround Professional and Certified Fellow in Production and Inventory
Management.

Bret Rattray, 57,
has been Interim Chief Marketing Officer of the Company since April 2, 2007. He
is also Managing Director in the firm of CMAG, a position he has held since
2002.

Fred Spivak, 54, has
been Chief Financial and Operating Officer since November 9, 2007. From 2004 to
2007, Mr. Spivak served as Managing Director of FMS Consulting, a company that
provides financial, operational and business administration services to
companies in the giftware, apparel and consumer goods industries. From 2004 to
2006, Mr. Spivak served on the Board of Directors of Oneida Ltd., a leading
flatware and tabletop company. From 2000 to 2004, Mr. Spivak was Chief
Financial Officer of Colorado Prime Foods (now DineWise, Inc.), a direct
marketer of chef-prepared, home-delivered meals, and from 1997 to 2000 he was
Chief Operating Officer of Morgan-Walke Associates, a New York investor
relations firm. From 1984 to 1997, Mr. Spivak served as Chief Financial Officer
and Vice President, Finance and Administration for Lifetime Brands and
previously held various finance positions for Vida Shoes and Olivetti Corporation.
Mr. Spivak is a Certified Public Accountant.

Louis A. Fantin, 57,
has been Senior Vice President, General Counsel and Secretary for the Company
since September 2005. He was Senior Vice President, Secretary and Lenox Counsel
for Lenox, Incorporated from May 1, 1995 to September 2005. Prior to that, Mr.
Fantin held a succession of positions at Lenox, including Vice President,
Secretary and Lenox Counsel from October 1, 1994 until April 30, 1995, Vice
President, First Assistant General Counsel and Assistant Secretary from May 1,
1990 to September 30, 1994; First Assistant General Counsel and Assistant
Secretary from May 1, 1989 to April 30, 1990 and Assistant General Counsel from
August 31, 1981 to April 30, 1989.

Branka Hannon, 50,
has been Senior Vice President - Human Resources for the Company since
September 2005. Ms. Hannon held the same position at Lenox, Incorporated from
February 1, 2004 until September 2005. From June 1, 2002 to January 31, 2004,
she was Vice President - Organizational Development at Lenox, and from November
2, 2000 until May 31, 2002, Ms. Hannon was Director - Human Resources for the
Lenox Collections Division of Lenox.

David B. OConnell,
40, has been Vice President, Global Sourcing for the Company since September
11, 2006. From 2002 to 2006, Mr. OConnell was Vice President Product
Development and Global Sourcing for Mikasa/ARC International.

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|ITEM 1A. | RISK FACTORS

Our business faces many risks. Any of the risks discussed below, or elsewhere in this Annual Report
on Form 10-K or in our other SEC filings, could have a material impact on our business, financial condition or results of
operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial might also
impair our business operations.

Our sales could be negatively impacted by product trends, continued industry consolidation and
contraction, as well as a decision by our major customers to substantially reduce orders for our products.

Over the past several years, department stores have consolidated, the gift and specialty store
channel has contracted, and the collectible and fine china markets have contracted as well. A continuation of these trends could
have a negative impact on the sales of the Company. With the exception of Macys, Inc., our customer base is relatively
dispersed. Our sales to this customer accounted for approximately 17% of our net sales for fiscal year 2007. If Macys, Inc.
were to cease or significantly reduce their business with us, our business and results of operations would be negatively
impacted.

Our reliance on foreign manufacturing is subject to inherent risk, which may affect our
ability to procure goods and/or procure them in a timely fashion.

Foreign manufacturing and procurement of imports is subject to the following inherent risks: labor
availability and increases in labor costs, increases in the cost of raw materials, economic and political instability; cost and
capacity fluctuations and delays in transportation, dockage and material handling; restrictive actions by governments;
nationalizations; the laws and policies of the United States affecting importation of goods (including duties, quota and taxes);
international political, military and terrorist developments; fluctuations in currency exchange rates; and foreign trade and tax
laws. Moreover, we cannot predict what relevant political, legal or regulatory changes may occur, or the type or amount of any
financial impact on us that such changes may have in the future.

Our products are subject to customs duties and regulations pertaining to the importation of goods.
In the ordinary course of business, we may be involved in disputes with the U.S. Bureau of Customs and Border Protection
(U.S. Customs) regarding the amount of duty to be paid, the value of merchandise to be reported or other Customs
regulations, which may result in the payment of additional duties and/or penalties, or in the refund of duties to us. Since the
terrorist attacks of September 11, 2001, U.S. Customs has enacted various security protocols affecting the importation of goods.
Such protocols could adversely affect the speed or cost involved in our receipt of inventory from our overseas vendors.

The inability to make timely shipments of merchandise to our trade customers due to delays caused by
foreign sourcing could significantly lower sales and damage our relationship with trade customers resulting in harm to our
business and our financial results.

Our reliance on manufacturing from sources within China, in particular, is subject to inherent
risk, which may affect our ability to procure goods and/or procure them in a timely fashion.

In fiscal year 2007, approximately 66% of our inventory purchases were manufactured in
China.

China has joined the World Trade Organization and been accorded permanent Normal Trade
Relations status by the U.S. government. However, various commercial and legal practices in China, including the handling of
intellectual property and certain labor practices, are under review by the U.S. government. China has been designated a Country of
Particular Concern pursuant to the International Religious Freedom Act of 1998 (IRFA). The IRFA enumerates several
specific retaliatory actions that may be taken by the U.S. government, none of which we believe would have a material impact on
our business. The IRFA, however, also accords the President broad discretion in fashioning other or additional actions and, due to
the breadth of the Presidential powers under the IRFA, we are unable to predict what, if any, action the President could take in
the future.

7

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Accordingly,
in addition to general foreign manufacturing risks cited above, the ability to
continue to conduct business with vendors located in China is subject to
political uncertainties, the financial impact of which we are unable to
estimate. To the extent China may have its exports or transaction of business
with U.S. persons subject to political retaliation, the cost of Chinese imports
could increase significantly and/or the ability to import goods from China may
be materially impaired. In such an event, there could be a materially adverse
effect on us until alternative arrangements for the manufacture of our products
were obtained on economic, production and operational terms at least as
favorable as those currently in effect.

We are subject to
risks associated with changes in foreign currency exchange rates.

Fluctuations
in currency exchange rates present risks inherent in our method of inventory
procurement. Our costs could be adversely affected if the currencies of other
countries in which we source product appreciate significantly relative to the
U.S. dollar. This could result, for example, from a decision by China to
revalue the Renminbi (RNB) relative to the U.S. dollar or to allow the RNB to
float instead of being pegged to the U.S. dollar at a fixed rate.

If interest rates on
our variable rate debt were to increase, our financial results would be
negatively affected.

A principal
market risk affecting us is the exposure to changes in the interest rates on
our variable rate debt. As our credit facilities bear interest at variable
rates, our results of operations and cash flows will be exposed to changes in
interest rates. In 2007, the Company entered into an interest rate collar
agreement with a notional amount of $50 million to mitigate some of this
variable interest rate risk. Under the terms of the agreement, the Company
would receive a positive net settlement from the counterparty if the LIBOR rate
(as defined) is greater than 6.5% on the settlement dates (as defined). If the
LIBOR rate (as defined) is less than 4.32% on the settlement dates (as
defined), the Company would be required to make a payment to the counterparty.
Based on debt outstanding as of December 29, 2007 and the interest rate collar
agreement in effect as of December 29, 2007, a one percentage point increase in
current market interest rates would increase the Companys borrowing costs by
approximately $1.1 million on an annual basis. A one percentage point decrease
in current market interest rates would reduce the Companys borrowing costs by
approximately $0.8 million on an annual basis.

We may encounter
litigation that has a material impact on our business.

We are
involved on an ongoing basis in litigation arising in the ordinary course of
business. Trends in litigation may include claims brought by consumers,
stockholders, vendors, accounts and/or injured persons in cases relating to
antitrust, employment and labor, environmental, negligence and regulatory
matters. Litigation trends and the outcome of litigation cannot be predicted
with certainty and adverse litigation trends and outcomes could adversely
affect our financial results.

Our inability to
adapt successfully to changing consumer preferences may damage our business.

Our success is
dependent upon consumer demand for our products. Our ability to anticipate
consumer preferences and create tabletop, gift and collectible products which
appeal to consumers who shop in our market channels is critical to achieving
financial results. As a related factor, our ability to identify, hire and
retain quality designers and sculptors and other artistic talent is critical to
our product development efforts and our ability to innovate successfully. Our
failure to successfully anticipate, identify and react to consumers current
preferences in our market channels, and to identify, hire and retain artistic
talent, could significantly lower sales of our products and harm our financial
results.

If we are unable to
complete our operational improvements, including improving our inventory
management and forecasting systems to make our supply chain more efficient,
improving the effectiveness and efficiency of our US manufacturing operations,
and integrating our legacy Department 56 and Lenox information, operating and
distribution systems, our business results may be adversely impacted.

In response to
market changes, including department store consolidation and a decrease in the
sales of collectibles and fine tableware over the past few years, we are
restructuring our operations to achieve revenue and cost synergies, including a
consolidation of our distribution facilities and a reduction-in-force and cost
reduction initiative at our North Carolina bone china factory. If we are not
successful in doing so, however, the reduced sales resulting from these
external market trends may have an adverse impact on our financial results.

8

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In addition,
we have implemented plans to improve our inventory management and provide more
accurate forecasting to enhance the efficiency of our supply chain. The highly
seasonal nature of our business, with a majority of our sales occurring in the
third and fourth quarters in anticipation of the holiday season, requires us
accurately to forecast demand for products in order to avoid losing potential
sales of popular products or producing excess inventory of products that are
less popular with consumers. Excess inventory poses particular risks to our
brand when sold through liquidation channels. If we do not successfully
implement and operate our new inventory management and forecasting systems, we
may adversely affect our financial results.

Following our
acquisition of Lenox, we have been working to integrate and update the
information systems, operating systems, fulfillment processes and distribution
resources of Department 56 and Lenox. If we are unable successfully to
integrate and update the systems and functional resources, we will not be able
operate in the most effective and cost efficient manner which may have an
adverse impact on our financial results.

If we are unable to
manage employee turnover through our integration of Department 56 and Lenox and
the completion of our operational improvement process, our business could be
adversely impacted.

We value and
are dependent on key employees throughout the Company for our business success.
In addition, an important element of our strategy is to utilize the expertise
of key employees to integrate successfully the legacy Department 56 and Lenox
operations and complete our operational improvement process. As a result of the
Companys past performance and current restructuring efforts, employee turnover
has occurred and is expected to continue. If employee turnover is not managed
effectively, the implementation of business improvements, employee morale and
results of our operations could be adversely impacted.

The Companys
performance is impacted, in part, on economic and other factors affecting
consumer spending that are out of the Companys control.

The Companys
business depends on consumer demand for its products and, consequently, is
sensitive to a number of factors that influence consumer spending, including
general economic conditions, disposable consumer income, recession and
inflation, consumer debt, unemployment rates, interest rates and consumer
confidence in future economic conditions. Adverse changes in one or more of the
foregoing factors could result in a reduction in consumer demand for the
Companys products, reductions in prices leading to lower average gross
margins, a slower inventory turnover, greater markdowns on inventory, thus
reducing the Companys sales and adversely impacting its operating results.

Our strategic
alternative plan announced by the Company in January 2008 may lead to
uncertainty or may not be successful.

On January 14,
2008, the Company issued a press release announcing a comprehensive review of
strategic, financial and operational alternatives to enhance stockholder value,
including a potential merger, sale of all or part of the Company or
recapitalization of the Company. There can be no assurance that the exploration
of strategic alternatives will result in any transaction. During the process,
there may be risks that certain customers, employees, suppliers, and business
partners may react negatively to the uncertainty of the process. These same
constituencies may react negatively in the event the process does not result in
any transaction. In the event a transaction is completed, the integration of
businesses and personnel may involve significant expenses and management time
and attention, and may otherwise disrupt our business. In addition,
acquisitions and/or mergers may expose the Company to unknown liabilities.

9

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|         |                          
|-------- | -------------------------
|ITEM 1B. | UNRESOLVED STAFF COMMENTS

None.

|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

Significant
properties owned or leased by the Company are as follows:

Owned Facilities

Office Facilities

An office
facility (66,400-sq. ft.) including a creative center and a corporate showroom
located in Eden Prairie, MN.

Manufacturing Facilities

A china dinnerware manufacturing facility (218,000-sq. ft.) servicing the Wholesale, Retail and
Direct segments including a retail store, located in Kinston, NC (the Kinston Facility).

Leased Facilities

Office Facilities

An office
facility (126,000-sq. ft.) servicing the Wholesale, Retail and Direct segments
and corporate function located in Bristol, PA (the Bristol Facility).

An office
facility (6,500-sq. ft.) servicing the Wholesale, Retail and Direct segments
located in Petaluma, CA (the Petaluma Facility).

Mixed Use Facilities

An
office/retail facility (45,500-sq. ft.) servicing the Wholesale and Retail
segments located in Pomona, NJ (the Pomona Facility).

A
retail/warehousing facility (125,370-sq. ft.) servicing the Wholesale and
Retail segments located in South Brunswick, NJ (the Cranbury Facility).

Warehouse and/or Distribution Facilities

A warehousing
and distribution facility (500,000-sq. ft.) servicing the Wholesale and Retail
segments located in Hagerstown, MD.

A
warehousing/distribution/retail/office facility (229,893-sq. ft.) servicing the
Direct and Retail segments located in Langhorne, PA (the Langhorne Facility).

A warehousing
facility (48,000-sq. ft.) servicing the Direct segment located in Bristol
Township, PA.

Retail Stores

As of February 1, 2008, the Companys Retail segment operated 32 retail stores located in 17
states, including eight stores operated under the Department 56 trade name and 24 stores operated under the Lenox
trade name (including locations in the manufacturing and mixed use facilities above). The retail stores range from 3,100 to 15,000
sq. ft., excluding the retail space in the Cranbury, Langhorne and Pomona Facilities, which are approximately 48,000 sq. ft,
30,600 sq. ft., and 31,500 sq. ft., respectively.

10

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Showrooms

The Company
also operates nine showrooms; two located in New York, NY; and one each located
in Atlanta, GA, Billerica, MA, Chicago, IL, Columbus, OH, Dallas, TX, Los
Angeles, CA and Frankfurt, Germany.

The terms of
the above-referenced leases expire at various dates. The Company believes that
the facilities are in good condition and are adequate for the business.

|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS

(A.) In Re Tableware Antitrust Litigation - In
August 2004, plaintiffs purporting to represent a class of consumers who
purchased tableware sold in the United States filed suit against Federated
Department Stores, the May Department Stores Company, Waterford Wedgwood U.S.A.
and Lenox, Incorporated (Lenox) in United States District Court for the
Northern District of California. In November 2004, plaintiffs filed a
consolidated amended complaint alleging that, for the period beginning at least
as early as May 1, 2001, through the filing of the amended complaint on
November 12, 2004, defendants violated Section 1 of the Sherman Act by
conspiring to fix prices and to boycott sales to Bed, Bath & Beyond
(hereinafter the Action). Plaintiffs sought to recover an undisclosed amount
of damages, trebled in accordance with antitrust laws, as well as costs,
attorneys fees and injunctive relief.

On February
22, 2007, without admitting any violation of any statute or law or any
liability or wrongdoing whatsoever, Lenox entered into a settlement agreement
with the plaintiff class representatives. Pursuant to the terms of the
settlement agreement, Lenox paid $0.5 million, in return for which Lenox and its
affiliates will be completely released from any and all claims, demands and
actions concerning the Action and any claims that could have been alleged in
the Action. The court approved the settlement agreement by opinion and order
dated November 25, 2007 by which the Action was dismissed with prejudice.

(B.) Curiale v Lenox Group Inc. - On April 12,
2007, Amanda Curiale filed a complaint in the United States District Court for
the Eastern District of Pennsylvania, which is a purported class action alleging
that the Company willfully violated the federal Fair and Accurate Credit
Transactions Act (FACTA) by continuing to print after December 1, 2006 the
expiration dates on receipts provided to debit card and credit cardholders
transacting business with the Company (hereinafter the FACTA Litigation). The
Company understands that similar complaints have been filed against a large
number of retailers. The plaintiff seeks, on behalf of herself and the class,
statutory damages of not less than one hundred dollars and not more than one
thousand dollars for each violation, as well as unspecified punitive damages,
costs and attorneys fees and a permanent injunction from further engaging in
violations of FACTA.

On September
20, 2007, the parties held an all-day mediation session and reached a tentative
settlement which is subject to the parties signing a definitive settlement
agreement and court approval. Under the terms of the settlement, Lenox denies
all claims as to liability, damages, penalties, interest, fees, restitution and
all other forms of relief sought in the FACTA Litigation. Pursuant to the terms
of the proposed settlement, the Company will pay a non-material sum for
attorneys fees, a charitable contribution and a plaintiffs incentive fee, and
will provide participating claimants with a coupon towards a future purchase or
a free product through Company-operated retail stores. In return, the Company
and its affiliates will be completely released from any and all claims, demands
and actions concerning the FACTA Litigation and any claims that could have been
alleged in the FACTA litigation.

(C.) Period Design, Inc. v D56, Inc. (D56) -
On February 17, 2008, a trial commenced in the Period Design case. D56 is a
subsidiary of the Company. Plaintiff alleges a breach of contract claim and
seeks compensatory damages based upon D56s alleged failure to pay royalties
alleged to be due Period Design, Inc. on various products marketed and sold by
D56, together with pre-judgment interest thereon, the aggregate claims for
which, if accepted by the court, would be material to the Companys financial
condition and results of operations. The matter was tried before the Minnesota
State District Court (Hennepin County) from February 17 through February 28,
2008. The parties are in the process of filing post-trial submissions, and
anticipate a decision by the Court in late March/early April 2008. The Company
intends to continue to vigorously defend against this alleged breach of
contract claim.

In addition to
the above actions, the Company is involved in various legal proceedings, claims
and governmental audits in the ordinary course of its business. The Company
believes it has meritorious defenses to all proceedings, claims and audits.
Management believes the impact, if any, of these legal proceedings would not be
material to the results of operations, financial position or cash flows of the
Company.

11

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|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters
were submitted to a vote of the Companys security holders during the last
quarter of the year ended December 29, 2007.

12

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PART II

|        |                                                                                                              
|------- | -------------------------------------------------------------------------------------------------------------
|       
|        |                                                                                                              
|ITEM 5. | MARKET FOR REGISTRANTS COMMON
 EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Companys common stock trades on the New York
Stock Exchange (NYSE) under the symbol LNX. The table below sets forth the
high and low sales prices for each quarter during the last two fiscal years, as
reported by the NYSE.

|               |  |      |       |     |   |       | 
|-------------- |  | ---- | ----- | --- | - | ----- | 
|               |  | High |       | Low |  
|               |  |      |       |     |  
|              
|Fiscal 2007    |  |      |       |     |   |       | 
|First quarter  |  | $    | 6.77  |     | $ | 3.17  | 
|Second quarter |  |      | 8.31  |     |   | 6.81  | 
|Third quarter  |  |      | 7.36  |     |   | 4.50  | 
|Fourth quarter |  |      | 4.86  |     |   | 2.65  | 
|               |  |      |       |     |   |       | 
|Fiscal 2006    |  |      |       |     |   |       | 
|First quarter  |  | $    | 13.80 |     | $ | 12.38 | 
|Second quarter |  |      | 14.37 |     |   | 7.04  | 
|Third quarter  |  |      | 7.37  |     |   | 5.38  | 
|Fourth quarter |  |      | 7.79  |     |   | 5.44  | 

The Company has not declared or paid dividends on its
common stock. As a holding company, the ability of the Company to pay cash
dividends will depend upon the receipt of dividends or other payments from its
subsidiaries. See Item 7.  Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources below
with respect to restrictions under the Companys credit facilities pertaining
to its ability to pay dividends.

As of March 4, 2008, the number of holders of record
of the Companys common stock was 714.

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total
return on $100 invested on December 28, 2002, in each of our Common Stock,
Standard & Poors Small Cap 600 Index and a peer group index.

The peer group index is composed of the following
issuers: Blyth Inc., Enesco Group, Inc., Lenox Group Inc., Lifetime Brands,
Inc., Libbey, Inc. and Russ Berrie & Co. These companies were selected
based on their respective product offerings (i.e., tabletop, giftware and/or
collectible products), the channels of distribution in which their respective
products are sold and financial criteria.

The stock of Lifetime Brands, Inc. is traded on the
NASDAQ exchange. The stock of Enesco Group Inc. was traded on the New York
Stock Exchange through June 9, 2006. Thereafter, its stock became listed on the
other OTC exchange. The stocks of the other companies comprising the peer
group are traded on the NYSE.

In calculating the peer group index, each of the
issuers is weighted to recognize its stock market capitalization. The returns
of the Standard & Poor SmallCap 600 Index and the peer group index are
calculated assuming reinvestment of dividends. The Company has not paid any
dividends. The graph specifies data values for the preceding trading day
nearest to each of the Companys fiscal year-ends during such period.

The stock price performance shown on the graph below
is not necessarily indicative of future price performance. Data points below
were provided by Research Data Group, Inc., a licensee of Standard &
Poors.

13

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Table of Contents

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Lenox Group Inc., The S&P Smallcap 600 Index
And A Peer Group

(LINE GRAPH)

* $100 invested on 12/28/02 in stock or 12/31/02 in index-including
reinvestment of dividends. 
Index calculated on month-end basis.

|                   |  |          |  |                          |  |         |  |          |  |          |  |         
|------------------ |  | -------- |  | ------------------------ |  | ------- |  | -------- |  | -------- |  | --------
|                   |  |          |  | Cumulative
 Total Return |  |         |  |         
|                   |  |          |  |                          |  |         |  |         
|                   |  | 12/28/02 |  | 1/03/04                  |  | 1/01/05 |  | 12/31/05 |  | 12/30/06 |  | 12/29/07
|                   |  |          |  |                          |  |         |  |          |  |          |  |         
|Lenox Group Inc.   |  | 100.00   |  | 107.39                   |  | 129.57  |  | 103.04   |  | 49.81    |  | 22.65   
|S & P SmallCap 600 |  | 100.00   |  | 138.79                   |  | 170.22  |  | 183.30   |  | 211.01   |  | 210.38  
|Peer Group         |  | 100.00   |  | 119.52                   |  | 111.87  |  | 75.60    |  | 73.86    |  | 74.34   

14

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Table of Contents

|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

|                                                                                                                                                                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------
|FIVE-YEAR SUMMARY (In thousands, except per share amounts)
YEARS ENDED DECEMBER 29, 2007, DECEMBER 30, 2006, DECEMBER 31, 2005, 
JANUARY 1, 2005 AND JANUARY 3, 2004
|                                                                                                                                                                    

The following selected
consolidated financial data should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations, and
the Consolidated Financial Statements and related Notes thereto, included
elsewhere herein. Fiscal year 2007, 2006, 2005, 2004 and 2003 results reflect
the reclassification of Geppeddos and Time to Celebrates financial results as
discontinued operations.

|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|------------------------------------------------------------- |  | ----------------- | ------- | ----------------- | - | ------------------- | - | --------------- | ------- | --------------- | - | ------- | - | - | ------- | -
|                                                              |  | December 29,20071 |         | December 30,20061 |   | December 31,20051,2 |   | January 1,20051 |         | January 3,20041 |  
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |  
|STATEMENTS OF OPERATIONS                                      |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|Net sales                                                     |  | $                 | 452,115 |                   | $ | 502,506             |   | $               | 331,728 |                 | $ | 162,908 |   | $ | 174,957 |  
|Cost of sales                                                 |  |                   | 235,139 |                   |   | 257,932             |   |                 | 172,845 |                 |   | 73,958  |   |   | 78,862  |  
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|Gross profit                                                  |  |                   | 216,976 |                   |   | 244,574             |   |                 | 158,883 |                 |   | 88,950  |   |   | 96,095  |  
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|Operating expenses:                                           |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|Selling, general and administrative                           |  |                   | 214,816 |                   |   | 234,676             |   |                 | 126,394 |                 |   | 53,834  |   |   | 54,902  |  
|Restructuring charges3                                        |  |                   | 9,540   |                   |   |                    |   |                 |        |                 |   |        |   |   |        |  
|Pension curtailment and settlement
gains4                     |  |                   |        |                   |   | (14,783             | ) |                 |        |                 |   |        |   |   |        |  
|Goodwill impairment5                                          |  |                   |        |                   |   | 55,269              |   |                 |        |                 |   |        |   |   |        |  
|Trademark impairment6                                         |  |                   |        |                   |   | 3,743               |   |                 |        |                 |   |        |   |   |        |  
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|Operating (loss) income
 from continuing operations           |  |                   | (7,380  | )                 |   | (34,331             | ) |                 | 32,489  |                 |   | 35,116  |   |   | 41,193  |  
|                                                             
|Other expense (income):                                       |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|Interest expense                                              |  |                   | 15,890  |                   |   | 16,697              |   |                 | 5,735   |                 |   | 493     |   |   | 1,901   |  
|Loss on refinancing of debt7                                  |  |                   | 5,940   |                   |   |                    |   |                 |        |                 |   |        |   |   |        |  
|Litigation settlement8                                        |  |                   |        |                   |   |                    |   |                 |        |                 |   | (6,871  | ) |   |        |  
|Other, net                                                    |  |                   | (36     | )                 |   | 35                  |   |                 | (744    | )               |   | (414    | ) |   | (906    | )
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|(Loss) income from
 continuing operations before income taxes |  |                   | (29,174 | )                 |   | (51,063             | ) |                 | 27,498  |                 |   | 41,908  |   |   | 40,198  |  
|(Benefit) provision for
 income taxes                         |  |                   | (13,348 | )                 |   | (1,795              | ) |                 | 10,146  |                 |   | 15,088  |   |   | 14,529  |  
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|(Loss) from continuing
 operations                            |  |                   | (15,826 | )                 |   | (49,268             | ) |                 | 17,352  |                 |   | 26,820  |   |   | 25,669  |  
|Loss from discontinued
 operations, net of tax9               |  |                   |        |                   |   |                    |   |                 | (2,182  | )               |   | (3,036  | ) |   | (9,261  | )
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|Net (loss) income                                             |  | $                 | (15,826 | )                 | $ | (49,268             | ) | $               | 15,170  |                 | $ | 23,784  |   | $ | 16,408  |  
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|                                                              |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|(Loss) income per share
 from continuing operations           |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|Basic                                                         |  | $                 | (1.15   | )                 | $ | (3.58               | ) | $               | 1.27    |                 | $ | 2.01    |   | $ | 1.96    |  
|Diluted                                                       |  | $                 | (1.15   | )                 | $ | (3.58               | ) | $               | 1.26    |                 | $ | 1.98    |   | $ | 1.94    |  
|                                                             
|BALANCE
 SHEET DATA                                           |  |                   |         |                   |   |                     |   |                 |         |                 |   |         |   |   |         |  
|Working capital                                               |  | $                 | 104,302 |                   | $ | 30,260              |   | $               | 79,326  |                 | $ | 82,294  |   | $ | 49,424  |  
|Total assets                                                  |  |                   | 352,106 |                   |   | 373,797             |   |                 | 469,928 |                 |   | 167,388 |   |   | 142,304 |  
|Total debt (current and
 noncurrent)                          |  |                   | 108,688 |                   |   | 96,566              |   |                 | 110,718 |                 |   |        |   |   |        |  
|Total stockholders equity10                                  |  |                   | 136,142 |                   |   | 141,679             |   |                 | 161,749 |                 |   | 143,757 |   |   | 114,296 |  

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1  | The year ended January 3, 2004 is a
53-week fiscal year whereas all other fiscal years presented are 52-week
periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2  | Effective September 1, 2005, the Company
completed the acquisition of Lenox from Brown-Forman.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3  | Restructuring charges include $6.9 million
in severance related costs and $2.6 million of costs associated with closing
and consolidating operations and facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4  | In the fourth quarter of 2006, the
Company announced the freezing of its defined benefit pension plans. As a
result of this decision, the Company recognized a pension curtailment of $13.2
million. Also, in the fourth quarter of 2006, the Company recorded a plan
settlement gain of $1.6 million as a result of significant lump-sum cash
payments made to employees from one of its defined benefit pension plans.                                                                                                                                                                                                                                                                                                                                                                                                    
|5  | In the second quarter of 2006, the
Company recognized a goodwill impairment charge of $37.1 million in its
Department 56 wholesale reporting unit related to the continuing decline of
product shipments into the gift and specialty channel. This goodwill impairment
principally related to the goodwill originally recorded in 1992 as the result
of the acquisition of Department 56 by Forstmann Little & Co. In the fourth
quarter of 2006, the Company recognized a goodwill impairment charge of $18.2
million as a result of lower projected sales and profits from the Companys
Lenox wholesale reporting unit as compared to that which was originally
projected at the date of the Acquisition. This goodwill impairment related to
the goodwill originally recorded in 2005 as part of the acquisition of Lenox.
|6  | During 2006, the Company recognized a
trademark impairment charge of $3.7 million related to lower than projected
sales of Dansk
and Gorham
product from that estimated at the time of the original purchase price
allocation. These trademark costs were originally recorded in 2005 as part of
the acquisition of Lenox.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|7  | The Company incurred a $5.9 million loss
on the refinancing of its term and revolver loans in the second quarter of
2007. This loss consisted of $2.7 million of costs incurred in the quarter
related to the re-financing as well as the write-off of $3.2 million of
previously capitalized loan costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|8  | During 2004, the Company received net proceeds
(before income taxes) of $6.9 million in settlement of the Companys litigation
against a third party related to the implementation of its information systems.
This recovery was recorded in other income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|9  | In December 2005, the Company ceased operations
of its Time to Celebrate business. Additionally, during the first quarter of
2004, the Company ceased operations of its Geppeddo seasonal kiosk business. In
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company reclassified the results of these
ceased operations into discontinued operations for all periods presented.                                                                                                                                                                                                                                                                                                                                                                                            
|10 | The Company has not declared or paid
dividends on its common stock. As a holding company, the ability of the Company
to pay cash dividends will depend upon the receipt of dividends or other
payments from its subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

15

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Table of Contents

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND
 ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

In 2007 sales declined by almost 10% and the Company reported a net loss of $15.8 million. In
particular, the Company was impacted by the weak consumer retail environment in the fourth quarter of 2007. However, the Company
has pursued several initiatives over the past year that it believes will create a foundation for growth going forward. These
initiatives included:

|  |                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Retaining Carl Marks Advisory Group, LLC (CMAG), and naming Marc L. Pfefferle, a CMAG
partner, as interim Chief Executive Officer.                                                                                                                         
|  |                                                                                                                                                                                                                                                              
| | Initiating a company wide restructuring that consolidated many functions which resulted in
improved, simplified and more cost effective operations.                                                                                                          
|  |                                                                                                                                                                                                                                                              
| | Completing the refinancing of its credit facilities.                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                              
| | Hiring a new Chief Operating Officer/Chief Financial
 Officer and hiring new executives to lead its Dansk brand, Retail and
 Direct segments.                                                                                                                
|  |                                                                                                                                                                                                                                                              
| | Selling certain assets pertaining to its sterling
 silver flatware and giftware business conducted primarily under the Gorham
 and Kirk
 Stieff brand names.                                                                                                 
|  |                                                                                                                                                                                                                                                              
| | Closing of its Rogers, MN distribution facility and
 consolidating into the Companys existing Hagerstown, MD facility. This
 consolidation started in the fourth quarter of 2007 and was completed at the
 end of February 2008.                            
|  |                                                                                                                                                                                                                                                              
| | Improving and accelerating the product development
 processes. In addition, product delivery performance improved, while
 inventory levels were reduced by $17.5 million from $101.9 million as of
 December 30, 2006 to $84.4 million at December 29, 2007. 
|  |                                                                                                                                                                                                                                                              
| | Implementing cost savings initiatives that helped to
 reduce factory spending by $8.1 million in 2007 compared to 2006 in the
 Kinston manufacturing facility.                                                                                               
|  |                                                                                                                                                                                                                                                              
| | Addressing the changing demographics of the customer
 base by introducing improved casual china dinnerware and our unique Simply
 Fine line of fine china and an updated Dansk product line. These offerings
 target our younger, lifestyle driven customer.

The management team is well aware of and concerned about the general state of the economy and its
impact on retail, consumer buying habits and ultimately sales. While its financial and operational performance has been improving,
the Company continues to face challenging business and economic conditions. Additional financial resources would be a significant
benefit to the Company, providing an opportunity to increase its business scale and strength. With this in mind, on January 14,
2008 the Company announced that it will explore strategic alternatives aimed at enhancing stockholder value. The Companys
Board concluded that it is in the best interests of all Lenox stockholders to conduct an orderly and comprehensive review and
evaluation of strategic, operational and financial alternatives available to us including, but not limited to, a potential sale or
merger of the Company, a potential sale of part of the Company, or raising additional equity capital to enhance the growth
prospects of the business. The Board has also adopted a stockholder rights plan (the Rights Plan). The Rights Plan is
designed to reduce the likelihood that a potential acquirer would gain control of the Company by open market accumulation or other
coercive takeover tactics without paying an appropriate value for the Companys shares.

16

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Table of Contents

SUMMARY OF 2007 RESULTS OF OPERATIONS

The loss from continuing operations was $15.8 million in 2007 compared to the loss from continuing operations of
$49.3 million in 2006. The Company incurred significant one-time special items during 2007 and 2006. Management believes that
showing EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA adjusted for these special items
provides useful information to investors regarding the Companys results. These measures should not be considered an
alternative to the results from operations which are determined in accordance with GAAP. The schedule below reconciles the GAAP
financial measure to the non-GAAP financial measures.

The GAAP presentation of net income for 2007, reflects restructuring charges of $9.5 million for the
full year. In the schedule below, $6.9 million is included under the heading Severance, retention bonuses and related
employee costs, and $2.6 million is included under the heading Expenses incurred in connection with facility
consolidations, closings and relocations.

|                                                                                                                         |  |                              |       |                            |   |       |  
|------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ----- | -------------------------- | - | ----- | -
|Reconciliation of Non-GAAP Financial Measure (In millions)                                                              
|                                                                                                                         |  |                              |       |                            |  
|                                                                                                                         |  | Year Ended  December 29,2007 |       | Year EndedDecember 30,2006 |  
|                                                                                                                         |  |                              |       |                            |  
|                                                                                                                        
|Net income (loss) (GAAP measure)                                                                                         |  | $                            | (15.8 | )                          | $ | (49.3 | )
|Interest expense                                                                                                         |  |                              | 15.9  |                            |   | 16.7  |  
|Loss on extinguishment of debt                                                                                           |  |                              | 5.9   |                            |   |      |  
|Income tax benefit                                                                                                       |  |                              | (13.3 | )                          |   | (1.8  | )
|Franchise taxes                                                                                                          |  |                              | 0.3   |                            |   | 0.5   |  
|Depreciation expense                                                                                                     |  |                              | 11.7  |                            |   | 12.6  |  
|Amortization expense                                                                                                     |  |                              | 2.2   |                            |   | 3.1   |  
|                                                                                                                         |  |                              |       |                            |   |       |  
|EBITDA                                                                                                                   |  |                              | 6.9   |                            |   | (18.2 | )
|                                                                                                                         |  |                              |       |                            |   |       |  
|Special items:                                                                                                           |  |                              |       |                            |   |       |  
|Goodwill impairment                                                                                                      |  |                              |      |                            |   | 55.3  |  
|Pension curtailment gain                                                                                                 |  |                              |      |                            |   | (14.8 | )
|Tradename impairment                                                                                                     |  |                              |      |                            |   | 3.7   |  
|Gain on sale of Pomona
  facility                                                                                        |  |                              |      |                            |   | (1.1  | )
|Purchase accounting
  adjustments                                                                                        |  |                              |      |                            |   | (3.0  | )
|Severance, retention bonuses
  and related employee benefits and costs                                                   |  |                              | 6.9   |                            |   |      |  
|Expenses incurred in
  connection with facility consolidations, closings and relocations                                 |  |                              | 4.5   |                            |   |      |  
|Professional fees paid
  related to the refinancing and restructuring.                                                   |  |                              | 5.6   |                            |   | 0.1   |  
|Fines, settlements, judgments
  and legal fees associated with proceedings outside of the ordinary course of
  business. |  |                              | 1.0   |                            |   |      |  
|All other - net                                                                                                          |  |                              | 2.2   |                            |   |      |  
|                                                                                                                         |  |                              |       |                            |   |       |  
|EBITDA adjusted for special items (non-GAAP measure)                                                                     |  | $                            | 27.1  |                            | $ | 22.0  |  
|                                                                                                                         |  |                              |       |                            |   |       |  

|                                  |   |                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                 
|--------------------------------- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Special
  items in 2007 included:
|                                  |   |                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                  |  | The $6.9
  million of severance, retention bonuses and related employee benefits and
  costs related primarily to the departure of the Companys former Chief
  Executive Officer and other members of senior management, as well as
  company-wide reductions in workforce, retail store employees and plant and
  distribution facility employees.
|                                  |   |                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                  |  | The $4.5
  million of expenses incurred in connection with facility consolidations,
  closings and relocations consisted of:                                                                                                                                                                                                                        
|                                  |   |                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                  |   |                                                                                                                                                                                                                                                                                                                                                      | o | $2.6 million
  of lease termination and closure costs related to the shutdown of the
  Companys distribution facility located in Rogers, MN, the shutdown of the
  Companys china manufacturing operations located in Pomona, NJ, closure costs
  incurred to shutdown the Companys sterling manufacturing operations in
  Pomona, NJ and lease termination costs related to an All the Hoopla store
  lease.

17

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Table of Contents

| |  |  |   |                                                                                                                                                                                                                                                                                                                                     
| |  |  | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | o | $1.9 million
  in special items that included excessive manufacturing variances generated in
  our sterling manufacturing facility as a result of lower manufacturing volume
  in the first half of 2007 and accelerated depreciation costs resulting from
  our decision to close our distribution facility and five retail stores.

|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                             |  | The $5.6
  million in professional fees paid related to the refinancing and
  restructuring included executive management fees and other advisory services
  as part of the restructuring process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                             |  | Fines,
  settlements, judgments and legal fees associated with proceedings outside of
  the ordinary course of business pertained to a provision of $1.0 million
  covering two separate ongoing legal cases (See Part I, Item 3 titled Legal
  Proceedings).                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                             |  | All other 
  net totaled $2.2 million and were inventory related charges, executive and
  professional recruiting fees and other integration related costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Special
  items in 2006 included:                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                             |  | The Company
  recognized a goodwill impairment charge of $37.1 million in its Department 56
  wholesale reporting unit related to the continuing decline of product
  shipments into the gift and specialty channel. This goodwill principally
  related to the 1992 acquisition of Department 56 by Forstmann Little &
  Co. The Company also recognized a goodwill impairment charge of $18.2 million
  as a result of lower projected sales and profits from the Companys Lenox
  wholesale reporting unit as compared to that which was originally projected
  at the date of the Acquisition. This goodwill impairment related to the
  Acquisition on September 1, 2005.
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                             |  | The Company
  also announced the freezing of its defined benefit pension plans. No future
  benefits will accrue under the pension plans, but pension benefits earned
  through December 31, 2006, will be available to legacy Lenox employees when
  they retire under the terms of the plan. As a result of this decision, the
  Company recognized a pension curtailment gain of $13.2 million. In addition,
  the Company recorded a plan settlement gain of $1.6 million as a result of
  significant lump-sum cash payments made to employees from one of its defined
  benefit pension plans.                                                                         
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                             |  | The Company
  recognized a trademark impairment charge of $3.7 million related to lower
  than projected sales of Dansk and Gorham product from that
  estimated at the time of the original purchase price allocation. These
  trademark costs were also originally recorded as part of the Acquisition.                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                             |  | The Company
  sold its Pomona, NJ facility for net proceeds of $6.6 million and recognized
  a gain of $1.1 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                             |  | The Company
  recognized a $3.0 million net benefit resulting from a purchase accounting
  fair market value adjustment related to the purchase accounting requirement
  to value inventory at its estimated selling price less cost of disposal on
  the opening balance sheet date. This adjustment related to inventory acquired
  in the Lenox Acquisition in September 2005.                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Excluding
  the impact of these special items on both the 2007 and 2006, EBITDA, adjusted
  for special charges, increased $5.1 million, from $22.0 million in 2006 to
  $27.1 million in 2007. This increase was due primarily to lower fixed and
  variable costs which more than offset the impact of lower sales volume.
|                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

18

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Table of Contents

|                                                                        
|------------------------------------------------------------------------
|COMPARISON OF RESULTS OF CONTINUING OPERATIONS FOR 2007, 2006 AND
  2005
|                                                                        
|(Amounts
  in millions, except per share amounts)                       
|                                                                        

In connection with the Companys acquisition of Lenox from Brown-Forman, the Company redefined
its operating segments in accordance with SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information, to include three reportable segments  Wholesale, Retail and Direct. Net sales, gross profit, and
specifically identified selling costs are measured for each segment. Expenses not allocated to specific operating segments are
reflected in the Corporate category and represent general and administrative costs. Other components of the statement of
operations which are classified below income (loss) from operations (i.e. interest expense, provision for income taxes, etc.) are
not allocated by segment and are discussed separately. In addition, the Company does not account for or report assets, capital
expenditures, or certain depreciation and amortization by segment. Certain previous year amounts have been reclassified to conform
to current year presentations. These reclassifications had no impact on consolidated net income or retained earnings as previously
reported.

|                                                               |  |      |        |      |   |       |   |   |       |  
|-------------------------------------------------------------- |  | ---- | ------ | ---- | - | ----- | - | - | ----- | -
|                                                               |  | 2007 |        | 2006 |   | 2005  |  
|                                                               |  |      |        |      |   |       |  
|                                                               |  |      |        |      |   |       |   |   |       |  
|WHOLESALE:                                                     |  |      |        |      |   |       |   |   |       |  
|Net sales                                                      |  | $    | 301.0  |      | $ | 330.4 |   | $ | 217.0 |  
|Gross profit                                                   |  |      | 128.4  |      |   | 135.9 |   |   | 90.8  |  
|Gross profit as a % of net sales                               |  |      | 43     | %    |   | 41    | % |   | 42    | %
|Selling expenses                                               |  |      | 37.6   |      |   | 42.3  |   |   | 26.5  |  
|Selling expenses as a % of net sales                           |  |      | 13     | %    |   | 13    | % |   | 12    | %
|Restructuring charges                                          |  |      | 0.5    |      |   |      |   |   |      |  
|Goodwill impairment                                            |  |      |       |      |   | 55.3  |   |   |      |  
|Income from operations                                         |  |      | 90.3   |      |   | 38.3  |   |   | 64.3  |  
|                                                               |  |      |        |      |   |       |   |   |       |  
|RETAIL:                                                        |  |      |        |      |   |       |   |   |       |  
|Net sales                                                      |  | $    | 62.1   |      | $ | 76.2  |   | $ | 74.7  |  
|Gross profit                                                   |  |      | 26.9   |      |   | 41.5  |   |   | 42.3  |  
|Gross profit as a % of net sales                               |  |      | 43     | %    |   | 54    | % |   | 57    | %
|Selling expenses                                               |  |      | 30.3   |      |   | 33.5  |   |   | 22.6  |  
|Selling expenses as a % of net sales                           |  |      | 49     | %    |   | 44    | % |   | 30    | %
|Restructuring charges                                          |  |      | 1.2    |      |   |      |   |   |      |  
|(Loss) Income from operations                                  |  |      | (4.6   | )    |   | 8.0   |   |   | 19.7  |  
|                                                               |  |      |        |      |   |       |   |   |       |  
|DIRECT:                                                        |  |      |        |      |   |       |   |   |       |  
|Net sales                                                      |  | $    | 86.7   |      | $ | 94.2  |   | $ | 39.2  |  
|Gross profit                                                   |  |      | 59.4   |      |   | 65.4  |   |   | 25.0  |  
|Gross profit as a % of net sales                               |  |      | 69     | %    |   | 69    | % |   | 64    | %
|Selling expenses                                               |  |      | 47.8   |      |   | 46.1  |   |   | 16.8  |  
|Selling expenses as a % of net sales                           |  |      | 55     | %    |   | 49    | % |   | 43    | %
|Restructuring charges                                          |  |      | 0.2    |      |   |      |   |   |      |  
|Income from operations                                         |  |      | 11.4   |      |   | 19.3  |   |   | 8.2   |  
|                                                               |  |      |        |      |   |       |   |   |       |  
|CORPORATE:                                                     |  |      |        |      |   |       |   |   |       |  
|Unallocated net sales                                          |  | $    | 2.3    |      | $ | 1.7   |   | $ | 0.8   |  
|Unallocated general and administrative
  expenses              |  |      | 99.2   |      |   | 112.7 |   |   | 60.5  |  
|Restructuring charges                                          |  |      | 7.6    |      |   |      |   |   |      |  
|Unallocated pension curtailment and
  settlement gains         |  |      |       |      |   | (14.8 | ) |   |      |  
|Unallocated trademark impairment                               |  |      |       |      |   | 3.7   |   |   |      |  
|Loss from operations                                           |  |      | (104.5 | )    |   | (99.9 | ) |   | (59.7 | )
|                                                               |  |      |        |      |   |       |   |   |       |  
|CONSOLIDATED                                                   |  |      |        |      |   |       |   |   |       |  
|Net sales                                                      |  | $    | 452.1  |      | $ | 502.5 |   | $ | 331.7 |  
|Operating (loss) income from continuing
  operations           |  |      | (7.4   | )    |   | (34.3 | ) |   | 32.5  |  
|                                                               |  |      |        |      |   |       |   |   |       |  
|Other expense (income):                                        |  |      |        |      |   |       |   |   |       |  
|Interest expense                                               |  |      | 15.9   |      |   | 16.8  |   |   | 5.7   |  
|Loss on refinancing of debt                                    |  |      | 5.9    |      |   |      |   |   |      |  
|Other, net                                                     |  |      |       |      |   |      |   |   | (0.7  | )
|                                                               |  |      |        |      |   |       |   |   |       |  
|(Loss) income from continuing operations
  before income taxes |  |      | (29.2  | )    |   | (51.1 | ) |   | 27.5  |  
|(Benefit) provision for income taxes                           |  |      | (13.4  | )    |   | (1.8  | ) |   | 10.1  |  
|(Loss) income from continuing operations                       |  | $    | (15.8  | )    | $ | (49.3 | ) | $ | 17.4  |  

19

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Table of Contents

COMPARISON OF RESULTS OF CONTINUING OPERATIONS 2007 TO 2006

Wholesale

Net sales decreased $29.4 million, or 9%, in 2007 compared with the same period in 2006 due to the ongoing
contraction of the gift and specialty channel, the consolidation of the department store customers and a weak consumer retail
environment in the fourth quarter of 2007. The divestiture of the Companys sterling silver product line early in the third
quarter of 2007 and the product void in the Dansk brand caused by transitioning Dansk from the housewares market to
the upstairs tabletop market further contributed to the decrease.

Gross profit as a percentage of net sales was 43% and 41% in 2007 and 2006, respectively. This increase in gross
profit as a percentage of net sales was primarily due to a favorable sales mix in the second half of 2007 and lower excess
inventory expense. Lower freight expense, primarily due to the decrease in sales and more efficient Kinston manufacturing
operations also contributed to the increase.

Selling expenses were 13% of net sales in 2007 as well as in 2006. This rate was sustained on a lower sales volume
primarily due to lower fixed compensation and variable selling costs resulting from the sales force integration efforts, as well
as lower bad debt expense.

In 2006, the Company recognized goodwill impairment charges of $55.3 million. A goodwill impairment charge of
$37.1 million was recognized in the second quarter of 2006, principally related to the goodwill recorded in 1992 as a result of
the acquisition of Department 56 by Forstmann Little & Co. An additional goodwill impairment charge of $18.2 million
recognized in the fourth quarter of 2006 related to the goodwill originally recorded as part of the acquisition of Lenox in 2005.
There was no similar charge in 2007.

Operating income increased $52.0 million in 2007 as compared to 2006 as a result of the items described
above.

Retail

Net sales decreased $14.1 million, or 18%, in 2007 compared with 2006 primarily due to store closures, four stores
that closed in February of 2007 and 28 stores that were closed in January of 2006. Further contributing to the decrease was a 10%
reduction in same-store sales due to lower store traffic as a result of a more difficult consumer retail environment particularly
in the fourth quarter of 2007.

Gross profit as a percentage of net sales was 43% and 54% in 2007 and 2006, respectively. A positive
$4.5 million purchase accounting adjustment in 2006 to value Lenox inventory at its estimated selling price less cost of disposal
under the purchase method of accounting on the opening balance sheet date accounted for a seven percentage point increase in 2006.
The remaining four percentage point decrease in gross profit percentage in 2007, resulted from a focus on liquidating second
quality and excess inventory at significantly reduced prices during the first half of 2007.

Selling expenses were 49% of net sales in 2007 compared to 44% of net sales in 2006. The higher expense rate
reflects higher fixed operating costs on a declining sales base. Selling expenses in 2007 were reduced by store closures and lower
administrative costs as a result of restructuring efforts in the first half of 2007.

Restructuring charges of $1.2 million in 2007 were primarily lease termination costs related to an All the
Hoopla store located in Buffalo, NY.

There was an operating loss of $4.6 million in 2007 as compared to an operating profit of $8.0 million in 2006 as
a result of the items described above.

Direct

Net sales decreased $7.5 million or 8% in 2007 as compared to the same period in 2006, as lower consumer response
to our direct mail advertising campaigns in 2007 was partially offset by higher internet sales.

Gross profit as a percentage of sales was 69% in both 2007 and 2006.

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Selling expenses were 55% of net sales in 2007 compared to 49% of net sales in 2006, an increase of $1.6 million.
The higher expense rate as a percentage of net sales in 2007, compared to 2006, reflects a planned significant increase in
advertising costs to acquire more customers to grow the business. These efforts were not successful due to lower customer response
to our direct mail campaigns. Selling expenses in 2007 were also increased by higher bad debt expense related to a change in sales
and customer mix.

Operating
income was $7.9 million less in 2007 as compared to 2006 as a result of the
items described above.

Corporate

Net sales of
$2.3 million in 2007 represents revenue from the licensing of the Companys
brands and was $0.5 million higher as compared to 2006.

General and
administrative expenses decreased by $13.5 million or 12% in 2007 as compared
to the same period in 2006. The largest components of this decrease included a
$9.3 million reduction in postretirement expenses relating to freezing the
Companys defined benefit pension plans and discontinuing post retirement
health benefits to former and current employees, as well as workforce
reductions of $7.4 million and a $1.6 million reduction in equity compensation.
Partially offsetting these decreases was $5.1 million of executive management
consulting fees incurred in 2007, including fees paid to CMAG for the services
of Marc Pfefferle, as interim CEO and certain other interim officers.

Interest Expense

Interest
expense decreased $0.8 million in 2007 as compared to 2006, due to lower
average monthly revolver debt outstanding combined with a lower average
interest rate.

Loss on the extinguishment of debt

The Company
incurred a $5.9 million loss on the refinancing of its term and revolver loans
in the second quarter of 2007. This loss consisted of $2.7 million of costs
related to the re-financing as well as the write-off of $3.2 million of
previously capitalized loan costs.

Provision for income taxes

The effective
income tax rate was a 46% benefit in 2007 compared to a 4% benefit in 2006. The
low rate in 2006 was principally due to a $55.3 million goodwill impairment
charge that was principally non-tax deductible. The rate increase in 2007
resulted from the reversal of $2.0 million, net of adjustments to deferred tax
assets, of previously unrecognized tax benefits due to the expiration in the
statute of limitations on certain tax positions.

COMPARISON OF RESULTS
OF CONTINUING OPERATIONS 2006 TO 2005

Wholesale

Net sales were
up 52% to $330.4 million from $217.0 million in 2005 reflecting the timing
impact of the Acquisition. In 2006, the Company had 12 months of Lenox activity
compared to only four months of activity in 2005 (i.e. due to the Acquisition
being consummated on September 1, 2005). Partially offsetting the increase in
Lenox product sales was the decrease in legacy Department 56 product sales. Net
sales of Department 56 product decreased 8% or $9.8 million principally due to
the continued contraction experienced in the gift and specialty channel since
1999. Excluding the incremental sales recorded as a result of the Willitts
acquisition, net sales of Department 56 product decreased 14%, or $18.1
million.

The gross
profit percentage was 41% compared to 42% in 2005. The gross profit percentage in 2005 for the Lenox wholesale business was
negatively impacted by an $8.7 million purchase accounting fair market value adjustment related to the write-up of inventory to
its estimated selling price less cost of disposal under the purchase method of accounting on the opening balance sheet date.
Excluding this purchase accounting adjustment, the gross profit percentage was 41% compared to 46% in 2005. The decrease in gross
profit percentage was principally due to the Acquisition as the Lenox wholesale business typically generates lower gross profit
percentages because it primarily sells to national customers who command higher discounts. In addition, the Lenox wholesale
business generated lower gross profit percentages in 2006 compared to 2005 due to an increase in the amount of excess inventory
and the liquidation of such excess inventory.

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Selling expenses increased $15.8 million, or 60%, from $26.5 million in 2005 to $42.3 million in
2006. The increase in selling expenses was principally due to the timing of the Acquisition and the additional selling expenses
recorded as a result of the Willitts acquisition. Selling expenses as a percentage of net sales were 13% in 2006 compared to 12%
in 2005.

During 2006, the Company recognized $55.3 million in goodwill impairment charges. In the second
quarter of 2006, the Company recognized a goodwill impairment charge of $37.1 million in its Department 56 wholesale reporting
unit principally related to the continuing decline of product shipments into the gift and specialty channel. This goodwill
principally related to the goodwill originally recorded in 1992 as the result of the acquisition of Department 56 by Forstmann
Little & Co. In the fourth quarter of 2006, the Company recognized a goodwill impairment charge of $18.2 million as a result
of lower projected sales and profits from the Companys Lenox wholesale reporting unit as compared to that which was
originally projected at the date of the Acquisition. This goodwill impairment related to the goodwill originally recorded as part
of the Acquisition on September 1, 2005.

Income from operations decreased $26.0 million, or 40%, from $64.3 million in 2005 to $38.3
million in 2006. The decrease was principally due to the $55.3 million in goodwill impairment charges, partially offset by the
increase in net sales and income from operations due to the timing of the Acquisition as explained above.

Retail

Net sales were $76.2 million in 2006 compared to $74.7 million in the prior year. Net sales from
go forward stores increased from 2005 to 2006 as a result of reflecting 12 months of sales in 2006 compared to four
months of sales in 2005 (i.e. due to the timing of the Acquisition). This increase in net sales was partially offset by a
reduction in net sales in 2006 related to the closing of 28 retail stores in January of 2006 (i.e. these non-go
forward stores had four months of net sales in 2005 compared to only one month of net sales in 2006). Same-store sales
decreased 4.0% from 2005 to 2006. Same-store sales represent a comparison of the sales (during the corresponding weeks of the two
fiscal years compared) of the stores included in our same-store sales base. A store first enters our same-store sales base after
completing 12 fiscal months of operations. In 2006, there were 33 stores included in our same-store sales base and one of these
stores was included for less than a year.

The gross profit percentage was 54% in 2006 compared to 57% in 2005. Subsequent to the Acquisition
date of September 1, 2005, the Lenox retail business was liquidating excess product acquired as part of the Acquisition. The
impact of liquidating this excess product normally would have resulted in lower gross margins for the Lenox retail business.
However, this impact was offset by the requirement to value Lenox inventory at its estimated selling price less cost of disposal
under purchase accounting on the opening balance sheet date. The impact of this purchase accounting adjustment was $4.5 million in
2006 and $5.8 million in 2005. Excluding the impact of this adjustment, the gross margin percentage was 48% in 2006 compared to
49% in 2005.

Selling expenses were $33.5 million, or 44% of net sales, in 2006 compared to $22.6 million, or
30% of net sales, in 2005. The increase in selling expenses, both in absolute dollars and as a percentage of net sales, was
principally due to the timing of the Acquisition. The four months of 2005 that were included in 2005 results typically have the
lowest selling expense as a percentage of sales due to the seasonally high volume of sales during that time period. In addition,
the Company recognized a gain in 2005 related to the buyout of a lease at one of its stores that was being relocated which reduced
selling expense as a percentage of sales.

Income from operations decreased $11.7 million from $19.7 million in 2005 to $8.0 million in 2006.
The decrease was principally due to higher selling expenses as a result of the timing of the Acquisition as explained
above.

Direct

Net sales increased by $55.0 million, or 140%, from $39.2 million in 2005 to $94.2 million in
2006. The increase in net sales was due to the timing of the Acquisition.

The gross profit percentage was 69% in 2006 compared to 64% in 2005. The gross profit percentage
for the Lenox direct business was negatively impacted by a purchase accounting fair market value adjustment related to the
write-up of inventory to its estimated selling price less cost of disposal under the purchase method of accounting on the opening
balance sheet date. The impact of this purchase accounting adjustment was $1.2 million in 2006 and $2.8 million in 2005. Excluding
the impact of this adjustment, the gross margin percentage was 71% in 2006 and 2005.

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Selling expenses were $46.1 million, or 49% of net sales, in 2006 compared to $16.8 million,
or 43% of net sales, in 2005. The increase in selling expenses, both in absolute dollars and as a percentage of net sales, was
principally due to the timing of the Acquisition. The four months of 2005 that were included in 2005 results typically have the
lowest selling expense as a percentage of sales due to the seasonally high volume of sales during that time period.

Income from operations increased from $8.2 million in 2005 to $19.3 million in 2006. The increase
was principally due to the timing of the Acquisition as explained above.

Corporate

Net sales in
the corporate segment represent licensing income from the licensing of Lenox
brands. Net sales increased from $0.8 million in 2005 to $1.7 million in 2006.
The increase in net sales was due to the timing of the Acquisition.

General and
administrative expenses increased by $52.2 million from $60.5 million in 2005
to $112.7 million in 2006. The increase in general and administrative expenses
was due to the timing of the Acquisition. The increase was partially offset by
a gain of $1.1 million recognized in the fourth quarter of 2006 related to the
sale of the Companys Pomona, NJ facility.

On October 31,
2006, the Company announced the freeze of the Companys defined benefit pension
plans as of December 31, 2006. As a result of the freeze, employees will not
accrue additional benefits under the defined benefit pension plans after
December 31, 2006. In addition, the Companys pension obligation is
significantly reduced because benefits payable to employees will not
incorporate future compensation increases. As a result of this change, the
Company recorded a pension curtailment gain of $13.2 million. In the fourth
quarter of 2006, the Company recorded a plan settlement as a result of
significant lump-sum cash payments made to employees from one of its defined
benefit pension plans. As a result of this settlement, the Company recorded a
settlement gain of $1.6 million.

In the fourth
quarter of 2006, the Company recognized a trademark impairment charge of $3.7
million related to lower than projected sales of Dansk and Gorham
product than what was estimated at the time of the original purchase price
allocation. These trademark costs were originally recorded as part of the
Acquisition.

Loss from
operations increased by $40.2 million from ($59.7) million in 2005 to ($99.9)
million in 2006. The increase was principally due to increased general and
administrative expenses resulting from the timing of the Acquisition, partially
offset by the pension curtailment and settlement gains and the gain on the sale
of the Pomona, NJ facility recognized in 2006 as explained above.

Interest expense

Interest
expense increased by $11.1 million from $5.7 million in 2005 to $16.8 million
in 2006. The increase was principally due to the timing of the Acquisition. The
Company incurred 12 months of interest expense related to the financing of the
Acquisition in 2006 compared to only four months in 2005.

Provision for income taxes

The income tax
provision rate was a 4% benefit in 2006 compared to a 37% provision in 2005.
The change in the rate in 2006 was principally due to the goodwill impairment
charges which were primarily non-tax deductible, the reversal of a $1.5 million
deferred tax asset valuation allowance that the Company believed was no longer
needed because the capital gains generated from the assets sold in 2006 will be
used to offset previously recorded capital losses, the reversal of $1.0 million
in tax accruals that were no longer needed as a result of the expiration of the
applicable statute of limitations and the completion of tax audits, and a $0.6
million tax charge related to the revaluation of the Companys net deferred tax
assets as a result of a lower effective tax rate due to a legal entity
restructuring that was needed to integrate the Lenox business and the
Department 56 business.

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SEASONALITY

The Companys business is highly seasonal. It has historically recorded
its highest Wholesale segment sales during the third and fourth quarters of
each year as wholesale customers stock merchandise in anticipation of the
holiday season. In addition, the Company records its highest Retail and Direct
segment sales in the fourth quarter during the peak holiday shopping season.
However, the Company can experience fluctuations in quarterly sales and related
net income compared with the prior year due to the timing of receipt of product
from suppliers and subsequent shipment of product from the Company to
customers, as well as the timing of orders placed by customers. The Company is
not managed to maximize quarter-to-quarter results, but rather to achieve
annual objectives designed to achieve long-term growth consistent with the
Companys business strategy.

(In millions, except
per share amounts)

|                                                                      |  |          |       |          |   |          |   |          |       |       |   |          |  |          |       |          |   |          |   |       |       |   |   |       |  |   |       |   |   |       |  
|--------------------------------------------------------------------- |  | -------- | ----- | -------- | - | -------- | - | -------- | ----- | ----- | - | -------- |  | -------- | ----- | -------- | - | -------- | - | ----- | ----- | - | - | ----- |  | - | ----- | - | - | ----- | -
|                                                                      |  | 2007     |       | 2006     |  
|                                                                      |  |          |       |          |  
|                                                                      |  | 1st Qtr. |       | 2nd Qtr. |   | 3rd Qtr. |   | 4th Qtr. |       | Total |   | 1st Qtr. |  | 2nd Qtr. |       | 3rd Qtr. |   | 4th Qtr. |   | Total |      
|                                                                      |  |          |       |          |   |          |   |          |       |       |   |          |  |          |       |          |   |          |   |       |      
|                                                                      |  |          |       |          |   |          |   |          |       |       |   |          |  |          |       |          |   |          |   |       |      
|Net sales                                                             |  | $        | 86.4  |          | $ | 93.0     |   | $        | 137.7 |       | $ | 135.0    |  | $        | 452.1 |          | $ | 90.8     |   | $     | 98.4  |   | $ | 154.2 |  | $ | 159.1 |   | $ | 502.5 |  
|Gross profit                                                          |  |          | 36.6  |          |   | 43.3     |   |          | 65.9  |       |   | 71.2     |  |          | 217.0 |          |   | 49.3     |   |       | 47.8  |   |   | 73.5  |  |   | 74.0  |   |   | 244.6 |  
|(Loss) income from continuing operations                              |  |          | (13.0 | )        |   | (11.3    | ) |          | 4.1   |       |   | 4.4      |  |          | (15.8 | )        |   | (7.1     | ) |       | (41.2 | ) |   | 5.4   |  |   | (6.4  | ) |   | (49.3 | )
|Net (loss) income                                                     |  |          | (13.0 | )        |   | (11.3    | ) |          | 4.1   |       |   | 4.4      |  |          | (15.8 | )        |   | (7.1     | ) |       | (41.2 | ) |   | 5.4   |  |   | (6.4  | ) |   | (49.3 | )
|(Loss) income from continuing operations
 per share assuming dilution |  |          | (0.93 | )        |   | (0.82    | ) |          | 0.29  |       |   | 0.31     |  |          | (1.15 | )        |   | (0.51    | ) |       | (3.00 | ) |   | 0.39  |  |   | (0.46 | ) |   | (3.58 | )
|Net (loss) income per common share assuming
 dilution                 |  |          | (0.93 | )        |   | (0.82    | ) |          | 0.29  |       |   | 0.31     |  |          | (1.15 | )        |   | (0.51    | ) |       | (3.00 | ) |   | 0.39  |  |   | (0.46 | ) |   | (3.58 | )

LIQUIDITY AND CAPITAL RESOURCES

The Companys primary sources of cash are the funds generated from operations and its
revolving credit facility, which is available for working capital and investment needs.

Consistent with customary practice in the giftware industry, the Company offers extended payment
terms to some of its wholesale customers. This practice has created significant working capital requirements as the Company uses
cash to source inventory, but does not receive cash from its customers until the fourth quarter and early first quarter of the
subsequent year when the extended payment terms come due. Similarly, the Companys Retail and Direct segments create working
capital requirements during the first nine months of the year with revenue and cash collections peaking during the holiday season
in the fourth quarter and early first quarter of the subsequent year. The Company finances these working capital requirements with
seasonal borrowings under its revolving credit facility. Cash collected in the fourth quarter and first quarter of the subsequent
year is used to repay the seasonal borrowings.

The timing of cash payments to suppliers of inventory, the ability to ship inventory to its
customers, and the timing of cash receipts from its customers will impact the Companys borrowing base capacity. The Company
monitors accounts receivable, inventory levels and shipment of product on a routine basis to ensure adequate borrowing base
capacity exists to fund its current working capital needs.

Based on current forecasted levels of operations, the Company believes its current cash and
liquidity available under its revolving credit facility will be sufficient to finance working capital needs, capital expenditures
and contractual obligations in 2008 and beyond.

Cash Flows from Operations

Net cash used in operating activities was $0.5 million in 2007 compared to $15.3 million in 2006.
The $14.8 million change in cash flow from operating activities was principally due to the reduction in working capital
(principally accounts receivable and inventory) in 2007 compared to 2006, as the Company focused on improved working capital
management, especially related to improved inventory forecasting accuracy and the liquidation of excess inventory.

Net cash used in operating activities was $15.3 million in 2006 compared to $60.4 million of cash
provided by operating activities in 2005. The $75.7 million change in cash flow from operating activities was principally due to
the timing of the Acquisition, the closing of Lenox retail stores during 2005, which generated significant cash flow in the last
four months of 2005 that was not repeated in 2006, the payments of severance and restructuring charges in 2006, and a decrease in
cash provided from operating activities from the legacy Department 56 business in 2006.

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Historically, due to the seasonality of the business, the acquired Lenox business has generated
negative cash flow from operations during the first eight months of its fiscal year and has generated significant positive cash
flow from operations during the last four months of its fiscal year. The 2005 cash flow from operating activities only included
the last four months of the acquired Lenox business (as Lenox, Incorporated was acquired on September 1, 2005), resulting in a
significant contribution of cash flow from operating activities. The 2006 cash flow from operating activities included the full 12
months of the acquired Lenox business, which contained the first eight months of the Companys fiscal year, during which
significant cash was used in operating activities. In addition, the Company generated positive cash flow from operations during
the last four months of 2005 due to the closing of 31 Lenox retail stores, the closing of which was contemplated at the time of
the Acquisition.

The decrease in cash flow from operating activities from 2005 to 2006 was also due to higher
payments of severance and restructuring charges in 2006 than in 2005. On September 1, 2005, the Company accrued $13.8 million in
acquisition reserves related to plant closings, retail store closings, and general restructurings that were planned as part of the
Acquisition. Of that reserve, $1.8 million was paid in 2005 and $11.4 million was paid in 2006.

Finally, the change in cash flow from operating activities from 2005 to 2006 was also due to the
continued contraction of the Department 56 business. Cash flow from the operating activities of the Department 56 business
decreased by $9.7 million from 2005 to 2006.

Cash Flows from Investing Activities

Capital expenditures in 2007 were $6.6 million compared to $12.4 million in 2006 and $1.9 million
in 2005. Capital expenditures in 2006 were higher than in 2007 due to the consolidation of the Lenox Wholesale and Direct
businesses into a newly renovated office facility in Bristol, PA and costs associated with the opening of the Companys new
All the Hoopla stores in 2006. Capital expenditures were lower in 2005 because 2005 only included the last four months of
the acquired Lenox business.

During 2007, the Company received $8.5 million from the sale of certain assets of the
Companys sterling silver flatware and sterling silver giftware business. During 2006, the Company received net proceeds of
$9.9 million from the sale of its Langhorne, PA facility, $6.6 million from the sale of its Pomona, NJ facility, and $26.3 million
from the sale of its Hagerstown, MD facility (all such proceeds were used to repay a portion of the indebtedness with respect to
the term loan facility as described below).

During 2005, the Company completed the acquisition of Lenox for $204.0 million, which included
transaction costs of $7.6 million. During 2006, the Company completed the acquisition of Willitts for $2.8 million. During 2007,
the Company paid or accrued an additional $1.4 million in earnout payments to Willitts for achieving certain
performance thresholds. See Note 3 to the Consolidated Financial Statements in this Form 10-K.

During 2005, the Company obtained cash of $11.2 million from the sale of available-for-sale
securities, which the Company used for working capital purposes and to partially fund the Acquisition.

Cash Flows from Financing Activities

To finance the Acquisition in 2005, the Company entered into a revolving credit facility and a
term loan facility. The credit facilities were used to finance the Acquisition and to payoff existing indebtedness under the
Companys old revolving credit facility and the revolving credit facility was being used to finance working capital needs. In
connection with the new credit facilities, the Company recorded $10.1 million in deferred financing fees in 2005, which is being
amortized over the lives of the credit agreements.

During 2006, the Company entered into amendments to its credit facilities that required the
payment of an amendment fee of $0.4 million, which was added to the unamortized balance of deferred financing fees at the time of
amendment. In accordance with Accounting Research Bulletin No. 43, the Company classified the entire principal amount of its term
debt as of December 30, 2006, as a current liability on the Consolidated Balance Sheets as its noncompliance with the financial
covenants allowed the debt to be called by the term lenders.

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On February 9, 2007, the Company entered into waivers and amendments to its revolving credit
facility and term loan credit facility in connection with the Companys noncompliance with certain financial covenants under
these credit facilities for the period ended December 30, 2006. Pursuant to the waivers and amendments, the lenders granted the
Company a limited waiver of noncompliance through and including April 30, 2007, and temporarily amended the agreements to adjust
the leverage ratio and interest coverage ratio levels for the first quarter of 2007. In addition, the amendment to the term loan
facility increased the applicable margin for loans by 0.25% per annum. As consideration for the amendments, the Company paid
amendment fees of $0.2 million, which were added to the unamortized balance of deferred financing fees at the time of the
amendment.

On April 20, 2007, the Company completed the refinancing of its credit facilities by entering into amended and
restated revolving and term loan facilities. The amended and restated revolving credit facility, which expires on April 20, 2012,
provides for borrowings up to $175 million, which may be in the form of letters of credit and revolving credit loans to be used
for working capital and general corporate purposes. The amended and restated term loan facility, which expires on April 20, 2013,
provides for term loans in the aggregate principal amount of up to $100 million. The Company used the proceeds of the amended and
restated term loan facility to refinance the $47.4 million of term debt outstanding and $42.2 million of the revolver debt
outstanding at April 20, 2007, to pay $1.2 million of accrued interest and fees payable under the existing credit facilities and
to pay $9.2 million of fees and expenses in connection with the refinancing.

Total fees and expenses incurred by the Company in connection with the refinancing were $9.7 million (inclusive of
the $9.2 million paid out of the proceeds of the amended and restated term loan facility), of which $7.0 million was added to
deferred financing fees and is being amortized over the life of the amended credit facilities and $2.7 million was included as
loss on refinancing of debt during the second quarter of 2007 in accordance with EITF 98-14, Debtors Accounting for
Changes in Line-of-Credit or Revolving-Debt Arrangements, and EITF 96-19, Debtors Accounting for a Modification or
Exchange of Debt Instruments. Based on these same criteria, the Company recognized an additional $3.2 million loss on
refinancing of debt during the second quarter of 2007 to write-off portions of the previously capitalized deferred financing
fees.

Borrowings under the amended and restated revolving credit facility are subject to certain borrowing base
limitations, and the Companys borrowing capacity fluctuates during the year based upon accounts receivable and inventory
levels. As of December 29, 2007, the Companys borrowing capacity under the amended and restated revolving credit facility
was $82.5 million. There were $8.9 million in borrowings outstanding under the revolver and $6.7 million in outstanding letters of
credit at December 29, 2007, leaving $66.9 million available for additional borrowings or letters of credit.

The amended and restated credit facilities are secured by a first-priority lien on substantially all of the real
and personal property of the Company. In addition, the Company has pledged the common stock of its subsidiaries, direct and
indirect, as collateral under the amended and restated credit facilities, and the Company and its material subsidiaries, direct
and indirect, have guaranteed repayment of amounts borrowed under the amended and restated credit facilities.

The amended and restated revolving credit facility allows the Company to choose between two interest rate options
in connection with its revolving credit loans. The interest rate options are the Alternate Base Rate (as defined) or the Adjusted
LIBOR Rate (as defined) plus an applicable margin. The applicable margin ranges from 0% to 0.5% for Alternate Base Rate loans and
from 1.75% to 2.25% for Adjusted LIBOR Rate loans. The amended and restated revolving credit facility also provides for commitment
fees of 0.375% per annum on the daily average of the unused commitment.

The amended and restated term loan facility allows the Company to choose between two interest rate options in
connection with its loans under the facility. The interest rate options are the Alternate Base Rate (as defined) or the Adjusted
LIBOR Rate (as defined) plus an applicable margin. The applicable margin is 3.5% for Alternate Base Rate loans and 4.5% for
Adjusted LIBOR Rate loans.

Under the amended and restated term loan facility, the Company is also obligated to make mandatory prepayments if
certain events occur in the future such as certain asset sales, additional debt issuances, common and preferred stock issuances,
and excess cash flow generation. Such prepayments will be applied to the term loan until it is paid in full, except for
prepayments occurring upon the sale of designated revolving loan collateral, which will be applied to the revolving
loan.

The amended and restated credit facilities contain customary financial conditions and covenants, including
restrictions on additional indebtedness, liens, investments, capital expenditures, issuances of capital stock and dividends. The
amended and restated credit facilities also require maintenance of minimum levels of fixed charge coverage and maximum levels of
leverage, in each case at the end of each fiscal quarter.

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The minimum fixed charge coverage ratio (as defined within the amended and restated credit facility agreements)
requires the Company to maintain a minimum ratio of Consolidated EBITDA (as defined within the amended and restated credit
facility agreements) to Consolidated Fixed Charges (as defined within the amended and restated credit facility agreements) over a
12-month period ending on each fiscal quarter. The minimum ratio to be maintained at each quarter-end over the terms of the
facilities is defined within the amended and restated credit facility agreements and ranges from 0.9:1.0 to 1.3:1.0.

The maximum
leverage ratio (as defined within the amended and restated term credit facility
agreement) requires the Company to maintain a maximum ratio of debt (as
measured at the end of each fiscal quarter) to Consolidated EBITDA over a
12-month period ending on each fiscal quarter. The maximum leverage ratio to be
maintained at each quarter-end over the terms of the facilities is defined
within the amended and restated credit facility agreements and ranges from
2.75:1.0 to 6.75:1.0. As of December 29, 2007, the Companys fixed charge
coverage ratio was 1.24:1.0 (compared to the minimum allowed for the period of 0.9:1.0),
and the leverage ratio was 4.3:1.0 (compared to the maximum allowed for the
period of 5.5:1.0).

The
contractual maturity of the Companys $99.5 million term loan facility on
December 29, 2007 is as follows:

|     |  |                       |      |        
|---- |  | --------------------- | ---- | -------
|Year |  | ContractualMaturities |     
|     |  |                       |     
|2008 |  | $                     | 1.3  | million
|2009 |  |                       | 1.0  |        
|2010 |  |                       | 1.0  |        
|2011 |  |                       | 1.0  |        
|2012 |  |                       | .8   |        
|2013 |  |                       | 94.5 |        

OFF-BALANCE SHEET ARRANGEMENTS

In July 2007, the Company entered into an interest rate collar agreement with a notional amount of
$50 million to mitigate some of the Companys variable interest rate risk. Under the terms of the agreement, the Company
receives a positive net settlement from the counterparty if the LIBOR rate (as defined) is greater than 6.5% on the settlement
dates (as defined). If the LIBOR rate (as defined) is less than 4.32% on the settlement dates (as defined), the Company would be
required to make a payment to the counterparty. The interest rate collar agreement expires on July 26, 2010. As of December 29,
2007, neither the Company nor the counterparty to the agreement had an obligation (contingent or otherwise) to pay or receive any
settlement amount because the Companys LIBOR borrowing rate was greater than 4.32% but less than 6.5%.

The Company did not have any other off balance sheet arrangements as of December 29, 2007.

CONTRACTUAL OBLIGATIONS

As of December 29, 2007, the Company is obligated to make cash payments in connection with its
debt obligations, operating leases, purchase obligations, capital leases, environmental remediation costs and royalty guarantees
in the amounts listed below. The Company has no off-balance sheet debt or other unrecorded obligations other than the items noted
in the following table:

|                           |  |                             |        |      |   |        |  |      |        |      |   |            |  |       |       |  |   |         |  |   |         | 
|-------------------------- |  | --------------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ----- |  | - | ------- |  | - | ------- | 
|                           |  | Payments Due (in thousands) |       
|                           |  |                             |       
|                           |  | 2008                        |        | 2009 |   | 2010   |  | 2011 |        | 2012 |   | Thereafter |  | Total |      
|                           |  |                             |        |      |   |        |  |      |        |      |   |            |  |       |      
|                           |  |                             |        |      |   |        |  |      |        |      |   |            |  |       |       |  |   |         |  |   |         | 
|Revolving Credit Facility1 |  | $                           | 8,938  |      |   |       |  |      |       |      |   |           |  |       |      |  |   |        |  | $ | 8,938   | 
|Long-term
 Debt2,3         |  |                             | 1,250  |      | $ | 1,000  |  | $    | 1,000  |      | $ | 1,000      |  | $     | 750   |  | $ | 94,750  |  |   | 99,750  | 
|Operating Leases           |  |                             | 14,541 |      |   | 13,357 |  |      | 11,875 |      |   | 10,254     |  |       | 8,726 |  |   | 44,252  |  |   | 103,005 | 
|Purchase
 Commitments4     |  |                             | 38,696 |      |   |       |  |      |       |      |   |           |  |       |      |  |   |        |  |   | 38,696  | 
|Capital
 leases            |  |                             | 10     |      |   |       |  |      |       |      |   |           |  |       |      |  |   |         |  |   | 10      | 
|Environmental
 costs5      |  |                             | 420    |      |   | 237    |  |      | 244    |      |   | 251        |  |       | 374   |  |   | 1,753   |  |   | 3,279   | 
|Royalty
 Guarantees6       |  |                             | 289    |      |   | 253    |  |      | 173    |      |   | 25         |  |       |      |  |   |        |  |   | 740     | 
|                           |  |                             |        |      |   |        |  |      |        |      |   |            |  |       |       |  |   |         |  |   |         | 
|Total                      |  | $                           | 64,144 |      | $ | 14,847 |  | $    | 13,292 |      | $ | 11,530     |  | $     | 9,850 |  | $ | 140,755 |  | $ | 254,418 | 
|                           |  |                             |        |      |   |        |  |      |        |      |   |            |  |       |       |  |   |         |  |   |         | 

27

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 | The Companys borrowings
 under the revolving credit facility are classified as current liabilities on
 the Consolidated Balance Sheets in accordance with Emerging Issues Task Force
 Issue No. 95-22, Balance Sheet Classification of Borrowings
 Outstanding under Revolving Credit Agreements That Include both a Subjective
 Acceleration Clause and a Lock-Box Arrangement.                                                                            
|2 | In addition to the
 principal payments on debt included in the summary of significant contractual
 obligations, the Company will incur interest expense on outstanding variable
 rate debt. All amounts outstanding under the revolving and term loan credit
 facilities are variable interest rate debt with weighted average interest
 rates as of December 29, 2007 of 7.5% and 9.56%, respectively. See Note 8 to
 the Consolidated Financial Statements.
|3 | Long term debt also includes
 the $150 in principal amount of the conditional notes payable to the Maryland
 Department of Business and Economic Development and the $100 in principal
 amount of the conditional notes payable to the County Commissioners of
 Washington County, Maryland. In addition to these principal amounts, the
 Company will incur interest expense at rates of 3% and 0%, respectively.                                           
|4 | The Company is committed to
 pay suppliers of product under the terms of open purchase orders issued in
 the normal course of business.                                                                                                                                                                                                                                                                                                                      
|5 | The Company is responsible
 for the cleanup and/or monitoring of two environmental sites located in New
 Jersey.                                                                                                                                                                                                                                                                                                                                             
|6 | The Company is committed to
 pay licensors under the terms of license agreements entered into in the
 normal course of business.                                                                                                                                                                                                                                                                                                                             

Total
contractual obligations do not include the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Payments
 made to the Companys deferred compensation plan  Under this plan, employees
 may elect to defer a portion of their eligible compensation into the plan.
 The Company, at its discretion, may also contribute amounts into the plan on
 behalf of the employees. The Company cannot predict when contributions to and
 withdrawals from the plan will occur. See Note 12 to the Consolidated
 Financial Statements.                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Pension and
 postretirement obligations  As of December 29, 2007, the Company had accrued
 pension and postretirement benefit obligations of $18.4 million. Because the
 specific periods in which those obligations will be funded are not known at
 this time, no amounts related to these obligations are reflected in the above
 table. The Company expects to contribute approximately $5.3 million to its
 pension plans and approximately $0.4 million to its postretirement plans in
 2008. See Note 10 to the Consolidated Financial Statements.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | The Companys FIN 48 liabilities of $1.4 million, as the Company cannot make a reasonable
estimate of the timing of the related cash payment.                                                                                                                                                                                                                                                                                                                                                                                                             

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have adopted various accounting policies to prepare the consolidated
financial statements in accordance with accounting principles generally
accepted in the United States. Our significant accounting policies are more
fully described in Note 1 of the Notes to Consolidated Financial Statements in
this Form 10-K. In connection with the preparation of the financial statements,
we are required to make assumptions, make estimates and apply judgment that
affect the reported amounts of assets, liabilities, revenue, expenses and
related disclosures. The Company bases its assumptions, estimates and judgments
on historical experience, current trends and other factors that management
believes to be relevant at the time the consolidated financial statements are
prepared. On a regular basis, management reviews the accounting policies,
assumptions, estimates and judgments to ensure that our financial statements
are presented fairly and in accordance with generally accepted accounting
principles. However, because future events and their effects cannot be determined
with certainty, actual results could differ from our assumptions and estimates,
and such differences could be material.

Management believes the following critical accounting policies require
the most difficult, subjective or complex judgments about matters that are
inherently uncertain and are therefore particularly important to an
understanding of the Companys results of operations and financial position:

Sales Returns
and Credits  An
allowance is established for credits related to possible returned or damaged
product, markdowns and pricing and shipping discrepancies. The amount of the
allowance is based on historical ratios of credits to sales, the historical
average length of time between the sale and the credit, and other factors.
Changes in customers behavior versus historical experience, changes in product
damage or defect rates, or changes in the Companys return policies are among
the factors that would result in materially different amounts for this item.
Based on 2007 sales returns and credits, a 10% increase or decrease in sales
returns and credits would have had an impact of approximately $2.2 million.

Inventory
Valuation 
Inventory is valued at the lower of cost or net realizable value. The amount is
determined by analyzing historical and projected sales information, plans for
discontinued products and other factors. The Company procures product based on
forecasted sales volume. If actual sales were significantly lower than
forecasted sales due to unexpected economic or competitive conditions, it could
result in materially higher surplus and discontinued inventories. Based on 2007
inventory write-downs, a 10% increase or decrease in inventory write-downs
would have had an impact of less than $0.8 million.

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Allowance for
Doubtful Accounts
 The Company records an allowance for estimated uncollectible accounts
receivable based on an evaluation of its accounts receivable balance. This
evaluation includes a number of factors including the age of the receivable,
the financial condition of the customer, the current business environment and
the historical collection experience for customers and consumers of similar
background and nature. Additionally, since
many of the Companys wholesale sales have terms which come due in November and
December, the Company does not have visibility into overdue balances for many
of its wholesale customers until the fourth quarter of its fiscal year. Due to
the seasonality of the Companys business, the extended terms provided to
wholesale customers and the relative size of accounts receivable balances at
year-end, it is not uncommon for the Company to experience fluctuations in the
provision for bad debt expense from quarter to quarter as the Company refines
its estimate. Unexpected changes in the aforementioned factors would result in
materially different amounts for this item. In addition, results could be
materially different if economic conditions worsened for the Companys
customers. Based on 2007 bad debt write-offs, a 10% increase or decrease in bad
debt write-offs would have had an impact of approximately $0.6 million.

Valuation of
Long-Lived Assets
 Long-lived assets on the Companys consolidated balance sheet consist
primarily of property and equipment. The Company periodically reviews the
carrying value of these assets based, in part, upon projections of anticipated
undiscounted cash flows. Management undertakes this review when facts and
circumstances suggest that cash flows emanating from those assets may be
diminished. Any impairment charge recorded reduces earnings. While the Company
believes future estimates are reasonable, different assumptions regarding items
such as future cash flows and the volatility inherent in markets within which
the Company operates could affect evaluations and result in impairment charges
against the carrying value of those assets.

Valuation of
Goodwill, Trademarks and Other Intangible Assets  The Company evaluates goodwill, trademarks and
other intangible assets on a periodic basis. This evaluation relies on
assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or
related assumptions change, the Company may be required to recognize impairment
charges.

Pension and
Postretirement Benefits The Company sponsors various defined benefit pension plans as well as
postretirement plans providing retiree health care and retiree life insurance
benefits. Benefits are based on such factors as years of service and
compensation level during employment. The benefits expected to be paid are
expensed over the employees expected service. To determine the expected
benefits to be paid, the Company has to make assumptions regarding interest
rates, return on plan assets and expected health care trend rates. Actual
experience different from these assumptions could result in materially
different benefit payments. In December 2006, the Company adopted SFAS No. 158,
Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans  an
amendment of FASB Statements No. 87, 88, 106, and 132 (R) (SFAS
158). SFAS 158 requires that the Company recognize the overfunded or
underfunded status of its defined benefit pension and postretirement plans as
an asset or liability in the Companys year-end balance sheet, with changes in
the funded status recognized through comprehensive income in the year in which
they occur.

Tax
Contingencies 
The Company is periodically contacted or audited by federal and state tax
authorities. These contacts or audits include questions regarding the timing
and amount of deductions and the allocation of income among various tax
jurisdictions. In evaluating the exposure associated with various filing
positions, the Company records a reserve for estimated probable exposures. The
estimate of this reserve contains uncertainty because management must use
judgment to estimate the exposure associated with its various filing positions.
To the extent the Company does not have to pay taxes for which reserves have
been established or is required to pay amounts in excess of its reserves, the
Companys tax rate in a given financial period could be materially impacted.

Stock-Based
Compensation  In
accordance with SFAS 123R the estimated grant date fair value of each
stock-based award is recognized in income on an accelerated basis (for existing
options) and a straight-line basis (for new grants) over the requisite service
period. The estimated fair value of each option is calculated using the
Black-Scholes - Merton option-pricing model. The Company makes certain
assumptions using the Black-Scholes option-pricing model which includes the
risk-free interest rate, expected dividend yield, expected stock price
volatility, expected life and expected forfeitures. Nonvested restricted stock
is recorded as compensation cost over the requisite service periods based on
the market value on the date of grant. Prior to January 1, 2006, the Company
applied the recognition and measurement principles of APB Opinion No. 25 to
stock options and other stock-based incentive plans as permitted pursuant to
SFAS 123. In accordance with APB Opinion No. 25, cost for stock-based
compensation was recognized in income based on the excess, if any, of the
quoted market price of the stock at the grant date of the award or other measurement
date over the amount an employee must pay to acquire the stock. The exercise
price for stock options granted to employees equaled the fair market value of
the Companys common stock at the date of grant, thereby resulting in no
recognition of compensation expense. Nonvested restricted stock was recorded as
compensation cost over the requisite service periods based on the market value
on the date of grant.

29

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SUBSEQUENT EVENTS

On January 14, 2008, the Company announced the comprehensive review of strategic, financial and
operational alternatives to enhance stockholder value, including a potential merger, sale of all or part of the Company or
recapitalization of the Company. The Company also adopted a stockholder rights plan. The Board of Directors retained Berenson
& Company LLC as its financial advisor to assist with this process

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 to the Consolidated Financial Statements, under the subheading, Recently Adopted
and Issued Accounting Standards, at page F-12, regarding the effect of certain new accounting standards on the
Company.

EFFECT OF INFLATION

The Company
continually attempts to minimize any effect of inflation on earnings by
controlling its operating costs and selling prices. During the past few years,
the rate of inflation has been low and has not had a material impact on the
Companys results of operations.

FORWARD-LOOKING STATEMENTS AND FACTORS
AFFECTING FUTURE EARNINGS

Certain
statements made in this Annual Report on Form 10-K and the documents
incorporated by reference in this Annual Report on Form 10-K include
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements regarding the Companys
expected future financial position, results of operations, cash flows,
financing plans, business strategy, budgets, tax rates, capital expenditures,
competitive positions, growth opportunities, plans and objectives of
management, as well as statements containing words such as anticipate,
approximate, believe, plan, estimate, expect, project,
could,
should, will, intend, may and other similar expressions, are
forward-looking statements. Forward-looking statements do not relate strictly
to historical or current facts.

Such
forward-looking statements are inherently uncertain. Actual results may differ
materially from forward-looking statements as a result of a variety of factors,
including, without limitation, those discussed below and under Item 1A of this
Annual Report on Form 10-K. Such forward-looking statements are based on
managements current expectations and include known and unknown risks,
uncertainties and other factors, many of which the Company is unable to predict
or control, that may cause the Companys actual results or performance to
differ materially from any future results or performance expressed or implied
by such forward-looking statements. These statements involve risks,
uncertainties and other factors discussed below and under Item 1A of this
Annual Report on Form 10-K or described from time to time in the Companys
filings with the SEC.

Actual results may vary
materially from forward-looking statements and the assumptions on which they
are based. The Company undertakes no obligation to update or publish in the
future any forward-looking statements.

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|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following
discussion of the Companys exposure to market risk contains forward-looking
statements that involve risks and uncertainties. The information presented has
been prepared utilizing certain assumptions considered reasonable in light of
information currently available to management. Given the unpredictability of
interest rates as well as other factors, actual results could differ materially
from those projected in such forward-looking information.

A principal
market risk affecting us is the exposure to changes in the interest rates on
our variable rate debt. As our credit facilities bear interest at variable
rates, our results of operations and cash flows will be exposed to changes in
interest rates. In 2007, the Company entered into an interest rate collar
agreement with a notional amount of $50 million to mitigate some of this
variable interest rate risk. Under the terms of the agreement, the Company
would receive a positive net settlement from the counterparty if the LIBOR rate
(as defined) is greater than 6.5% on the settlement dates (as defined). If the
LIBOR rate (as defined) is less than 4.32% on the settlement dates (as
defined), the Company would be required to make a payment to the counterparty.
Based on debt outstanding as of December 29, 2007 and the interest rate collar
agreement in effect as of December 29, 2007, a one percentage point increase in
current market interest rates would increase the Companys borrowing costs by
approximately $1.1 million on an annual basis. A one percentage point decrease
in current market interest rates would decrease the Companys borrowing costs
by approximately $0.8 million on an annual basis.

Less than 2%
of the Companys wholesale sales and approximately 7% of the Companys product
purchases in fiscal year 2007 were denominated in a foreign currency. Based on
these sales and product purchases, a 10% increase or decrease in the foreign
currency exchange rates would have an impact of less than $1.5 million. At this
time, the Company does not use derivative instruments to manage the exchange
rate risk.

|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See
Consolidated Financial Statements beginning on page F-4 and quarterly data provided under the caption Seasonality
within Item 7  Managements Discussion and Analysis of Financial Condition and Results of
Operations.

|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
 AND FINANCIAL DISCLOSURE
|------- | -------------------------------------------------------------------------------------

None.

|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Disclosure Controls
and Procedures

Lenox Group
Inc.s management is responsible for establishing and maintaining effective
disclosure controls and procedures, as defined under Rule 13a-15(e) of the
Securities Exchange Act of 1934. As of the end of the period covered by this
report, the Company performed an evaluation, under the supervision and with the
participation of the Companys management, including its Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Companys
disclosure controls and procedures. Based upon, and as of the date of that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Companys disclosure controls and procedures were effective
to ensure that information required to be disclosed by the Company in the
reports that it files or submits to the Securities and Exchange Commission
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the Commissions rules and
forms, and that such information is accumulated and communicated to the
Companys management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure.

Internal Controls
Over Financial Reporting

No changes
were made to the Companys internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the
last fiscal quarter that materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.

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Managements Report
on Internal Control over Financial Reporting

Managements
Report on Internal Control over Financial Reporting is included on Page F-1 of
this 2007 Annual Report on Form 10-K and is incorporated herein by reference.

Report of Independent
Registered Public Accounting Firm

The Report of
Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting is provided on page F-2 of this 2007 Annual Report on Form
10-K and is incorporated herein by reference.

|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION

None.

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|        
|--------
|PART III
|        
|        

|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors

JAMES E. BLOOM,65,
has been a director since November 2001. Mr. Bloom is a private investor and
was a business consultant with Bloom Consulting, Inc. from July 2001 to
December 2005. From January 1995 to June 2001, he was Vice President - Sales
& Marketing with Charter Systems LLC, a software developer of business
communications solutions for the telecommunications industry. He has held a
number of sales, marketing and managerial positions in the business technology
area with various companies, starting his career with IBM Corporation in 1967.

GLENDA B. GLOVER,
55, has been our director since May 2006. Dr. Glover is the Dean of the College
of Business of Jackson State University, a position she has held since 1994.
From 1990 to 1994, Dr. Glover was the Chairperson of the Department of
Accounting and an Assistant Professor at Howard University. Prior to joining
Howard University, from 1985 to 1990, she was the Chief Financial Officer and a
Senior Vice President of Metters Industries, Inc. From 1979 to 1985, Dr. Glover
was Project Manager of Tax Administration and Manager of Investor Relations at
Potomac Electric Power Co. in Washington, DC. Since 1998, Dr. Glover has been a
member of the Board of Directors of the Student Loan Corporation, a publicly traded
subsidiary of Citibank. She is Chairman of the Board of Economic Analysis,
Inc., a position she has held since 1998. She also serves on the Advisory Board
for Regions Bank of Mississippi and has served as a Board Examiner for the
American Institute of Certified Public Accountants. Dr. Glover earned her Ph.D.
in business from George Washington University and her J.D. from Georgetown
University Law Center.

CHARLES N. HAYSSEN,
57, has been a director since March 2004. From August 2004 until August 2007, Mr.
Hayssen was Chief Operating Officer of AllOver Media, Inc., an out-of-home
media company. Mr. Hayssen was a private investor from April 2004 to August
2004, and Chief Financial Officer of ThinkEquity Partners LLC, an equity
capital markets firm, from September 2002 to April 2004. Prior to September
2002, Mr. Hayssen was a private investor from November 2001 to September 2002,
and Chief Financial Officer of Access Cash International L.L.C. from February
2000 to November 2001. Previously, Mr. Hayssen held a number of positions over
a nineteen-year career with Piper Jaffray Companies Inc., including three years
as Chief Information Officer, two years as Chief Operating Officer of Piper
Capital Management and seven years as Chief Financial Officer.

STEWART M. KASEN,68,
has been a director since December 2000 and Chairman of the Board of the
Company since January 2007. From April 2002 until May 2007 Mr. Kasen was
President of S&K Famous Brands, Inc., a retailer of menswear. He was
President of Schwarzschild Jewelers, a retail jewelry chain, from September
2001 to April 2002. From October 1999 until September 2001, Mr. Kasen was a
consultant to the retail industry and a private investor. He was Chairman,
President and Chief Executive Officer of Factory Card Outlet Corp., a specialty
retailer, from May 1998 until October 1999. Mr. Kasen is a director of Markel
Corp. and Retail Holdings N.V.

REATHA CLARK KING,69,
has been a director since May 2002. Dr. King was President and Executive
Director of General Mills Foundation from November 1988 until May 2002, and
served as Chairperson of the Foundations Board of Trustees from May 2002 until
June 2003. She performs consulting work in organizational governance and
philanthropic programs. Currently, Dr. King is a Senior Advisor for the Council
on Foundations in Washington, D.C. Prior to joining General Mills Foundation,
Dr. King held a variety of scientific and educational positions. She currently
serves as a director of the Exxon Mobil Corporation Board. She also served on
the Wells Fargo & Company Board until she retired from this position in
2005

DOLORES A. KUNDA,
52, has been our director since May 2006. Ms. Kunda is President and Chief
Executive Officer of Lápiz Integrated Hispanic Marketing in Chicago, IL, a
position she has held since 1999. From 1992 to 1999 she was employed at Leo
Burnett USA where she held the position of Senior Vice President/Director
Hispanic Marketing (from 1994 to 1999) and Vice President/Account Supervisor
Hispanic (from 1992 to 1994). Ms. Kunda was an Account Director for Leo Burnett
Mexico SA de CV, Mexico, DF from 1990 to 1992. Prior to that Ms. Kunda served
as an account executive for Leo Burnett USA (1987 to 1990) and J. Walter
Thompson (1986 to 1987). Ms. Kunda is a member of the Board of Directors of the
American Advertising Federations Mosaic Multicultural Committee and Casa
Central in Chicago, IL. Ms. Kunda additionally serves on the Development
Committee of the Chicago Metropolitan YWCA.

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JOHN VINCENT (VIN)
WEBER, 55, has been a director since February 1993.
Mr. Weber served in the United States House of Representatives from 1981 to
1993, representing Minnesotas 2nd Congressional District. Since 1994, Mr.
Weber has been a partner of Clark & Weinstock, Inc., a business government and
public affairs consulting firm, which provides strategic advice on issues
before the legislative and executive branches of the federal government. In
2007, he was named Chief Executive Officer of Clark & Weinstock. Mr. Weber
is Chairman of the National Endowment for Democracy, a private, nonprofit
organization created in 1983 to strengthen democratic institutions around the
world through non-governmental efforts. He was co-director of the Domestic
Policy Project of the Aspen Institute and currently serves as a full Trustee
for the Institute. He also is a fellow at the Humphrey Institute at the
University of Minnesota, where he is a co-director of the Policy Forum
(formerly the Mondale Forum).

Executive Officers

Information
regarding our executive officers is set forth under Executive Officers of the
Registrant in Item 1 of this Annual Report on Form 10-K.

Compliance with Section 16(a) of
the Exchange Act

Information
required by this Item will be included in the 2008 Proxy Statement under the
heading Section 16(a) Beneficial Ownership Reporting Compliance, and such
information is incorporated herein by reference.

Audit Committee Members and Audit
Committee Financial Expert

Information
required by this Item will be included in the 2008 Proxy Statement under the
headings Board and Committee Structure and Audit Committee and such
information is incorporated herein by reference.

Code of Ethics and Business Conduct

We have in
place a Code of Ethics and Business Conduct that applies to our principal executive
officer, principal financial officer, principal accounting officer, all
officers, directors, and employees and all of our subsidiaries. The Code of
Ethics and Business Conduct may be accessed free of charge by visiting our
investor relations website at www.lenoxgroupinc.com by clicking on
Corporate Governance.

We intend to
post on our website any amendment to, or waiver from, a provision of the Code
of Ethics and Business Conduct that applies to our principal executive officer,
principal financial officer, principal accounting officer, and other persons
performing similar functions, in accordance with the rules of the Securities
and Exchange Commission and the New York Stock Exchange.

|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION

Information
required by this Item will be included in the 2008 Proxy Statement in the
sections captioned Director Compensation, Executive Compensation (except
for the information set forth under the subcaption Compensation Committee
Report) and Compensation Committee Interlocks and Insider Participation and
such information is incorporated herein by reference.

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|         |                                                                                                
|-------- | -----------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
 MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information
regarding the Companys equity compensation plans as of December 29, 2007, is
shown below:

|                                                            |  |                                                                                     |           |                                                                        |   |                                                                                                                                                 |  |  |         | 
|----------------------------------------------------------- |  | ----------------------------------------------------------------------------------- | --------- | ---------------------------------------------------------------------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------- | 
|Plan Category                                               |  | Number of
 Securities to
 be Issued upon Exercise
 of Outstanding Optionsand Rights |           | Weighted-Average
 Exercise Price of  
 Outstanding
 Options and Rights |   | Number of
 Securities Remaining
 Available for Future Issuance under
 Equity Compensation Plans (Excluding
 Securities Reflected in Column (a)) | 
|                                                            |  |                                                                                     |           |                                                                        |   |                                                                                                                                                 | 
|                                                            |  | (a)                                                                                 |           | (b)                                                                    |   | (c)                                                                                                                                             | 
|Equity compensation plans approved by
 security holders     |  |                                                                                     | 1,514,444 |                                                                        | $ | 13.14                                                                                                                                           |  |  | 674,212 | 
|Equity compensation plans not approved by
 security holders |  |                                                                                     |          |                                                                        |   |                                                                                                                                                |  |  |        | 
|                                                            |  |                                                                                     |           |                                                                        |   |                                                                                                                                                 |  |  |         | 
|Total                                                       |  |                                                                                     | 1,514,444 |                                                                        | $ | 13.14                                                                                                                                           |  |  | 674,212 | 
|                                                            |  |                                                                                     |           |                                                                        |   |                                                                                                                                                 |  |  |         | 

Information
required by this Item will be included in the 2008 Proxy Statement in the
section captioned Security Ownership of Certain Beneficial Owners and
Management, and such information is incorporated herein by reference.

|         |                                                                           
|-------- | --------------------------------------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
 DIRECTOR INDEPENDENCE

Information
required by this Item will be included in the 2008 Proxy Statement in the
sections captioned Certain Relationships and Related Transactions and Board
and Committee Structure and such information is incorporated herein by
reference.

|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information
required by this Item will be included in the 2008 Proxy Statement in the
section captioned Principal Accountant Fees and Services and such information
is incorporated herein by reference.

35

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Table of Contents

|       
|-------
|PART IV
|       
|       

|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The Exhibits,
and other documents filed as part of this Annual Report on Form 10-K, including
those exhibits which are incorporated by reference herein, are:

|   |                                                                                         |     
|-- | --------------------------------------------------------------------------------------- | ----
|   |                                                                                         | Page
|   |                                                                                         |     
|1. | Financial Statements                                                                    |     
|   | Managements Report on Internal Control
 over Financial Reporting                       | F-1 
|   | Report of Independent Registered Public
 Accounting Firm                               | F-2 
|   | Consolidated Balance Sheets as December 29,
 2007 and December 30, 2006                 | F-4 
|   | For the years ended December 29, 2007,
 December 30, 2006, and December 31, 2005:       |     
|   | Consolidated Statements of
Operations                                                   | F-5 
|   | Consolidated Statements of Cash
Flows                                                   | F-6 
|   | Consolidated Statements of
Stockholders
 Equity                                        | F-7 
|   | Notes to Consolidated Financial
Statements                                              | F-8 
|2. | Financial Statement Schedule                                                            |     
|   | II. Valuation and Qualifying Accounts                                                   | S-1 
|   | All other schedules have been omitted
 because they are not applicable.                 |     
|3. | Exhibits                                                                                |     
|   | Exhibits required in connection with this
 Annual Report on Form 10-K are listed below. |     

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.1     | Restated
 Certificate of Incorporation of the Company. (Incorporated herein by
 reference to Exhibit 3.1 of the Companys Annual Report on Form 10-K for the
 fiscal year ended December 31 2005. SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.2     | Certificate
 of Designations of Series A Junior Participating Preferred Stock
 (Incorporated herein by reference to Exhibit A of Exhibit 4.1 of the
 Companys report on Form 8-K, filed January 14, 2008, SEC File No. 1-11908)                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.3     | Restated
 By-Laws of the Company. (Incorporated herein by reference to Exhibit 3.3 of
 the Companys Annual Report on Form 10-K for the fiscal year ended December
 31, 2005. SEC File No. 1-11908).                                                                                                                                                                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.1     | Specimen
 Form of Companys Common Stock Certificate *.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.2     | Rights Agreement, dated as
 of January 14, 2008 between Lenox Group Inc. and Wells Fargo Bank, National
 Association, as Rights Agent, including the form of Certificate of
 Designations of Series A Junior Participating Preferred Stock, the forms of
 Right Certificate, Assignment and Election to Purchase, and the Summary of
 Rights attached thereto as Exhibits A, B and C, respectively. (Incorporated
 herein by reference to Exhibit 4.1 of the Companys Report on Form 8-K, filed
 on January 14, 2008, SEC File No. 1-11908.)
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.1    | Lease
 Agreement dated April 14, 1999 between D 56, Inc. and Ryan Companies US, Inc.
 pertaining to the Rogers warehouse and distribution facility. (Incorporated
 herein by reference to Exhibit 10.4 of the Companys Annual Report on Form
 10-K for the fiscal year ended January 1, 2000. SEC File No. 1-11908.)                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.2    | Guaranty of
 Lease dated April 14, 1999 between the Company and Ryan Companies US, Inc.
 pertaining to the Rogers warehouse and distribution facility. (Incorporated
 herein by reference to Exhibit 10.5 of the Companys Annual Report on Form
 10-K for the fiscal year ended January 1, 2000. SEC File No. 1-11908.)                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.3    | First Amendment
 to Lease Agreement between D 56, Inc. and Ryan Companies US, Inc. pertaining
 to the Rogers warehouse and distribution facility, dated April 28, 2000. (Incorporated herein by reference to Exhibit
 10.3 of the Companys Report on Form 10-K dated March 17, 2005. SEC File No.
 1-11908.)                                                                                                                                                                                                                                
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.4    | Second
 Amendment to Lease Agreement between D 56, Inc. and Ryan Companies US, Inc.
 pertaining to the Rogers warehouse and distribution facility, dated January
 23, 2003. (Incorporated
 herein by reference to Exhibit 10.4 of the Companys Report on Form 10-K
 dated March 17, 2005. SEC File No. 1-11908.)                                                                                                                                                                                                                            

36

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|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5  | Form of
 Indemnification Agreement between the Company and its directors and executive
 officers. (Incorporated herein by reference to Exhibit 10.24 of the Companys
 Registration Statement on Form S-1, No. 33-61514.)                                                                                                                                                                                                        
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.6  | Department
 56, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit
 10.1 of the Companys Registration Statement on Form S-1, No. 33-61514.)                                                                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.7  | Department
 56, Inc. 1993 Stock Incentive Plan. (Incorporated herein by reference to
 Exhibit 10.10 of the Companys Annual Report on Form 10-K for the fiscal year
 ended December 29, 2001. SEC File No. 1-11908.)                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.8  | Department
 56, Inc. 1995 Stock Incentive Plan. (Incorporated herein by reference to
 Exhibit 10.11 of the Companys Annual Report on Form 10-K for the fiscal year
 ended December 29, 2001. SEC File No. 1-11908.)                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.9  | Department
 56, Inc. 1997 Stock Incentive Plan. (Incorporated herein by reference to Exhibit
 10.12 of the Companys Annual Report on Form 10-K for the fiscal year ended
 December 29, 2001. SEC File No. 1-11908.)                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.10 | Department
 56, Inc. 2004 Cash Incentive Plan. (Incorporated herein by reference to
 Exhibit 10.10 of the Companys Annual Report on Form 10-K for the fiscal year
 ended January 3, 2004. SEC File No. 1-11908.)                                                                                                                                                                                                               
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.11 | Department
 56, Inc. 2004 Stock Incentive Plan. (Incorporated herein by reference to
 Exhibit 10.11 of the Companys Annual Report on Form 10-K for the fiscal year
 ended January 3, 2004. SEC File No. 1-11908.)                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.12 | Form of
 Executive Stock Option Agreement in connection with Department 56, Inc. 1992
 Stock Option Plan, Department 56, Inc. 1993 Stock Incentive Plan, Department
 56, Inc. 1995 Stock Incentive Plan, and Department 56, Inc. 1997 Stock
 Incentive Plan. (Incorporated herein by reference to Exhibit 10.13 of the
 Companys Annual Report on Form 10-K for the fiscal year ended January 1,
 2000. SEC File No. 1-11908.) 
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.13 | Form of
 Performance  Accelerated Vesting Stock Option Agreement in connection with
 Department 56, Inc. 1993, 1995 and 1997 Stock Incentive Plans. (Incorporated
 herein by reference to Exhibit 10.14 of the Companys Annual Report on Form
 10-K for the fiscal year ended January 1, 2000. SEC File No. 1-11908.)                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.14 | Forms of
 Letter Agreement between the Company and its executive officers.
 (Incorporated herein by reference to Exhibit 10.14 of the Companys Annual
 Report on Form 10-K for the fiscal year ended December 28, 2002. SEC File No.
 1-11908.)                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.15 | Form of
 Department 56, Inc. Restricted Stock Agreement. (Incorporated herein by
 reference to Exhibit 10.16 of the Companys Annual Report on Form 10-K for
 the fiscal year ended December 29, 2001. SEC File No. 1-11908.)                                                                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.16 | Form of
 Department 56, Inc. 2001 Non-Officer Stock Option Plan. (Incorporated herein
 by reference to Exhibit 10.17 of the Companys Annual Report on Form 10-K for
 the fiscal year ended December 29, 2001. SEC File No. 1-11908.)                                                                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.17 | Asset Purchase
 Agreement By and Among Department 56, Inc., Axis Holdings Corporation, Axis
 Corporation, All Shareholders of Axis Corporation, and Kirk Willey in the
 Capacity of Shareholders Representative. (Incorporated herein by reference
 to Exhibit 10.19 of the Companys Annual Report on Form 10-K for the fiscal
 year ended December 29, 2001. SEC File No. 1-11908.)                                          
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.18 | Letter
 Agreement between Department 56, Inc. and David Dewey, dated December 15,
 2003. (Incorporated herein by reference to Exhibit 10.18 of the Companys
 Annual Report on Form 10-K for the fiscal year ended January 3, 2004. SEC
 File No. 1-11908.)                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.19 | Separation
 Agreement and General Release between Department 56, Inc. and David Weiser,
 dated November 9, 2004. (Incorporated herein by reference to Exhibit 10.21 of the
 Companys Report on Form 10-K dated
 March 17, 2005. SEC File No. 1-11908.)                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.20 | Form of
 Stock Option Agreement for Officers under the Department 56, Inc. 2004 Stock
 Incentive Plan. (Incorporated herein by reference to Exhibit 10.1 of the
 Companys Form 8-K filed March 14, 2005. SEC File No. 1-11908.)                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.21 | Form of
 Performance Share Agreement under the Department 56, Inc. 2004 Stock
 Incentive Plan. (Incorporated herein by reference to Exhibit 10.2 of the
 Companys Form 8-K filed March 14, 2005. SEC File No. 1-11908.)                                                                                                                                                                                                        
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.22 | Form of
 Stock Option Agreement for Directors under the Department 56, Inc. 2004 Stock
 Incentive Plan. (Incorporated herein by reference to Exhibit 10.3 of the
 Companys Form 8-K filed March 14, 2005. SEC File No. 1-11908.)                                                                                                                                                                                               
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.23 | Form of
 Restricted Stock Agreement under the Department 56, Inc. 2004 Stock Incentive
 Plan. (Incorporated herein by reference to Exhibit 10.4 of the Companys Form
 8-K filed March 14, 2005. SEC File No. 1-11908.)                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.24 | Department
 56, Inc. Executive Nonqualified Excess Plan Adoption Agreement, dated
 February 17, 2005, and Plan Document. (Incorporated herein by reference to Exhibit
 10.26 of the Companys Report
 on Form 10-K dated March 17, 2005. SEC File No. 1-11908)                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.25 | Stock
 Purchase Agreement, dated as of July 21, 2005, by and between Department 56,
 Inc. and Brown-Forman Corporation. (Incorporated herein by reference to
 Exhibit 10.1 of the Companys Report on Form 8-K, filed on July 25, 2005. SEC
 File No. 1-11908.)                                                                                                                                                                  

37

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Table of Contents

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.26 | Revolving Credit Agreement
 dated as of September 1, 2005, among D 56, Inc., Department 56 Retail, Inc.,
 Time to Celebrate Inc. and Lenox, Incorporated, as Borrowers, Department 56,
 Inc. and the other Guarantors party thereto, as Guarantors, the Lenders party
 thereto, UBS Securities LLC, as Arranger and Co-Syndication Agent, UBS AG,
 Stamford Branch, as Issuing Bank and Administrative Agent, UBS Loan Finance
 LLC, as Swingline Lender, JP Morgan Chase Bank, N.A., as Collateral Agent and
 Co-Syndication Agent, and Wells Fargo Foothill, LLC and Bank of America, N.A.
 as Co-Documentation Agents. (Incorporated herein by reference to Exhibit 10.1
 of the Companys Report
 on Form 8-K, filed on September 6, 2005, SEC File No. 1-11908.)                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.27 | Term Loan Credit Agreement
 dated as of September 1, 2005, among D 56, Inc., Department 56 Retail, Inc.,
 Time to Celebrate, Inc. and Lenox, Incorporated, as Borrowers, Department 56,
 Inc. and the other Guarantors party thereto, as Guarantors, the Lenders party
 thereto, UBS Securities LLC, as Sole Arranger and Syndication Agent, UBS AG,
 Stamford Branch, as Administrative Agent and Collateral Agent, and Wells
 Fargo Foothill, LLC, as Documentation Agent. (Incorporated herein by
 reference to Exhibit 10.2 of the Companys Report on Form 8-K, filed on September 6,
 2005, SEC File No. 1-11908.)                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.28 | Security Agreement by D 56,
 Inc., Department 56 Retail, Inc., Time To Celebrate, Inc. and Lenox,
 Incorporated, as Borrowers, Department 56, Inc., and the other Guarantors
 party thereto, as Guarantors and UBS AG, Stamford Branch, as Administrative
 Agent, dated as of September 1, 2005. (Incorporated herein by reference to
 Exhibit 10.3 of the Companys Report on Form 8-K, filed on September 6, 2005, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.29 | Security Agreement by D 56,
 Inc., Department 56 Retail, Inc., Time To Celebrate, Inc. and Lenox,
 Incorporated, as Borrowers, Department 56, Inc., and the other Guarantors
 party thereto, as Guarantors and UBS AG, Stamford Branch, as Administrative
 Agent, dated as of September 1, 2005. (Incorporated herein by reference to
 Exhibit 10.4 of the Companys Report on Form 8-K, filed on September 6, 2005, SEC File No.
 1-11908.)                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.30 | Letter Agreement, dated
 September 26, 2005, between Linda Jones Miller and Department 56, Inc.
 (Incorporated herein by reference to Exhibit 10.1 of the Companys Report on Form 8-K, filed on September 28,
 2005, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.31 | Form of
 Retention Agreement between Lenox, Incorporated and certain executive
 officers. (Incorporated herein by reference to Exhibit 10.1 of the Companys
 Report on Form 8-K, filed on November 2, 2005, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.32 | Form of
 Letter Agreement between Department 56, Inc. and certain executive officers.
 (Incorporated herein by reference to Exhibit 10.2 of the Companys Report on
 Form 8-K, filed on November 2, 2005, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.33 | Form of Restricted Stock
 Agreement for certain executive officers under the Department 56 2004 Stock
 Incentive Plan. (Incorporated herein by reference to Exhibit 10.3 of the
 Companys Report on Form 8-K,
 filed on November 2, 2005, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.34 | 2005 Form of Stock Option
 Agreement for Officers under the Lenox Group Inc. 2004 Stock Incentive Plan. (Incorporated
 herein by reference to Exhibit 10.1 of the Companys Report on Form 8-K, filed on January 5,
 2006, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.35 | 2005 Form of Stock Option
 Agreement for Directors under the Lenox Group Inc. 2004 Stock Incentive Plan.
 (Incorporated herein by reference to Exhibit 10.2 of the Companys Report on
 Form 8-K, filed on January 5, 2006, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.36 | Agreement of Lease, dated
 as of December 30, 2005, by and between Island View TCI, L.P. and Lenox,
 Incorporated. (Incorporated herein by reference to Exhibit 10.1 of the
 Companys Report on Form 8-K, filed on January 6, 2006, SEC File No.
 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.37 | Agreement of Sale, dated as
 of December 30, 2005, by and between PREI Wheeler Way Associates, LP and
 Lenox, Incorporated. (Incorporated herein by reference to Exhibit 10.2 of the
 Companys Report on Form 8-K, filed on January 6, 2006, SEC File No.
 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.38 | Amendment, dated April 27,
 2006, to the Revolving Credit Agreement, dated as of September 1, 2005, among
 D 56, Inc., Department 56 Retail, Inc., Time to Celebrate Inc. and Lenox,
 Incorporated, as Borrowers, Department 56, Inc. and the other Guarantors
 party thereto, as Guarantors, the Lenders party thereto, UBS Securities LLC,
 as Arranger and Co-Syndication Agent, UBS AG, Stamford Branch, as Issuing
 Bank and Administrative Agent, UBS Loan Finance LLC, as Swingline Lender, JP
 Morgan Chase Bank, N.A., as Collateral Agent and Co-Syndication Agent, and
 Wells Fargo Foothill, LLC and Bank of America, N.A. as Co-Documentation
 Agents. (Incorporated herein by reference to Exhibit 10.1 of the Companys
 Report on Form 8-K, filed on May 3, 2006, SEC File No. 1-11908.)
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.39 | Amendment, dated April 27,
 2006, to the Term Loan Credit Agreement, dated as of September 1, 2005, among
 D 56, Inc., Department 56 Retail, Inc., Time to Celebrate, Inc. and Lenox,
 Incorporated, as Borrowers, Department 56, Inc. and the other Guarantors
 party thereto, as Guarantors, the Lenders party thereto, UBS Securities LLC,
 as Sole Arranger and Syndication Agent, UBS AG, Stamford Branch, as
 Administrative Agent and Collateral Agent, and Wells Fargo Foothill, LLC, as
 Documentation Agent. (Incorporated herein by reference to Exhibit 10.2 of the
 Companys Report on Form 8-K, filed on May 3, 2006, SEC File No. 1-11908.)                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.40 | Agreement of Sale as of
 October 3, 2006 by and between Lenox, Incorporated and BTR Capital Fund II,
 LLC. (Incorporated herein by reference to Exhibit 10.1 of the Companys
 Report on Form 8-K, filed on October 5, 2006, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.41 | Purchase and Sale Agreement
 as of December 11, 2006 by and between Lenox, Incorporated and First
 Industrial Acquisitions, Inc. (Incorporated herein by reference to Exhibit
 10.1 of the Companys Report on Form 8-K, filed on December 14, 2006, SEC
 File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.42 | Industrial Building
 Bond-Type Lease dated December 28, 2006 between FR Net Lease Co Investment
 Program 13, LLC and Lenox, Incorporated. (Incorporated herein by reference to
 Exhibit 10.1 of the Companys Report on Form 8-K, filed on January 3, 2007,
 SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

38

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|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.43                                                 | Resignation/Retirement
 Agreement between the Lenox Group Inc. and Susan E. Engel, dated effective as
 of January 4, 2007, including the form of Release entered into by Ms. Engel effective
 January 4, 2007. (Incorporated herein by reference to Exhibit 10.1 of the
 Companys Report on Form 8-K, filed on January 9, 2007, SEC File No.
 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.44                                                 | Form of Senior Management
 Change in Control Agreement. (Incorporated herein by reference to Exhibit
 10.1 of the Companys Report on Form 8-K, filed on January 17, 2007, SEC File
 No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.45                                                 | Consulting Agreement between Lenox Group Inc. and Carl Marks Advisory Group LLC (CMAG), dated
January 4, 2007. (Incorporated herein by reference to Exhibit 10.51 of the Companys Report on Form 10-K,
filed on March 15, 2007, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.46                                                 | Amendment, dated January 24,2007, to Consulting Agreement between Lenox Group Inc. and Carl Marks Advisory
Group LLC (CMAG), dated January 4, 2007. (Incorporated herein by reference to Exhibit 10.52 of the
Companys Report on Form 10-K, filed on March 15, 2007, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.47                                                 | Amendment, dated January 28, 2008, to Consulting Agreement between Lenox Group Inc. and Carl Marks Advisory Group
LLC (CMAG), dated January 4, 2007. (Incorporated herein by reference to Exhibit 10.1 of the Companys Report on
Form 8-K, filed on January 31, 2008, SEC File No 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.48                                                 | Waiver and Fourth Amendment, dated as of February 9, 2007, to the Revolving Credit Agreement, dated as of
September 1, 2005, among D56, Inc., Lenox Retail, Inc. and Lenox, Incorporated, as Borrowers, Lenox Group Inc., Lenox Sales, Inc.
and FL 56 Intermediate Corp., as Guarantors, the Lenders party thereto, UBS Securities LLC, as Arranger and Co-Syndication Agent,
UBS AG, Stamford Branch, as Issuing Bank and Administrative Agent, UBS Loan Finance LLC, as Swingline Lender, JP Morgan Chase
Bank, N.A., as Collateral Agent and Co-Syndication Agent, and Wells Fargo Foothill, LLC and Bank of America, N.A. as
Co-Documentation Agents. . (Incorporated herein by reference to Exhibit 10.1 of the Companys Report on Form 8-K, filed on
February 14, 2007, SEC File No. 1- 11908.)
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.49                                                 | Waiver and
 Third Amendment, dated as of February 9, 2007, to the Term Loan Credit
 Agreement, dated as of September 1, 2005, among D56, Inc., Lenox Retail, Inc.
 and Lenox, Incorporated, as Borrowers, Lenox Group Inc., Lenox Sales, Inc.
 and FL 56 Intermediate Corp., as Guarantors, the Lenders party thereto, UBS
 Securities LLC, as Sole Arranger and Syndication Agent, UBS AG, Stamford
 Branch, as Administrative Agent and Collateral Agent, and Wells Fargo
 Foothill, LLC, as Documentation Agent. . (Incorporated herein by reference to
 Exhibit 10.2 of the Companys Report on Form 8-K, filed on February 14, 2007,
 SEC File No. 1-11908.)                                                                                                                                     
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.50                                                 | Waiver, dated as of April
 3, 2007, to the Revolving Credit Agreement, dated as of September 1, 2005,
 among D56, Inc., Lenox Retail, Inc. and Lenox, Incorporated, as Borrowers,
 Lenox Group Inc., Lenox Sales, Inc. and FL 56 Intermediate Corp., as
 Guarantors, the Lenders party thereto, UBS Securities LLC, as Arranger and
 Co-Syndication Agent, UBS AG, Stamford Branch, as Issuing Bank and
 Administrative Agent, UBS Loan Finance LLC, as Swingline Lender, JP Morgan
 Chase Bank, N.A., as Collateral Agent and Co-Syndication Agent, and Wells
 Fargo Foothill, LLC and Bank of America, N.A. as Co-Documentation Agents.
 (Incorporated herein by reference to Exhibit 10.1 of the Companys Report on
 Form 8-K, filed on April 5, 2007, SEC File No. 1-11908.)                     
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.51                                                 | Waiver, dated as of April
 3, 2007, to the Term Loan Credit Agreement, dated as of September 1, 2005,
 among D56, Inc., Lenox Retail, Inc. and Lenox, Incorporated, as Borrowers,
 Lenox Group Inc., Lenox Sales, Inc. and FL 56 Intermediate Corp., as
 Guarantors, the Lenders party thereto, UBS Securities LLC, as Sole Arranger
 and Syndication Agent, UBS AG, Stamford Branch, as Administrative Agent and
 Collateral Agent, and Wells Fargo Foothill, LLC, as Documentation Agent.
 (Incorporated herein by reference to Exhibit 10.2 of the Companys Report on
 Form 8-K, filed on April 5, 2007, SEC File No. 1-11908.)                                                                                                                                                                   
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.52                                                 | Agreement, dated as of
 April 13, 2007, by and between Lenox Group Inc. and The Clinton Group, Inc.
 (Incorporated herein by reference to Exhibit 10.1 of the Companys Report on
 Form 8-K, filed on April 16, 2007, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.53                                                 | Amended and Restated
 Revolving Credit Agreement dated as of April 20, 2007, among D 56, Inc.,
 Lenox Retail, Inc. and Lenox, Incorporated, as Borrowers, Lenox Group Inc.
 and the other Guarantors party thereto, as Guarantors, the Lenders party
 thereto, UBS Securities LLC, as Arranger and Co-Syndication Agent, UBS AG,
 Stamford Branch, as Issuing Bank and Administrative Agent, UBS Loan Finance
 LLC, as Swingline Lender, JPMorgan Chase Bank, N.A., as Collateral Agent, Co-
 Syndication Agent and Issuing Bank, and Wells Fargo Foothill, LLC, as
 Documentation Agent. (Incorporated herein by reference to Exhibit 10.1 of the
 Companys Report on Form 8-K, filed on April 24, 2007, SEC File No. 1-11908.)                                                                     
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.54                                                 | Term Loan Credit Agreement dated as of April 20, 2007, among D 56, Inc., Lenox Retail, Inc. and
Lenox, Incorporated, as Borrowers, Lenox Group Inc. and the other Guarantors party thereto, as Guarantors, the Lenders party
thereto, with UBS Securities LLC as Sole Arranger and Syndication Agent, and UBS AG, Stamford Branch, as Administrative Agent and
Collateral Agent. (Incorporated herein by reference to Exhibit 10.2 of the Companys Report on Form 8-K, filed on April 24,
2007, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                               
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.55                                                 | Security Agreement, relating to the Revolving Credit Agreement, by D 56, Inc., Lenox Retail, Inc.
and Lenox, Incorporated, as Borrowers, Lenox Group Inc., and the other Guarantors party thereto, as Guarantors and UBS AG,
Stamford Branch, as Administrative Agent, dated as of April 20, 2007. (Incorporated herein by reference to Exhibit 10.3 of the
Companys Report on Form 8-K, filed on April 24, 2007, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                             
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.56                                                 | Security Agreement, relating to the Term Loan Agreement, by D 56, Inc., Lenox Retail, Inc. and
Lenox, Incorporated, as Borrowers, Lenox Group Inc., and the other Guarantors party thereto, as Guarantors and UBS AG, Stamford
Branch, as Administrative Agent, dated as of April 20, 2007. (Incorporated herein by reference to Exhibit 10.4 of the
Companys Report on Form 8-K, filed on April 24, 2007, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                    
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.57                                                 | Form of Letter Agreement
 entered into with Fred Spivak. (Incorporated herein by reference to Exhibit
 10.1 of the Companys Report on Form 8-K, filed on November 7, 2007, SEC File
 No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.58                                                 | Asset Purchase Agreement,
 by and among Lenox Group Inc., Lenox, Incorporated and Lifetime Brands, Inc.,
 dated July 19, 2007. (Incorporated herein by reference to Exhibit 10.1 of the
 Companys Report on Form 8-K, filed on July 24, 2007, SEC File No. 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.59                                                 | Amendment dated January 30,
 2008, to Form of Letter Agreement entered into with Fred Spivak, dated
 November 9, 2007. (Incorporated herein by reference to Exhibit 10.3 of the
 Companys Report on Form 8-K, filed on January 31, 2008, SEC File No.
 1-11908.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|21.1                                                  | Subsidiaries
 of the Company. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|23.1                                                  | Consent of
 Independent Registered Public Accounting Firm. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|31.1                                                  | Certification
 of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|31.2                                                  | Certification
 of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|32.1                                                  | Officer
 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
 U.S.C. Section 1350. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                     
|                                                     
|          Management
 contract or compensatory plan.
|                                                     
|*          Filed
 herewith.                          

39

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Table of Contents

SIGNATURES

Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                      |                   |                                
|--------------------- | ----------------- | -------------------------------
|                      | LENOX GROUP
 INC.
|                      |                   |                                
|Date: March
 13, 2008 | By:               | /s/ MARC L. PFEFFERLE          
|                      |                   |                                
|                      |                   | Marc L. Pfefferle              
|                      |                   | Interim Chief Executive Officer

Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                          |  |                                                                                                                     |  |                
|------------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | ---------------
|Signature                 |  | Capacity in which signed                                                                                            |  | Date           
|                          |  |                                                                                                                     |  |                
|                         
|/s/ MARC L. PFEFFERLE     |  | Interim
 Chief Executive Officer                                                                                    |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|Marc L. Pfefferle         |  | (Principal Executive Officer)                                                                                       |  |                
|                          |  |                                                                                                                     |  |                
|/s/ FRED SPIVAK           |  | Chief
 Financial Officer and                                                                                        |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|Fred Spivak               |  | Chief Operating Officer
                                                        (Principal Financial Officer)       |  |                
|                          |  |                                                                                                                     |  |                
|/s/ EDWARD PAOLELLA       |  | Vice
 President - Controller                                                                                        |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|Edward Paolella           |  | Principal Accounting Officer
                                                        (Principal Accounting Officer) |  |                
|                          |  |                                                                                                                     |  |                
|/s/ JAMES E. BLOOM        |  | Director                                                                                                            |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|James E. Bloom            |  |                                                                                                                     |  |                
|                          |  |                                                                                                                     |  |                
|/s/ STEWART M. KASEN      |  | Chairman and
 Director                                                                                              |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|Stewart M. Kasen          |  |                                                                                                                     |  |                
|                          |  |                                                                                                                     |  |                
|/s/ DR. REATHA CLARK KING |  | Director                                                                                                            |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|Dr. Reatha Clark King     |  |                                                                                                                     |  |                
|                          |  |                                                                                                                     |  |                
|/s/ CHARLES N. HAYSSEN    |  | Director                                                                                                            |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|Charles N. Hayssen        |  |                                                                                                                     |  |                
|                          |  |                                                                                                                     |  |                
|/s/ JOHN V. WEBER         |  | Director                                                                                                            |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|John V. Weber             |  |                                                                                                                     |  |                
|                          |  |                                                                                                                     |  |                
|/s/ GLENDA B. GLOVER      |  | Director                                                                                                            |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|Glenda B. Glover          |  |                                                                                                                     |  |                
|                          |  |                                                                                                                     |  |                
|/s/ DOLORES A. KUNDA      |  | Director                                                                                                            |  | March 13,
 2008
|                          |  |                                                                                                                     |  |                
|Dolores A. Kunda          |  |                                                                                                                     |  |                

40

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Table of Contents

MANAGEMENTS REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of
Lenox Group Inc. (the Company) is responsible for establishing and
maintaining adequate internal control over financial reporting. The internal
control system was designed to provide reasonable assurance to management and
the board of directors regarding the reliability of financial reporting and
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.

Management
assessed the effectiveness of the Companys internal control over financial
reporting as of December 29, 2007. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal
ControlIntegrated Framework.

Based on this
assessment and those criteria, management believes the Companys internal control
over financial reporting was effective as of December 29, 2007.

The Companys
independent auditors have audited the Companys financial statements included
in this report on Form 10-K and issued its attestation report on the
effectiveness of the Companys internal control over financial reporting as of
December 29, 2007. This report appears on the following page.

F-1

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of

Lenox Group Inc.

Eden Prairie, MN



We have audited the accompanying consolidated balance
sheets of Lenox Group Inc. and subsidiaries (the Company) as of December 29, 2007 and December 30, 2006, and the related
consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended
December 29, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15. We also have audited
the Companys internal control over financial reporting as of December 29, 2007, based on criteria established in Internal Control
-- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
Framework). The Company's management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on these consolidated financial statements and financial statement schedule and an opinion
on the Company's internal control over financial reporting based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.



A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.



Because of the inherent limitations of internal
control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

F-2

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Table of Contents

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lenox Group Inc. and subsidiaries as of December 29, 2007 and December 30, 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2007, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.  Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2007, based on the criteria established in Internal Control -- Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.



As discussed in Note 1 to the consolidated financial statements, in 2007 the Company changed its method of accounting for income taxes to conform to FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.







Parsippany, New Jersey

March 13, 2008

F-3

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Table of Contents

LENOX GROUP INC. AND SUBSIDIARIES

CONSOLIDATED
BALANCE SHEETS 
(In thousands, except per share amounts)
AS OF DECEMBER 29, 2007 AND DECEMBER 30, 2006

|                                                                                                        |  |      |          |      |   |          |  
|------------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|                                                                                                        |  | 2007 |          | 2006 |  
|                                                                                                        |  |      |          |      |  
|                                                                                                        |  |      |          |      |   |          |  
|ASSETS                                                                                                  |  |      |          |      |   |          |  
|Current Assets                                                                                          |  |      |          |      |   |          |  
|Cash and cash equivalents                                                                               |  | $    | 3,081    |      | $ | 875      |  
|Accounts receivable, net of allowances of $11,540
and $13,456,
 respectively                            |  |      | 43,273   |      |   | 52,059   |  
|Inventories                                                                                             |  |      | 84,415   |      |   | 101,925  |  
|Deferred taxes                                                                                          |  |      | 17,347   |      |   | 13,896   |  
|Income tax receivable                                                                                   |  |      | 10,114   |      |   | 956      |  
|Other current assets                                                                                    |  |      | 8,405    |      |   | 9,306    |  
|                                                                                                        |  |      |          |      |   |          |  
|Total current assets                                                                                    |  |      | 166,635  |      |   | 179,017  |  
|                                                                                                        |  |      |          |      |   |          |  
|Property and equipment, net                                                                             |  |      | 41,987   |      |   | 49,471   |  
|Trademarks, net                                                                                         |  |      | 119,941  |      |   | 119,439  |  
|Other intangibles, net                                                                                  |  |      | 11,984   |      |   | 14,135   |  
|Marketable securities                                                                                   |  |      | 71       |      |   | 2,098    |  
|Other assets                                                                                            |  |      | 11,488   |      |   | 9,637    |  
|                                                                                                        |  |      |          |      |   |          |  
|                                                                                                        |  | $    | 352,106  |      | $ | 373,797  |  
|                                                                                                        |  |      |          |      |   |          |  
|                                                                                                        |  |      |          |      |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                    |  |      |          |      |   |          |  
|Current liabilities                                                                                     |  |      |          |      |   |          |  
|Current portion of long-term debt                                                                       |  | $    | 1,250    |      | $ | 49,056   |  
|Borrowings on revolving credit facility                                                                 |  |      | 8,938    |      |   | 47,510   |  
|Accounts payable                                                                                        |  |      | 31,836   |      |   | 35,248   |  
|Accrued compensation and benefits payable                                                               |  |      | 8,727    |      |   | 6,428    |  
|Severance and restructuring reserves                                                                    |  |      | 2,756    |      |   | 1,939    |  
|Other current liabilities                                                                               |  |      | 8,826    |      |   | 8,576    |  
|                                                                                                        |  |      |          |      |   |          |  
|Total current liabilities                                                                               |  |      | 62,333   |      |   | 148,757  |  
|                                                                                                        |  |      |          |      |   |          |  
|Deferred compensation obligation                                                                        |  |      | 54       |      |   | 2,085    |  
|Pension obligations                                                                                     |  |      | 15,788   |      |   | 30,664   |  
|Postretirement obligations                                                                              |  |      | 1,585    |      |   | 15,853   |  
|Deferred taxes                                                                                          |  |      | 25,531   |      |   | 18,297   |  
|Long-term debt                                                                                          |  |      | 98,500   |      |   |         |  
|Deferred gain on sale-leaseback                                                                         |  |      | 3,570    |      |   | 3,845    |  
|Other noncurrent liabilities                                                                            |  |      | 8,603    |      |   | 12,617   |  
|                                                                                                        |  |      |          |      |   |          |  
|Commitments and contingencies (Note 15)                                                                 |  |      |          |      |   |          |  
|                                                                                                        |  |      |          |      |   |          |  
|Stockholders equity:                                                                                   |  |      |          |      |   |          |  
|Preferred stock, $.01 par value; authorized 20,000 shares; no shares
 issued                            |  |      |          |      |   |          |  
|Common stock, $.01 par value; authorized 100,000 shares; issued 23,615
 and 23,379 shares, respectively |  |      | 236      |      |   | 234      |  
|Additional paid-in capital                                                                              |  |      | 64,021   |      |   | 64,085   |  
|Treasury stock, at cost; 9,418 and 9,272 shares,
respectively                                           |  |      | (217,227 | )    |   | (217,186 | )
|Retained earnings                                                                                       |  |      | 250,301  |      |   | 266,153  |  
|Accumulated other comprehensive income                                                                  |  |      | 38,811   |      |   | 28,393   |  
|                                                                                                        |  |      |          |      |   |          |  
|Total stockholders equity                                                                              |  |      | 136,142  |      |   | 141,679  |  
|                                                                                                        |  |      |          |      |   |          |  
|                                                                                                        |  | $    | 352,106  |      | $ | 373,797  |  
|                                                                                                        |  |      |          |      |   |          |  

See notes to consolidated financial
statements.

F-4

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Table of Contents

LENOX GROUP
INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 
(In thousands, except per share amounts)
YEARS ENDED DECEMBER 29, 2007, DECEMBER 30, 2006 AND DECEMBER 31, 2005

|                                                              |  |      |         |      |   |         |   |   |         |  
|------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                              |  | 2007 |         | 2006 |   | 2005    |  
|                                                              |  |      |         |      |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|NET SALES                                                     |  | $    | 452,115 |      | $ | 502,506 |   | $ | 331,728 |  
|COST OF SALES                                                 |  |      | 235,139 |      |   | 257,932 |   |   | 172,845 |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|Gross profit                                                  |  |      | 216,976 |      |   | 244,574 |   |   | 158,883 |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|OPERATING EXPENSES                                            |  |      |         |      |   |         |   |   |         |  
|Selling, general and administrative                           |  |      | 214,816 |      |   | 234,676 |   |   | 126,394 |  
|Restructuring charges                                         |  |      | 9,540   |      |   |        |   |   |        |  
|Pension Curtailment and settlement gains                      |  |      |        |      |   | (14,783 | ) |   |        |  
|Goodwill impairment                                           |  |      |        |      |   | 55,269  |   |   |        |  
|Tradename impairment                                          |  |      |        |      |   | 3,743   |   |   |        |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|OPERATING (LOSS) INCOME                                       |  |      | (7,380  | )    |   | (34,331 | ) |   | 32,489  |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|OTHER (INCOME) EXPENSE                                        |  |      |         |      |   |         |   |   |         |  
|Interest expense                                              |  |      | 15,890  |      |   | 16,697  |   |   | 5,735   |  
|Loss on refinancing of debt                                   |  |      | 5,940   |      |   |        |   |   |        |  
|Other, net                                                    |  |      | (36     | )    |   | 35      |   |   | (744    | )
|                                                              |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|(LOSS) INCOME FROM
 CONTINUING OPERATIONS BEFORE INCOME TAXES |  |      | (29,174 | )    |   | (51,063 | ) |   | 27,498  |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|(BENEFIT) PROVISION FOR
 INCOME TAXES                         |  |      | (13,348 | )    |   | (1,795  | ) |   | 10,146  |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|LOSS (INCOME) FROM
 CONTINUING OPERATIONS                     |  |      | (15,826 | )    |   | (49,268 | ) |   | 17,352  |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|LOSS FROM DISCONTINUED
 OPERATIONS, NET OF TAX                |  |      |        |      |   |        |   |   | (2,182  | )
|                                                              |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|NET (LOSS) INCOME                                             |  | $    | (15,826 | )    | $ | (49,268 | ) | $ | 15,170  |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|(LOSS)
 INCOME PER SHARE  BASIC:                             |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|(LOSS) INCOME FROM
 CONTINUING OPERATIONS                     |  | $    | (1.15   | )    | $ | (3.58   | ) | $ | 1.27    |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|LOSS FROM DISCONTINUED
 OPERATIONS                            |  |      |        |      |   |        |   |   | (0.16   | )
|                                                              |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|NET (LOSS) INCOME PER SHARE
  BASIC                          |  | $    | (1.15   | )    | $ | (3.58   | ) | $ | 1.11    |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|(LOSS)
 INCOME PER SHARE  DILUTED:                           |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|(LOSS) INCOME FROM
 CONTINUING OPERATIONS                     |  | $    | (1.15   | )    | $ | (3.58   | ) | $ | 1.26    |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|LOSS FROM DISCONTINUED
 OPERATIONS                            |  |      |        |      |   |        |   |   | (0.16   | )
|                                                              |  |      |         |      |   |         |   |   |         |  
|                                                              |  |      |         |      |   |         |   |   |         |  
|NET (LOSS) INCOME PER SHARE
  DILUTED                        |  | $    | (1.15   | )    | $ | (3.58   | ) | $ | 1.10    |  
|                                                              |  |      |         |      |   |         |   |   |         |  

See notes to
consolidated financial statements.

F-5

---

Table of Contents

|                                                                      
|----------------------------------------------------------------------
|LENOX GROUP INC. AND SUBSIDIARIES                                     
|                                                                      
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                 
|(In thousands)                                                        
|YEARS ENDED DECEMBER 29, 2007, DECEMBER 30, 2006 AND DECEMBER 31, 2005
|                                                                      

|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | - | - | -------- | -
|                                                                                                  |  | 2007 |          | 2006 |   | 2005     |  
|                                                                                                  |  |      |          |      |   |          |  
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                             |  |      |          |      |   |          |   |   |          |  
|Net (loss) income                                                                                 |  | $    | (15,826  | )    | $ | (49,268  | ) | $ | 15,170   |  
|Adjustments to reconcile net (loss) income to net
cash (used in)provided by operating activities: |  |      |          |      |   |          |   |   |          |  
|Loss from discontinued operations                                                                 |  |      |          |      |   |          |   |   | 2,182    |  
|Depreciation                                                                                      |  |      | 11,708   |      |   | 12,581   |   |   | 6,872    |  
|Goodwill impairment                                                                               |  |      |         |      |   | 55,269   |   |   |         |  
|Trademark impairment                                                                              |  |      |         |      |   | 3,743    |   |   |         |  
|(Gain) loss on disposal of assets                                                                 |  |      | (16      | )    |   | (1,457   | ) |   | 669      |  
|Loss on extinguishment of debt                                                                    |  |      | 5,940    |      |   |          |   |   |          |  
|Pension curtailment and settlement gains                                                          |  |      |         |      |   | (14,783  | ) |   |         |  
|Amortization of other intangibles                                                                 |  |      | 2,151    |      |   | 2,902    |   |   | 1,460    |  
|Amortization of deferred financing fees                                                           |  |      | 2,108    |      |   | 1,944    |   |   | 796      |  
|Stock-based compensation                                                                          |  |      | (97      | )    |   | 1,518    |   |   | 989      |  
|Deferred taxes                                                                                    |  |      | 3,784    |      |   | 843      |   |   | (2,413   | )
|Excess tax benefits from stock based
compensation                                                 |  |      |         |      |   | (7       | ) |   | 272      |  
|Changes in assets and liabilities:                                                                |  |      |          |      |   |          |   |   |          |  
|Accounts receivable                                                                               |  |      | 8,786    |      |   | 7,389    |   |   | 12,030   |  
|Inventories                                                                                       |  |      | 10,931   |      |   | (6,451   | ) |   | 36,442   |  
|Other assets                                                                                      |  |      | 3,469    |      |   | (238     | ) |   | 2,600    |  
|Accounts payable                                                                                  |  |      | (2,778   | )    |   | (219     | ) |   | (15,425  | )
|Accrued compensation and benefits payable                                                         |  |      | 1,696    |      |   | (6,750   | ) |   | (146     | )
|Income taxes payable                                                                              |  |      | (8,958   | )    |   | (7,146   | ) |   | 2,275    |  
|Pension & postretirement obligations                                                              |  |      | (19,566  | )    |   | (8,221   | ) |   | (1,915   | )
|Other liabilities                                                                                 |  |      | (3,876   | )    |   | (6,873   | ) |   | (632     | )
|Net cash used in operating activities from
discontinued operations                                |  |      |         |      |   | (32      | ) |   | (800     | )
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|Net cash (used in) provided by operating
activities                                               |  |      | (544     | )    |   | (15,256  | ) |   | 60,426   |  
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                             |  |      |          |      |   |          |   |   |          |  
|Purchases of property and equipment                                                               |  |      | (6,642   | )    |   | (12,385  | ) |   | (1,905   | )
|Proceeds from sale of assets                                                                      |  |      | 8,737    |      |   | 44,385   |   |   |         |  
|Acquisitions                                                                                      |  |      | (1,712   | )    |   | (2,849   | ) |   | (204,036 | )
|Net sale of available-for-sale securities                                                         |  |      |         |      |   |         |   |   | 11,150   |  
|Net cash used in investing activities from
discontinued operations                                |  |      |         |      |   |         |   |   | (3       | )
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|Net cash provided by (used in) investing
activities                                               |  |      | 383      |      |   | 29,151   |   |   | (194,794 | )
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                             |  |      |          |      |   |          |   |   |          |  
|Proceeds from the exercise of common stock
options                                                |  |      |         |      |   | 340      |   |   | 1,640    |  
|Payments of deferred financing fees                                                               |  |      | (9,685   | )    |   | (397     | ) |   | (10,125  | )
|Excess tax benefits from stock based
compensation                                                 |  |      | (7       | )    |   | 7        |   |   |         |  
|Borrowings on revolving credit agreement                                                          |  |      | 416,600  |      |   | 265,201  |   |   | 121,500  |  
|Principal payments on revolving credit
agreement                                                  |  |      | (455,172 | )    |   | (228,159 | ) |   | (111,032 | )
|Principal payments on capital leases                                                              |  |      | (22      | )    |   | (97      | ) |   |         |  
|Purchases of treasury stock                                                                       |  |      | (41      | )    |   |         |   |   | (79      | )
|Borrowings on long-term debt                                                                      |  |      | 100,000  |      |   |         |   |   | 100,000  |  
|Principal payments on long-term debt                                                              |  |      | (49,306  | )    |   | (51,194  | ) |   |         |  
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|Net cash provided by (used in) financing
activities                                               |  |      | 2,367    |      |   | (14,299  | ) |   | 101,904  |  
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                              |  |      | 2,206    |      |   | (404     | ) |   | (32,464  | )
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                  |  |      | 875      |      |   | 1,279    |   |   | 33,743   |  
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|                                                                                                  |  |      |          |      |   |          |   |   |          |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                        |  | $    | 3,081    |      | $ | 875      |   | $ | 1,279    |  
|                                                                                                  |  |      |          |      |   |          |   |   |          |  

See notes to consolidated financial statements.

F-6

---

Table of Contents

|                                                                       
|-----------------------------------------------------------------------
|LENOX GROUP INC. AND SUBSIDIARIES                                      
|                                                                       
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (In thousands)         
|YEARS ENDED DECEMBER 29, 2007, DECEMBER 30, 2006, AND DECEMBER 31, 2005
|                                                                       

|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|-------------------------------------------------------------------------------------------- |  | ------------- |  | ------------------------- | - | ------ | --- | -------------------------- | - | ---------------------------------------- | - | -------------- | ------ | ----------------- | - | -------------------------------------- | - | ----- | ------- | --------------------------- | - | ------ | - | - | ------- | - | - | ------- | -
|                                                                                             |  | Common Stock  |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |  
|                                                                                             |  | Shares
Issued |  | Treasury
Shares
Purchased |   | Amount |     | Additional
Paid-in
Capital |   | Unearned
Compensation
Restricted 
Shares |   | Treasury
Stock |        | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income |   | Total |         | Comprehensive
Income (Loss) |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |  
|BALANCE AS OF
 JANUARY 1, 2005                                                               |  | 22,769        |  | (9,204                    | ) | $      | 228 |                            | $ | 59,558                                   |   | $              | (233   | )                 | $ | (217,109                               | ) | $     | 301,313 |                             | $ |       |   | $ | 143,757 |   | $ | 143,757 |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|Net income                                                                                   |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       | 15,170  |                             |   |        |   |   | 15,170  |   |   |         |  
|Shares issued
 upon the exercise of common stock options                                     |  | 148           |  |                           |   |        | 1   |                            |   | 1,639                                    |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | 1,640   |   |   |         |  
|Tax benefit
 related to stock options exercised                                              |  |               |  |                           |   |        |     |                            |   | 272                                      |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | 272     |   |   |         |  
|Restricted shares surrendered                                                                |  |               |  | (10                       | ) |        |     |                            |   | (67                                      | ) |                | 67     |                   |   | (79                                    | ) |       |         |                             |   |        |   |   | (79     | ) |   |         |  
|Restricted shares
 amortization                                                              |  |               |  |                           |   |        |     |                            |   |                                          |   |                | 766    |                   |   |                                        |   |       |         |                             |   |        |   |   | 766     |   |   |         |  
|Restricted shares
 issued                                                                    |  | 309           |  |                           |   |        | 3   |                            |   | 4,066                                    |   |                | (4,069 | )                 |   |                                        |   |       |         |                             |   |        |   |   |        |   |   |         |  
|Other                                                                                        |  | 18            |  |                           |   |        |     |                            |   | 223                                      |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | 223     |   |   |         |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|BALANCE AS OF
 DECEMBER 31, 2005                                                             |  | 23,244        |  | (9,214                    | ) |        | 232 |                            |   | 65,691                                   |   |                | (3,469 | )                 |   | (217,188                               | ) |       | 316,483 |                             |   |       |   |   | 161,749 |   |   |         |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|Net loss                                                                                     |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       | (49,268 | )                           |   |        |   |   | (49,268 | ) |   | (49,268 | )
|Change in cumulative
 translation adjustment                                                 |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   | (4     | ) |   | (4      | ) |   | (4      | )
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|Comprehensive
 loss                                                                          |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   | (49,272 | )
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|Effect of accounting change (SFAS 123R)                                                      |  |               |  |                           |   |        |     |                            |   | (3,469                                   | ) |                | 3,469  |                   |   |                                        |   |       |         |                             |   |        |   |   |        |   |   |         |  
|Effect of
 accounting change (SFAS 158), net of tax of $(17,404)                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       | (1,062  | )                           |   | 28,397 |   |   | 27,335  |   |   |         |  
|Shares issued
 upon the exercise of common stock options                                     |  | 34            |  |                           |   |        | 1   |                            |   | 339                                      |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | 340     |   |   |         |  
|Tax benefit
 related to stock options exercised                                              |  |               |  |                           |   |        |     |                            |   | 7                                        |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | 7       |   |   |         |  
|Restricted shares
 surrendered                                                               |  |               |  | (58                       | ) |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |        |   |   |         |  
|Restricted shares amortization                                                               |  |               |  |                           |   |        |     |                            |   | 1,194                                    |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | 1,194   |   |   |         |  
|Restricted shares
 issued                                                                    |  | 83            |  |                           |   |        | 1   |                            |   | (1                                       | ) |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |        |   |   |         |  
|Stock based compensation                                                                     |  | 18            |  |                           |   |        |     |                            |   | 324                                      |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | 324     |   |   |         |  
|Other                                                                                        |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   | 2                                      |   |       |         |                             |   |        |   |   | 2       |   |   |         |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|BALANCE AS OF DECEMBER 30, 2006                                                              |  | 23,379        |  | (9,272                    | ) |        | 234 |                            |   | 64,085                                   |   |                |       |                   |   | (217,186                               | ) |       | 266,153 |                             |   | 28,393 |   |   | 141,679 |   |   |         |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|Net loss                                                                                     |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       | (15,826 | )                           |   |        |   |   | (15,826 | ) |   | (15,826 | )
|Change in
 cumulative translation adjustment                                                 |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   | (14    | ) |   | (14     | ) |   | (14     | )
|Deferred gains on
 pension and other postretirement benefits, net of tax liability of $6,123 |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   | 10,432 |   |   | 10,432  |   |   | 10,432  |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|Comprehensive
 loss                                                                          |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   | (5,408  | )
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|Cumulative effect
 of adoption ofFIN 48                                                      |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       | (27     | )                           |   |        |   |   | (27     | ) |   |         |  
|Tax expense
 related to stock options exercised                                              |  |               |  |                           |   |        |     |                            |   | (7                                       | ) |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | (7      | ) |   |         |  
|Restricted shares surrendered                                                                |  |               |  | (146                      | ) |        |     |                            |   |                                          |   |                |        |                   |   | (41                                    | ) |       |         |                             |   |        |   |   | (41     | ) |   |         |  
|Restricted shares amortization                                                               |  |               |  |                           |   |        |     |                            |   | (547                                     | ) |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | (547    | ) |   |         |  
|Restricted shares issued                                                                     |  | 173           |  |                           |   |        | 2   |                            |   | (2                                       | ) |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |        |   |   |         |  
|Stock based compensation                                                                     |  | 63            |  |                           |   |        |     |                            |   | 492                                      |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   | 492     |   |   |         |  
|Other                                                                                        |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       | 1       |                             |   |        |   |   | 1       |   |   |         |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |   |        |   |   |         |   |   |         |  
|BALANCE AS OF
 DECEMBER 29, 2007                                                             |  | 23,615        |  | (9,418                    | ) | $      | 236 |                            | $ | 64,021                                   |   |                |       |                   | $ | (217,227                               | ) | $     | 250,301 |                             | $ | 38,811 |   | $ | 136,142 |   |   |         |  
|                                                                                             |  |               |  |                           |   |        |     |                            |   |                                          |   |                |        |                   |   |                                        |   |       |         |                             |  

See notes to consolidated financial statements.

F-7

---

Table of Contents

|                                                                            
|----------------------------------------------------------------------------
|LENOX GROUP INC. AND SUBSIDIARIES                                           
|                                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  
|(In
  thousands, except share and per share amounts, unless noted otherwise)
|                                                                            

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
  ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Business
   Lenox Group Inc. and its subsidiaries (the Company) is a leading
  designer, distributor, wholesaler and retailer of fine quality tabletop,
  collectibles and other giftware products. The Company sells its product
  through gift, specialty retailers, department stores, and general merchandise
  chains, as well as through the Companys own retail stores and direct
  channels of distribution, including Internet, catalog and mail order. The
  Company markets its products principally under theLenox, Department 56, Dansk,
  and Gorham
  brand names. The majority of the Companys products are developed and
  designed by the Companys in-house creative team and are manufactured for the
  Company by independently owned foreign manufacturers located primarily in the
  Peoples Republic of China. The Company also owns and operates one domestic
  manufacturing facility that produces certain of its products. Approximately
  2% of total revenue is derived from customers outside the United States and
  approximately 2% of long-lived assets are located outside the United States.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Principles
  of Consolidation  The consolidated financial statements of
  the Company include the accounts of the Company and its subsidiaries. All
  significant intercompany accounts and transactions have been eliminated in
  consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Effective September 1, 2005, the Company completed
  the acquisition of Lenox, Incorporated (Lenox). These financial statements
  and footnotes reflect the Lenox assets acquired, liabilities assumed, and
  results of operations of Lenox from the acquisition date of September 1,
  2005. See Note 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Fiscal
  Year End  The Companys policy is to end its fiscal year
  on the Saturday closest to December 31. The years ended December 31,
  2005, December 30, 2006 and December 29, 2007 included 52 weeks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Management
  Estimates  The preparation of financial statements in
  conformity with accounting principles generally accepted in the United States
  of America requires management to make estimates and assumptions that affect
  the reported amounts of assets and liabilities and disclosure of contingent
  assets and liabilities at the date of the financial statements and the
  reported amounts of revenues and expenses during the reporting period. Actual
  results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Cash
  Equivalents  All highly liquid debt instruments with
  original maturities of three months or less are considered to be cash
  equivalents. These investments are carried at cost, which approximates market
  value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Short-Term
  Investments The Company has historically held short-term
  investments consisting of Auction Rate Securities which represent funds
  available for current operations. In accordance with SFAS No. 115, Accounting
  for Certain Investments in Debt and Equity Securities(SFAS No.
  115), these short-term investments are classified as available-for-sale and
  are carried at cost, or par value, which approximates the fair market value.
  These securities have stated maturities beyond three months but are priced
  and traded as short-term instruments due to the liquidity provided through
  the interest rate mechanism of 28 to 49 days. The Company did not hold any
  Auction Rate Securities at the end of 2007 or 2006.                                                                                                                                                                                                                                                                                                                                                                          

F-8

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Marketable
  Securities The Company classifies the marketable
  securities designated to fund its deferred compensation plan as trading
  securities under SFAS No. 115. In accordance with the provisions of this
  statement, the investment balance is stated at fair market value, based on
  quoted market prices. Realized and unrealized gains and losses are reflected
  in earnings. As the assets designated to fund the deferred compensation plan
  reflect amounts due to employees (but available for general creditors of the
  Company in the event the Company becomes insolvent), the Company has recorded
  the investment balance as a non-current asset and has established a
  corresponding other long-term liability entitled Deferred compensation
  obligation on the Consolidated Balance Sheets.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Allowance
  for Sales Returns and Credits  The Company records an allowance
  for credits related to possible returned or damaged product, markdowns and
  pricing and shipping discrepancies. The allowance is based on historical
  ratios of credit to sales, the historical average length of time between the
  sale and the credit, and other factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Allowance
  for Doubtful Accounts  The Company records an allowance
  for estimated uncollectible accounts receivable based on an evaluation of its
  accounts receivable balance. This evaluation includes a number of factors
  including the age of the receivable, the financial condition of the customer,
  the current business environment, and the historical collection experience
  for customers of similar background and nature.                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Inventories
   Inventories consist of raw materials, work-in-process and finished goods
  and are stated at the lower of average cost, which approximates first-in,
  first-out cost, or net realizable value. For product sourced from independent
  manufacturers, the Company records inventory at the date of taking title,
  which typically occurs when product is delivered to a foreign port. As a
  result, at certain times during the year, the Company has significant
  in-transit quantities, as inventory is sourced primarily from the Peoples
  Republic of China and other Pacific Rim countries. Each period, the Company
  adjusts identified excess and slow-moving inventory to its net realizable
  value.                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Property
  and Equipment Property and equipment are stated at cost.
  Depreciation is computed on a straight-line method over the estimated useful
  lives of the assets (or in the case of leasehold improvements, the shorter of
  the estimated useful lives or lease terms). Estimated useful lives of the
  Companys property and equipment are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |  |                                |             | 
| |  | ------------------------------ | ----------- | 
| |  | Leasehold improvements         | 7-10 years  | 
| |  | Furniture and fixtures         | 5-10 years  | 
| |  | Computer hardware and software | 2-5 years   | 
| |  | Tooling                        | 3-5 years   | 
| |  | Other equipment                | 3-10 years  | 
| |  | Building and improvements      | 20-45 years | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Major improvements and replacements of property are
  capitalized. Maintenance, repairs, and minor improvements are expensed.                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Long-Lived
  Assets  The Companys principal long-lived assets are its
  property and equipment which consists of its corporate headquarter buildings,
  its manufacturing facility, and the computer equipment, furniture and
  fixtures, machinery, and leasehold improvements at its corporate headquarter
  buildings, distribution centers, showrooms and retail stores. The Company
  reviews its long-lived assets for impairment whenever facts or circumstances
  indicate that the carrying amount may not be recoverable.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Goodwill,
  Trademarks, and Other Intangible Assets  Goodwill
  represents the excess of the cost of acquired businesses over the fair value
  of identifiable tangible net assets and identifiable intangible assets
  purchased. During 2006, the Company wrote off its remaining goodwill.                                                                                                                                                                                                                                       

F-9

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Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The primary identifiable intangible assets of the Company include trademarks, customer
relationships, favorable lease interests and non-compete agreements. Under the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets, identifiable intangibles with finite lives are amortized and those identifiable intangibles with indefinite
lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not
subject to amortization are tested for impairment annually or more frequently if events warrant. The impairment test consists of a
comparison of the fair value of the intangible asset with its carrying amount. During the fourth quarter of 2007, the Company
completed its annual impairment test and determined that no intangible asset had been impaired.                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Deferred Financing Fees  The Company amortizes deferred financing fees over the life
of the related debt agreement. Deferred financing fee amortization is included in interest expense in the Companys
Consolidated Statements of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Revenue Recognition  The Company sells its products through wholesale channels,
through Company-owned retail stores and directly to consumers. Revenue from sales to wholesale customers and from sales direct to
the consumer is recognized when product is shipped, while revenue from sales of merchandise to retail customers is recognized at
the time of sale. The Company believes that these are the times when persuasive evidence of an arrangement exists, delivery has
occurred, the Companys price is fixed and collectibility is reasonably assured. Revenue is recognized net of any applicable
discounts and allowances. Customers, whether wholesale, retail or direct, do have the right to return product in certain limited
situations. Such rights of return have not precluded revenue recognition because the Company has a long history with such returns
on which it constructs a reserve.                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Cost of Sales  The Companys cost of sales principally includes the cost of
product purchased from manufacturers, cost of manufactured product, inbound and outbound freight costs, duties, royalties, and
provisions for excess and obsolete product.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Selling, General and Administrative Expense  The Companys selling, general and
administrative expenses principally consist of expenses associated with the Companys wholesale sales force and retail
stores; costs to develop new product, product samples and sculpting costs, costs to purchase, receive, inspect and warehouse
certain product; corporate compensation and benefit expense; facilities expense; bad debt expense; marketing and advertising
expense; and other general and administrative expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Advertising
  Expense  The Company records advertising expense in
  accordance with Statement of Position No. 93-7 Reporting on Advertising Costs.
  Advertising expense is principally expensed when incurred. Certain direct
  response advertising costs are capitalized and amortized over periods not
  exceeding one year. Capitalized direct
  response advertising costs included on the Companys Consolidated Balance
  Sheets in other current assets for December 29, 2007 and December 30, 2006
  were $2,286 and $2,756, respectively. Advertising expense (including
  amortization of direct response advertising costs and Payments to Customers
  described below) for 2007, 2006, and 2005 was $44,979, $43,840, and $19,561,
  respectively. The significant increase in advertising expense for 2006
  compared to 2005 was due to the acquisition of Lenox in 2005. The 2006
  expense amount included twelve months of the Lenox business compared to four
  months in 2005. These amounts are included in selling, general and
  administrative expense within the Companys Consolidated Statements of
  Operations.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Payments
  to Customers  The Company reimburses certain customers for
  cooperative advertising based on pre-negotiated amounts or up to a
  pre-determined percentage of the amount of product shipped to the customer.
  Cooperative advertising costs under these programs are expensed when product
  is shipped to the customer. Cooperative advertising expense for 2007, 2006,
  and 2005 was $8,722, $9,939, and $4,711, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Product
  Development Expense  The Companys product development
  costs consist principally of salaries for internal creative talent, costs
  incurred in developing product samples, and royalties paid to outside
  artists. The Company expenses, as incurred, the salaries of creative talent
  and the cost to develop product samples and records these amounts in selling,
  general and administrative expense. The Company capitalizes into inventory
  the cost of royalties paid to outside artists and records it in cost of sales
  as the product is sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-10

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Freight
  Expense  Freight expenses for products shipped to
  customers (freight-out) are included in the cost of products sold, in
  accordance with Emerging Issues Task Force Issue No. 00-10, Accounting
  for Shipping and Handling Fees and Costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Pre-Opening
  Costs  Non-capital expenditures associated with opening
  new Company-operated retail stores are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Income
  Taxes  Deferred income taxes are recognized for the tax
  consequences in future years of differences between the tax bases of assets
  and liabilities and their financial reporting amounts at each year-end based
  on enacted tax laws and statutory tax rates applicable to the periods in
  which the differences are expected to affect taxable income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Foreign
  Currency Exchange Rate Gains and Losses  The Company
  imports most of its products and, while the majority of these purchases are
  denominated in United States dollars, some of the purchases are denominated
  in foreign currency. In addition, the Companys sales to Canadian customers
  are denominated in Canadian dollars. Foreign exchange rate gains and losses
  are included in selling, general and administrative expenses within the
  accompanying Consolidated Statements of Operations. The Company recognized a
  gain of $56 in 2007, a loss of $171 in 2006 and a gain of $181 in 2005. These
  gains and losses principally resulted from the depreciation/appreciation of
  the Canadian dollar relative to the United States dollar. The Company may
  periodically enter into foreign exchange contracts or build foreign currency
  deposits as a partial hedge against currency fluctuations. The Company has
  not entered into any foreign exchange contracts during 2007, 2006 or 2005.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Pension and Postretirement Benefits The Company sponsors various defined benefit
  pension plans as well as postretirement plans providing retiree health care
  and retiree life insurance benefits. Benefits are based on such factors as
  years of service and compensation level during employment. The benefits
  expected to be paid are expensed over the employees expected service. To
  determine the expected benefits to be paid, the Company has to make assumptions
  regarding interest rates, return on plan assets and expected health care
  trend rates. Actual experience different from these assumptions could result
  in materially different benefit payments.                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Environmental Matters In accordance with Statements of
  Position (SOP) 96-1, Environmental Remediation Liabilities,
  the Company measures its environmental liabilities on a discounted basis as
  the Company believes the amount and timing of cash payments for its
  liabilities are reliably determinable. Accruals for environmental liabilities
  are included in other noncurrent liabilities in the Consolidated Balance
  Sheets. See Note 18.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Stock-based compensation Effective January 1, 2006, the Company
  adopted SFAS No. 123R (revised 2004), Share-Based Payment (SFAS 123R), which
  revised SFAS No. 123, Accounting for Stock-Based Compensation
  (SFAS 123), and supersedes APB Opinion No. 25, Accounting for Stock Issued to
  Employees (APB 25). This standard requires compensation costs
  related to share-based payment transactions to be recognized in the financial
  statements. The Company adopted the standard using the modified prospective
  transition method, which requires the application of the accounting standard
  to all share-based awards issued on or after the date of adoption and any
  outstanding share-based awards that were issued but not vested as of the date
  of adoption. See Note 14.                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Fair
  Value of Financial Instruments The Companys financial
  instruments are cash, short-term investments, marketable securities, accounts
  receivable, accounts payable, borrowings on revolving credit facility and
  long-term debt. The recorded amounts of cash, marketable securities, accounts
  receivable, accounts payable and borrowings on the revolving credit facility
  approximate their fair value based on their short term nature. The recorded
  value of long term-debt approximates its fair market value as the Companys
  interest rates are variable and approximate market rates.                                                                                                                                                                                                                                                                                                                                                                                                                  

F-11

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Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Derivatives
  In July 2007, the
  Company entered into an interest rate collar agreement with a notional amount
  of $50 million to mitigate some of the Companys variable interest rate risk.
  Under the terms of the agreement, the Company receives a positive net
  settlement from the counterparty if the LIBOR rate (as defined) is greater
  than 6.5% on the settlement dates (as defined). If the LIBOR rate (as
  defined) is less than 4.32% on the settlement dates (as defined), the Company
  would be required to make a payment to the counterparty. The agreement does not
  qualify for hedge accounting under SFAS No. 133, Accounting for Derivative Instruments
  and Hedge Activities, as amended. As a result, all changes in fair
  value that have not been settled are recognized in current earnings.                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Net
  Income (Loss) per Common Share Net income (loss) per
  common share is calculated by dividing net income (loss) by the weighted
  average number of shares outstanding during the period. Net income (loss) per
  common share assuming dilution reflects per share amounts that would have
  resulted had the Companys dilutive outstanding stock options been converted
  to common stock. Restricted stock is considered outstanding on the date the
  stock becomes vested when computing net income (loss) per common share 
  basic. Restricted stock, to the extent it is probable that the stock will
  become vested, is considered outstanding on the grant date when computing net
  income (loss) per common share  assuming dilution. For the 52 weeks ended
  December 29, 2007 and December 30, 2006 all options and unvested restricted
  stock were considered anti-dilutive and excluded from the computation of
  common equivalent shares because the Company reported a net loss. See Note
  17.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Recently
  Adopted and Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Recently
  Adopted Accounting Standard -The Company adopted Financial
  Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income
  Taxes(FIN 48) at the beginning of fiscal year 2007. FIN 48
  prescribes a recognition threshold that a tax position is required to meet
  before being recognized in the financial statements and provides guidance on
  derecognition, measurement, classification, interest and penalties,
  accounting in interim periods, disclosure and transition issues. As a result
  of the implementation of FIN 48, the Company recognized a $1,475 increase to
  the liabilities for unrecognized tax benefits, an increase of $1,448 to
  deferred tax assets and a decrease of $27 to retained earnings in the first
  quarter of 2007.                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Recently
  Issued Accounting Standards -In September 2006, the FASB
  issued SFAS No. 157, Fair Value Measurements(SFAS 157) to
  establish a consistent framework for measuring fair value and expand
  disclosures on fair value measurements. The provisions of SFAS 157 are
  effective for fiscal years beginning after November 15, 2007. The Company is
  currently evaluating the effect that the adoption of SFAS 157 will have on
  its consolidated results of operations and financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In February 2007, the FASB issued Statement No. 159,
  The
  Fair Value Option for Financial Assets and Financial Liabilities
  (SFAS 159). SFAS No. 159 permits an entity, on a contract-by-contract
  basis, to make an irrevocable election to account for certain types of
  financial instruments and warranty and insurance contracts at fair value,
  rather than historical cost, with changes in the fair value, whether realized
  or unrealized, recognized in earnings. SFAS No. 159 is effective for the
  Company in the first quarter of fiscal 2009. The Company is currently
  assessing the impact that SFAS No. 159 will have on its results of
  operations, financial position, or cash flows.                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In December 2007, the FASB issued Statement No.
  141(R), Business
  Combinations (SFAS 141R). SFAS 141(R) established the principles
  and requirements for how the acquirer recognizes and measures in the
  financial statements the identifiable assets acquired, the liabilities
  assumed, and any noncontrolling interest in the acquiree. SFAS 141(R) also
  recognizes and measures the goodwill acquired in the business combination or
  the gains from bargain purchases. SFAS No. 141R is effective for the Company
  in the first quarter of fiscal 2010. The Company is currently assessing the
  impact that SFAS No. 141R will have on its results of operations, financial
  position, or cash flows.                                                                                                                                                                                                                                                                                                      

F-12

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Table of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | DISCONTINUED OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In October 2005, the Company committed to a plan to
  cease operations of its Time to Celebrate business. Time to Celebrate ceased
  operations in December 2005, and in accordance with SFAS No. 144, Accounting
  for the Impairment or Disposal of Long-Lived Assets(SFAS No.
  144),
  the Company has reclassified Time to Celebrates results into discontinued
  operations for all periods presented. Prior to being classified as
  discontinued operations, Time to Celebrates operating results had been
  presented in the retail reportable segment.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | As a result of the decision to cease Time to
  Celebrates operations, in 2005 the Company recognized a $594 charge within
  cost of sales to write-down inventory to its net realizable value.                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The results from Time to Celebrates operations were
  as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |                                                |  |         |        |                        |  |      |    | 
| | ---------------------------------------------- |  | ------- | ------ | ---------------------- |  | ---- | -- | 
| |                                                |  | 2005    |        |                       
| |                                                |  |         |        |                       
| |                                                |  | Dollars |        | Percent of
  Net Sales |  |     
| |                                                |  |         |        |                        |  |     
| |                                                |  |         |        |                        |  |      |    | 
| | Net sales                                      |  | $       | 2,038  |                        |  | 100  | %  | 
| | Gross profit                                   |  |         | (215   | )                      |  | (11  | )  | 
| | Selling, general
  and administrative expenses |  |         | 3,054  |                        |  | 150  |    | 
| |                                                |  |         |        |                        |  |      |    | 
| | Loss from operations                           |  |         | (3,269 | )                      |  | (160 | )  | 
| | Other expense                                  |  |         | 140    |                        |  | 7    |    | 
| |                                                |  |         |        |                        |  |      |    | 
| | Loss before income taxes                       |  |         | (3,409 | )                      |  | (167 | )  | 
| | Income tax benefit                             |  |         | 1,227  |                        |  | 60   |    | 
| |                                                |  |         |        |                        |  |      |    | 
| | Net loss                                       |  | $       | (2,182 | )                      |  | (107 | )% | 
| |                                                |  |         |        |                        |  |      |    | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3. | ACQUISITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Lenox
  Acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Effective September 1, 2005, the Company completed
  the acquisition of all of the capital stock of Lenox, Incorporated (Lenox)
  from Brown-Forman Corporation (the Acquisition) for $204,036, which
  included transaction costs of $7,559. The Acquisition added strong,
  market-leading brands and complementary product lines and distribution
  channels to the Companys portfolio including products sold under the Lenox,
  Dansk
  and Gorham
  brand names.                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Goodwill recorded as part of the initial purchase price allocation was $16,695 at December 31,
2005. During the first eight months of 2006, finalization of the purchase price allocation resulted in adjustments of $1,500,
which increased this amount to $18,195. The $1,500 increase in goodwill was primarily due to further adjustments of preliminary
valuations of the acquired tangible assets and assumed liabilities. In the fourth quarter of 2006, the Company recognized a
goodwill impairment charge of $18,195 as a result of lower than projected sales and profits from the Lenox wholesale reporting
unit as compared to that which was originally projected at the date of the Acquisition.                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Willitts
  Acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Effective May 1, 2006, the Company completed its
  acquisition of certain assets and the assumption of certain liabilities of
  Willitts, a California-based designer and wholesaler of collectible and home
  décor products. The acquisition of the Willitts product lines, which include Thomas
  Blackshears Ebony Visions and Possible Dreams, added a broad range of
  diversity and contemporary expression to the Companys product portfolio. The
  cash purchase price, which was based primarily upon the historical cost of
  the assets acquired less the obligations assumed as of the closing date, was
  $2,849. The results of operations from the acquired net assets since the
  acquisition date have been included in the Companys consolidated financial
  statements and are not considered material.

F-13

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Table of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | Of the $2,849 cash purchase price, $1,211 was
  allocated to indefinite-lived trademarks and the remaining $1,638 was
  allocated to tangible assets purchased net of assumed liabilities. During
  2007, finalization of the purchase price allocation resulted in an additional
  increase of $127 to indefinite-lived trademarks and a decrease of $127 to
  tangible assets. During 2007, the Company also paid or accrued an additional
  $1,373 in earnout payments to Willitts for achieving certain performance
  thresholds. These earnout payments resulted in an increase in
  indefinite-lived trademarks of $1,022 and an increase in other assets of
  $351. The Company may be required to make additional earnout payments
  contingent on performance in 2008 and 2009.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4. | INVENTORIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Inventories from continuing
  operations were comprised of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |  |                   |  |                     |        |                     |   |         |  | 
| |  | ----------------- |  | ------------------- | ------ | ------------------- | - | ------- |  | 
| |  |                   |  | December 29,
  2007 |        | December 30,
  2006 |   |        
| |  |                   |  |                     |        |                     |   |         |  | 
| |  |                   |  |                     |        |                     |   |         |  | 
| |  | Raw materials     |  | $                   | 2,655  |                     | $ | 3,925   |  | 
| |  | Work-in-process   |  |                     | 3,925  |                     |   | 4,793   |  | 
| |  | Finished goods    |  |                     | 77,835 |                     |   | 93,207  |  | 
| |  |                   |  |                     |        |                     |   |         |  | 
| |  | Total inventories |  | $                   | 84,415 |                     | $ | 101,925 |  | 
| |  |                   |  |                     |        |                     |   |         |  | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | Certain of the Companys flatware and giftware manufacturing processes utilized fine silver as its principal
raw material. The Company had a precious metals consignment arrangement with a major financial institution whereby the Company had
the ability to obtain up to $9,000 in consigned inventory to use in the manufacture of such products. As required by the terms of
the consignment agreement, the Company did not take title to consigned inventory until product was sold. Accordingly, the Company
did not include the value of consigned inventory or the corresponding liability in the financial statements. The value of
consigned inventory as of December 29, 2007, December 30, 2006 and December 31, 2005 was $0, $5,604 and $3,842, respectively.
Additionally, the Company expensed consignment fees related to this agreement of $580, $309 and $93 for the 52 weeks ended
December 29, 2007, December 30, 2006 and December 31, 2005, respectively.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company received notice from the financial
  institution with which it had its precious metals consignment arrangement
  that such institution was terminating, and did terminate, the consignment
  facility, effective May 16, 2007. The Company purchased the remaining
  outstanding silver balance at a cost of $4,617 on May 16, 2007. During July
  2007 the Company sold its sterling silver product line and its entire related
  sterling silver inventory. See Note 6 to the Condensed Consolidated Financial
  Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|5. | PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Property and equipment at December 29, 2007 and
  December 30, 2006 is comprised of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                  |  |      |        |      |   |        | 
| | -------------------------------- |  | ---- | ------ | ---- | - | ------ | 
| |                                  |  | 2007 |        | 2006 |  
| |                                  |  |      |        |      |  
| |                                  |  |      |        |      |   |        | 
| | Land                             |  | $    | 1,666  |      | $ | 1,666  | 
| | Leasehold
  improvements         |  |      | 13,352 |      |   | 13,123 | 
| | Furniture and
  fixtures         |  |      | 9,385  |      |   | 9,810  | 
| | Computer
  hardware and software |  |      | 21,450 |      |   | 19,647 | 
| | Tooling                          |  |      | 1,852  |      |   | 1,391  | 
| | Other equipment                  |  |      | 21,998 |      |   | 23,068 | 
| | Building and
  improvements      |  |      | 14,126 |      |   | 14,061 | 
| | Construction in
  process        |  |      | 3,342  |      |   | 1,859  | 
| |                                  |  |      |        |      |   |        | 
| |                                  |  |      | 87,171 |      |   | 84,625 | 
| | Less accumulated
  depreciation  |  |      | 45,184 |      |   | 35,154 | 
| |                                  |  |      |        |      |   |        | 
| | Property and equipment, net      |  | $    | 41,987 |      | $ | 49,471 | 
| |                                  |  |      |        |      |   |        | 

F-14

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Table of Contents

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | The Company had accrued property and equipment
  purchases at December 29, 2007 and December 30, 2006 of $615 and $1,203,
  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|6. | ASSETS SOLD                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | In the second quarter of 2006,
  the Company sold its Langhorne, PA facility for $9,899, net of closing costs.
  As these assets, including land and building, were recently purchased as part
  of the acquisition of Lenox, no gain or loss was recognized. In the fourth
  quarter of 2006, the Company sold its Pomona facility for $6,572, net of
  closing costs and recognized a $1,085 gain. The Company has leased back a
  portion of the Langhorne, PA facility for office, warehousing, distribution
  and retail space. The term of the original lease was through June, 2008. On
  July 31, 2007, the Company extended the term of the original lease through
  June 30, 2013 and leased additional square footage of warehousing space. The
  Company has also leased back square footage at the Pomona facility to
  continue various operations which include a retail lease (term of the lease
  is through December 2011), space for the manufacturing of sterling silver
  products (term of the lease was through December 2007), space for its
  technical center (term of the lease was through June 2007) and space for
  customer service offices (term of the lease is through June 2008). These
  leasebacks are considered minor as defined by SFAS No. 28, Accounting
  for Sales with Leasebacks(SFAS No 28).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | In the fourth quarter of 2006,
  the Company sold its Hagerstown, MD facility for net proceeds of $26,267, net
  of closing costs. The Company has leased back space for its distribution
  center for a non-terminable primary term of 15 years. The Company will also
  be responsible for all operating expenses including taxes and insurance on
  the property and the cost of services, repairs, maintenance and replacements
  to the property. The Company recognized a gain of $4,120 on the sale of the
  facility. $275 of this deferred gain was recorded in other current
  liabilities and $3,845 was recorded in deferred gain on sale-leaseback in
  noncurrent liabilities on the Consolidated Balance Sheets. In accordance with
  SFAS No. 13, Accounting for Leases, and SFAS No. 28, the Company has
  deferred this gain and will recognize it over the period of the leaseback.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | On July 19, 2007, the Company entered into an Asset
  Purchase Agreement (the Sale Agreement) with Lifetime Brands, Inc.
  (Lifetime) for the sale of certain assets of the Companys sterling silver
  flatware and sterling silver giftware business conducted primarily under the Gorham
  and Kirk
  Stieff brand names. Simultaneously with the execution of the Sale
  Agreement by the parties, the Company closed on this transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The purchase price paid by Lifetime was $8,775,
  subject to a post closing adjustment based on the price and quantity of
  silver transferred at closing. At closing, the Company received an initial
  payment of $8,525 and $250 was transferred to an escrow account for a
  six-month period ended January 2008. On August 2, 2007, the parties agreed to
  a price adjustment reduction of $255 based on the quantity of silver actually
  transferred at closing and the price of silver. Accordingly, the net purchase
  price was $8,520. The Company transferred title to sterling silver finished
  goods inventory, work in process, raw materials, samples, selective pieces of
  machinery and equipment, books and records and pattern trademarks and
  copyrights associated with sterling silver products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | In addition, the Company granted a long-term
  exclusive license to Lifetime to utilize the Gorham, Kirk Stieff, Whiting and Durgin
  brands on and in connection with sterling silver products. The Company has
  retained all rights to utilize these brands on non-sterling silver products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company recorded a pre-tax gain of $437 which is
  included in Operating Expenses on the Condensed Consolidated Statement of
  Operations. The Company has ceased its sterling silver operations at its
  leased space in Pomona, NJ and surrendered its space to its landlord in
  January, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-15

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Table of Contents

|   |                                         
|-- | ----------------------------------------
|7. | TRADEMARKS
  AND OTHER INTANGIBLE ASSETS

Intangible
assets, other than goodwill, are comprised of the following:

|                                  |  |                           |         |                            |   |         |   |                           |         |                            |   |         |  |   |         |   |   |         | 
|--------------------------------- |  | ------------------------- | ------- | -------------------------- | - | ------- | - | ------------------------- | ------- | -------------------------- | - | ------- |  | - | ------- | - | - | ------- | 
|                                  |  | December 30, 2007         |         | December 31, 2006          |  
|                                  |  |                           |         |                            |  
|                                  |  | Gross
  carrying
  amount |         | Accumulated
  amortization |   | Net     |   | Gross
  carrying
  amount |         | Accumulated
  amortization |   | Net     | 
|                                  |  |                           |         |                            |   |         |   |                           |         |                            |   |         | 
|Finite-life intangible assets     |  |                           |         |                            |   |         |   |                           |         |                            |   |         |  |   |         |   |   |         | 
|Customer
  relationships          |  | $                         | 15,300  |                            | $ | (3,854  | ) | $                         | 11,446  |                            | $ | 15,300  |  | $ | (2,202  | ) | $ | 13,098  | 
|Favorable
  lease interests       |  |                           | 2,542   |                            |   | (2,238  | ) |                           | 304     |                            |   | 2,542   |  |   | (1,881  | ) |   | 661     | 
|Non-compete
  agreements          |  |                           | 2,705   |                            |   | (2,471  | ) |                           | 234     |                            |   | 2,705   |  |   | (2,329  | ) |   | 376     | 
|                                  |  |                           |         |                            |   |         |   |                           |         |                            |   |         |  |   |         |   |   |         | 
|Other intangibles, net            |  |                           | 20,547  |                            |   | (8,563  | ) |                           | 11,984  |                            |   | 20,547  |  |   | (6,412  | ) |   | 14,135  | 
|Indefinite-life intangible assets |  |                           |         |                            |   |         |   |                           |         |                            |   |         |  |   |         |   |   |         | 
|Trademarks                        |  |                           | 124,080 |                            |   | (4,139  | ) |                           | 119,941 |                            |   | 123,578 |  |   | (4,139  | ) |   | 119,439 | 
|                                  |  |                           |         |                            |   |         |   |                           |         |                            |   |         |  |   |         |   |   |         | 
|Total intangibles                 |  | $                         | 144,627 |                            | $ | (12,702 | ) | $                         | 131,925 |                            | $ | 144,125 |  | $ | (10,551 | ) | $ | 133,574 | 
|                                  |  |                           |         |                            |   |         |   |                           |         |                            |   |         |  |   |         |   |   |         | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2007,
  finalization of the purchase price allocation related to the Willitts
  acquisition resulted in an additional increase of $127 to indefinite-lived
  trademarks and a decrease of $127 to tangible assets. During 2007, the
  Company also paid or accrued additional earnout payments to Willitts for
  achieving certain performance thresholds. These earnout payments resulted
  in an increase in indefinite-lived trademarks of $1,022. See Note 3.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | During the
  second quarter of 2007, as part of the sale of certain of the Gorham sterling
  silver assets, the Company evaluated the Gorham trademark. Based on the
  results of this evaluation, the Company determined that $647 of
  indefinite-life trademarks were to be included as part of the sale
  transaction that took place in the third quarter.                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | In the
  fourth quarter of 2006, the Company recognized a trademark impairment of $3,743
  related to lower than projected sales of Dansk and Gorham product from that
  estimated at the time of the original purchase price allocation. In
  determining the fair value of its trademarks, the Company applies the income
  approach, using the relief from royalty method.                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Intangible
  asset amortization expense for the years ended December 29, 2007, December
  30, 2006 and December 31, 2005 was $2,151, $2,902 and $1,460, respectively.
  Expected future amortization expense for finite-lived intangible assets is as
  follows:                                                                                                                                                                                                            

|           |  |   |        | 
|---------- |  | - | ------ | 
|2008       |  | $ | 1,938  | 
|2009       |  |   | 1,846  | 
|2010       |  |   | 1,560  | 
|2011       |  |   | 1,242  | 
|2012       |  |   | 1,232  | 
|Thereafter |  |   | 4,166  | 
|           |  |   |        | 
|           |  | $ | 11,984 | 
|           |  |   |        | 

The above
amortization expense forecast is an estimate. Actual amounts of amortization
expense may differ from estimated amounts due to additional intangible asset
acquisitions, impairment of intangible assets, accelerated amortization of
intangible assets and other events.

F-16

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Table of Contents

|   |     
|-- | ----
|8. | DEBT

Debt
is comprised of the following:

|                                                                         |  |                                               |   |                     |       |                     |         |   |            |  |         |        |  |   |        | 
|------------------------------------------------------------------------ |  | --------------------------------------------- | - | ------------------- | ----- | ------------------- | ------- | - | ---------- |  | ------- | ------ |  | - | ------ | 
|                                                                         |  | Average interest
  rate
  December 29,
  2007 |   | December 29,
  2007 |       | December 30,
  2006 |        
|                                                                         |  |                                               |   |                     |       |                     |        
|                                                                         |  |                                               |   |                     | Total |                     | Current |   | Noncurrent |  | Current |       
|                                                                         |  |                                               |   |                     |       |                     |         |   |            |  |        
|Revolving credit facility                                                |  | 7.50                                          | % |                     | $     | 8,938               |         | $ | 8,938      |  | $       |       |  | $ | 47,510 | 
|Note payable to Maryland Department of Business and Economic
Development |  | 3                                             | % |                     |       | 150                 |         |   |           |  |         | 150    |  |   | 150    | 
|Note payable to the County Commissioners of Washington County,
Maryland  |  | 0                                             | % |                     |       | 100                 |         |   |           |  |         | 100    |  |   | 100    | 
|Term loan facility                                                       |  | 9.56                                          | % |                     |       | 99,500              |         |   | 1,250      |  |         | 98,250 |  |   | 48,806 | 
|                                                                         |  |                                               |   |                     |       |                     |         |   |            |  |        
|Total debt                                                               |  |                                               |   |                     | $     | 108,688             |         | $ | 10,188     |  | $       | 98,500 |  | $ | 96,566 | 
|                                                                         |  |                                               |   |                     |       |                     |         |   |            |  |         |       

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The note
  payable to the Maryland Department of Business and Economic Development is a
  conditional promissory note that accrues interest at 3% per year. As of
  December 30, 2006, the Company had not achieved the employment levels
  required to qualify for full or partial debt forgiveness under the previous
  terms and classified the entire note payable as a current liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | On January
  2, 2008 the terms of the original agreement were amended under the First
  Modification to Loan Agreement and Promissory Note, effective December 31,
  2006. This amendment deferred principal and interest payments until December
  31, 2008 and thereafter made them subject to multiple maturity dates as
  determined by the Companys employment levels at the Hagerstown, Maryland
  distribution facility. The amendment also required the Company to make a
  minimum capital contribution to the distribution facility by December 31,
  2008. If the Company meets certain employment levels, measured at December 31st
  of each year starting December 31, 2008 through December 31, 2013 and expends
  the capital contribution as defined in the modification to the agreement, the
  note may be fully or partially forgiven. The Company expects to meet the
  amended terms to allow for deferral of principal and interest payments
  through its next fiscal year. Accordingly, the note was classified as
  noncurrent long-term debt as of December 29, 2007.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The note
  payable to the County Commissioners of Washington County, Maryland is a
  conditional grant agreement that bears no interest charges. As of December
  30, 2006, the Company had not achieved the employment levels required to qualify
  for full or partial debt forgiveness under the terms the original agreement
  and classified the entire note payable as a current liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | On January
  2, 2008 the terms of the original agreement were amended under the First
  Modification to Loan Agreement and Promissory Note, effective December 31,
  2006. This amendment deferred principal and interest payments until December
  31, 2008 and thereafter made them subject to multiple maturity dates as
  determined by the Companys employment levels at the Hagerstown, Maryland
  distribution facility. The amendment also required the Company to make a
  minimum capital contribution to the distribution facility by December 31,
  2008. If the Company meets certain employment levels, measured at December 31st
  of each year starting December 31, 2008 through December 31, 2013 and expends
  the capital contribution as defined in the modification to the agreement, the
  note may be fully or partially forgiven. The Company expects to meet the
  amended terms to allow for deferral of principal and interest payments
  through its next fiscal year. Accordingly, the note was classified as
  noncurrent long-term debt as of December 29, 2007.

F-17

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Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On February
  9, 2007, the Company entered into waivers and amendments to its revolving
  credit facility and term loan credit facility (the credit facilities) in
  connection with the Companys noncompliance with certain financial covenants
  under the credit facilities for the period ended December 30, 2006. Pursuant
  to the waivers and amendments, the lenders granted the Company a limited
  waiver of noncompliance through and including April 30, 2007, and temporarily
  amended the agreements to adjust the leverage ratio and interest coverage
  ratio levels for the first quarter of 2007. In addition, the amendment to the
  term loan facility increased the applicable margin for loans by 0.25% per
  annum. As consideration for the amendments, the Company paid amendment fees
  of $0.2 million.                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | On April 20,
  2007, the Company completed the refinancing of its credit facilities by
  entering into amended and restated revolving and term loan facilities. The
  amended and restated revolving credit facility, which expires on April 20,
  2012, provides for borrowings up to $175 million, which may be in the form of
  letters of credit and revolving credit loans to be used for working capital
  and general corporate purposes. The amended and restated term loan facility,
  which expires on April 20, 2013, provides for term loans in the aggregate
  principal amount of up to $100 million. The Company used the proceeds of the
  amended and restated term loan facility to refinance the $47.4 million of
  term debt outstanding and $42.2 million of the revolver debt outstanding at
  April 20, 2007, to pay $1.2 million of accrued interest and fees payable
  under the existing credit facilities and to pay $9.2 million of fees and
  expenses in connection with the refinancing.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Total fees
  and expenses incurred by the Company in connection with the refinancing were
  $9.7 million (inclusive of the $9.2 million paid out of the proceeds of the
  amended and restated term loan facility), of which $7.0 million was
  capitalized and $2.7 million was included as loss on refinancing of debt
  during the second quarter of 2007 in accordance with EITF 98-14, Debtors Accounting for Changes in Line-of-Credit
  or Revolving-Debt Arrangements, and EITF 96-19, Debtors Accounting for a Modification or Exchange
  of Debt Instruments.. Based on these same criteria, the Company
  recognized an additional $3.2 million loss on refinancing of debt during the
  second quarter of 2007 to write-off portions of the previously capitalized
  loan costs.                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Borrowings
  under the amended and restated revolving credit facility are subject to
  certain borrowing base limitations, and the Companys borrowing capacity
  fluctuates during the year based upon accounts receivable and inventory
  levels. As of December 29, 2007, the Companys borrowing capacity under the
  amended and restated revolving credit facility was $82.5 million. There were
  $8.9 million in borrowings outstanding under the revolver and $6.7 million in
  outstanding letters of credit at December 29, 2007, leaving $66.9 million available
  for additional borrowings or letters of credit.                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The amended
  and restated credit facilities are secured by a first-priority lien on
  substantially all of the real and personal property of the Company. In
  addition, the Company has pledged the common stock of its subsidiaries,
  direct and indirect, as collateral under the amended and restated credit
  facilities, and the Company and its material subsidiaries, direct and
  indirect, have guaranteed repayment of amounts borrowed under the amended and
  restated credit facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The amended
  and restated revolving credit facility allows the Company to choose between
  two interest rate options in connection with its revolving credit loans. The
  interest rate options are the Alternate Base Rate (as defined) or the
  Adjusted LIBOR Rate (as defined) plus an applicable margin. The applicable
  margin ranges from 0% to 0.5% for Alternate Base Rate loans and from 1.75% to
  2.25% for Adjusted LIBOR Rate loans. The amended and restated revolving
  credit facility also provides for commitment fees of 0.375% per annum on the
  daily average of the unused commitment.                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The amended
  and restated term loan facility allows the Company to choose between two
  interest rate options in connection with its loans under the facility. The
  interest rate options are the Alternate Base Rate (as defined) or the
  Adjusted LIBOR Rate (as defined) plus an applicable margin. The applicable
  margin is 3.5% for Alternate Base Rate loans and 4.5% for Adjusted LIBOR Rate
  loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Under the amended and restated term loan facility, the Company is also obligated to make mandatory
prepayments if certain events occur in the future such as certain asset sales, additional debt issuances, common and preferred
stock issuances, and excess cash flow generation. Such prepayments will be applied to the term loan until it is paid in full,
except for prepayments occurring upon the sale of designated revolving loan collateral, which will be applied to the revolving
loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-18

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Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The amended and restated credit facilities contain customary financial conditions and covenants,
including restrictions on additional indebtedness, liens, investments, capital expenditures, issuances of capital stock and
dividends. The amended and restated credit facilities also require maintenance of minimum levels of fixed charge coverage and
maximum levels of leverage, in each case at the end of each fiscal quarter. The minimum fixed charge coverage ratio (as defined
within the credit facility agreements) requires the Company to maintain a minimum ratio of Consolidated EBITDA (as defined within
the credit facility agreements) to Consolidated Fixed Charges (as defined within the credit facility agreements) over a 12-month
period ending on each fiscal quarter. The minimum ratio to be maintained at each quarter-end over the term of the facilities is
defined within the credit facility agreements (as amended) and ranges from 0.9:1.0 to 1.3:1.0.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The maximum
  leverage ratio (as defined within the term credit facility agreement)
  requires the Company to maintain a maximum ratio of debt (as measured at the
  end of each fiscal quarter) to Consolidated EBITDA over a 12-month period
  ending on each fiscal quarter. The maximum leverage ratio to be maintained at
  each quarter-end over the term of the facilities is defined within the credit
  facility agreements (as amended) and ranges from 2.75:1.0 to 6.75:1.0. As of
  December 29, 2007, the Companys fixed charge coverage ratio was 1.24:1.0
  (compared to the minimum allowed for the period of 0.9:1.0), and the leverage
  ratio was 4.3:1.0 (compared to the maximum allowed for the period of
  5.5:1.0).                                                                                                                                                                                                                                                

F-19

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Table of Contents

| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | The contractual
  maturity of the Companys $99,500 term loan facility on December 29, 2007 is
  as follows:

|     |  |                          |        | 
|---- |  | ------------------------ | ------ | 
|Year |  | Contractual
  Maturities |       
|     |  |                          |       
|2008 |  | $                        | 1,250  | 
|2009 |  |                          | 1,000  | 
|2010 |  |                          | 1,000  | 
|2011 |  |                          | 1,000  | 
|2012 |  |                          | 750    | 
|2013 |  |                          | 94,500 | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | As of December 30,
  2006, the Company classified the entire principal amount of its term debt as
  a current liability on the Consolidated Balance Sheets as its noncompliance
  with the financial covenants as described above allowed the debt to be called
  by the term lenders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In
  July 2007, the Company entered into an interest rate collar agreement with a
  notional amount of $50 million to mitigate some of the Companys variable
  interest rate risk. Under the terms of the agreement, the Company receives a
  positive net settlement from the counterparty if the LIBOR rate (as defined)
  is greater than 6.5% on the settlement dates (as defined). If the LIBOR rate
  (as defined) is less than 4.32% on the settlement dates (as defined), the
  Company would be required to make a payment to the counterparty. The interest
  rate collar agreement expires on July 26, 2010.                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company paid
  interest of $21,937, $14,706, and $15,255 during the years ended December 29,
  2007, December 30, 2006, and January 31, 2005, respectively. Interest paid in
  2007 and 2006 included payments of deferred financing fees of $9,685 and
  $397, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|9. | SEVERANCE AND RESTRUCTURING COSTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In connection with the Acquisition, the Company assumed severance reserves related to plant
closings, retail store closings and general restructurings that took place prior to the Acquisition.. At September 1, 2005, the
Acquisition date, the Company accrued additional amounts related to an additional plant closing, retail store closings and general
restructurings that were planned as part of the Acquisition. As of December 29, 2007, the severance and restructuring activities
recorded at the time of the Acquisition have been completed. The total amount incurred was $15.0 million of which $14.4 million
was recorded to goodwill on the opening balance sheet and $0.6 million was recorded in Selling, General and Administrative expense
in the Consolidated Statement of Operations in the fourth quarter of 2006 and first quarter of 2007, in the Companys
Corporate segment.                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During the first quarter of 2007, the Company engaged Carl Marks Advisory Group LLC to identify
and implement business improvements and operational changes. Restructuring activities initiated during 2007 included the
announcement of the planned closing of the Companys distribution center located in Rogers, MN in late 2007 (with
distribution activities to be transferred to the Companys distribution center located in Hagerstown, MD), the sale of the
Companys sterling silver product line and closure of the Companys sterling silver manufacturing facility located in
Pomona, NJ and changes in and consolidation of our management and operations structure (described as general restructuring below).
The Company incurred $9,540 of severance and restructuring costs related to these activities in 2007. These costs were included in
the restructuring charges in the Condensed Consolidated Statement of Operations.

F-20

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| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | The table below shows a
  reconciliation of the severance and restructuring reserve activity for 2007:

|                           |  |                                           |      |                       |   |           |                |       |        |   |   |        |   |   |        |  
|-------------------------- |  | ----------------------------------------- | ---- | --------------------- | - | --------- | -------------- | ----- | ------ | - | - | ------ | - | - | ------ | -
|                           |  | Plant and Distribution 
  Center Closings |      | General Restructuring |   |           | Total Reserves |      
|                           |  |                                           |      |                       |   |           |                |      
|                           |  | Severance                                 |      | Other                 |   | Severance |                | Other |        |   |   |       
|                           |  |                                           |      |                       |   |           |                |       |        |   |   |       
|Balance, December 30, 2006 |  | $                                         | 7    |                       | $ | 1,001     |                | $     | 931    |   | $ |       |   | $ | 1,939  |  
|Cost incurred              |  |                                           | 838  |                       |   | 1,622     |                |       | 6,024  |   |   | 1,056  |   |   | 9,540  |  
|Payment and other          |  |                                           | (141 | )                     |   | (2,356    | )              |       | (5,210 | ) |   | (1,016 | ) |   | (8,723 | )
|                           |  |                                           |      |                       |   |           |                |       |        |   |   |        |   |   |        |  
|Balance, December 29, 2007 |  | $                                         | 704  |                       | $ | 267       |                | $     | 1,745  |   | $ | 40     |   | $ | 2,756  |  
|                           |  |                                           |      |                       |   |           |                |       |        |   |   |        |   |   |        |  

| |                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  Company believes that the severance and restructuring activities initiated
  during 2007 will be substantially completed by March 2008. The total
  estimated costs expected to be incurred related to the plant and distribution
  center closings and the general restructuring that were initiated during 2007
  were as follows:

|                                         |  |                        |        |                                                         |   |       | 
|---------------------------------------- |  | ---------------------- | ------ | ------------------------------------------------------- | - | ----- | 
|                                         |  | Total Costs
  Expected |        | Costs
  Incurred 52
  weeks ended
  December 29,
  2007 |  
|                                         |  |                        |        |                                                         |  
|Plant and Distribution Center
  Closings |  | $                      | 3,510  |                                                         | $ | 2,460 | 
|General Restructuring                    |  |                        | 7,095  |                                                         |   | 7,080 | 
|                                         |  |                        |        |                                                         |   |       | 
|Total                                    |  | $                      | 10,605 |                                                         | $ | 9,540 | 
|                                         |  |                        |        |                                                         |   |       | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  costs incurred during 2007 with respect to plant and distribution center
  closings were principally severance and exit costs associated with the
  closure of the Companys sterling silver manufacturing facility and the
  closing of the Companys Rogers, MN distribution facility. The additional
  general restructuring costs related primarily to severance and lease
  termination costs including severance related to the departure of the
  Companys former Chief Executive Officer in January 2007.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | These costs are allocable to
  reportable segments as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|          |  |                        |        |                                                         |   |       | 
|--------- |  | ---------------------- | ------ | ------------------------------------------------------- | - | ----- | 
|          |  | Total Costs
  Expected |        | Costs
  Incurred 52
  weeks ended
  December 29,
  2007 |  
|          |  |                        |        |                                                         |  
|Wholesale |  | $                      | 542    |                                                         | $ | 542   | 
|Retail    |  |                        | 1,213  |                                                         |   | 1,198 | 
|Direct    |  |                        | 213    |                                                         |   | 213   | 
|Corporate |  |                        | 8,637  |                                                         |   | 7,587 | 
|          |  |                        |        |                                                         |   |       | 
|Total     |  | $                      | 10,605 |                                                         | $ | 9,540 | 
|          |  |                        |        |                                                         |   |       | 

F-21

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | BENEFIT PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Pension
and Postretirement benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company has various
  defined benefit pension plans and postretirement health care plans providing
  retirement and health care benefits (and related assets associated with the
  plans). The following discussion provides information about the Companys
  obligations related to these plans, the assets dedicated to meeting the
  obligations, and the amounts the Company recognized in its financial
  statements as a result of sponsoring these plans. The Company used its fiscal
  year end as the measurement date to determine the amounts of the plan
  obligations and assets presented below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Curtailment,
  Plan Amendment and Settlement Gains                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | On October 31, 2006,
  the Company announced the freeze of the Companys defined benefit pension
  plans as of December 31, 2006. As a result of the freeze, employees no longer
  accrued additional benefits under the defined benefit pension plans after
  December 31, 2006. Because of this change, the Companys pension obligation
  was significantly reduced because benefits payable to employees no longer
  incorporated future compensation increases. In accordance with SFAS No. 88
  (as amended) Employers Accounting for Settlements and Curtailments of Defined
  Benefit Pension Plans and for Termination Benefits (SFAS 88),
  the Company accounted for this suspension as a plan curtailment, re-measured
  its assets and obligations as of October 31, 2006, and recognized a
  curtailment gain of $13,188.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | On October 31, 2006, the Company also announced the discontinuation of eligibility for
postretirement welfare benefits for employees who were not retired as of December 31, 2006. In accordance with SFAS No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions (SFAS 106), the Company accounted
for this discontinuation as a negative plan amendment, re-measured its obligations as of October 31, 2006, and reflected a
negative prior service cost which is being amortized into net periodic benefit cost over the expected remaining lifetime of the
post-amendment population. Because the benefits payable under the postretirement welfare plan were not related to future
compensation increases, there was no plan curtailment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | In the fourth quarter
  of the Companys 2006 fiscal year, the Company recorded a plan settlement as
  a result of significant lump-sum cash payments made to employees from one of
  its defined benefit pension plans. Under SFAS 88, a plan settlement is
  defined as a transaction that (a) is an irrevocable action, (b) relieves the
  employer (or the plan) of primary responsibility for a pension benefit
  obligation, and (c) eliminates significant risks related to the obligation
  and the assets used to effect the settlement. In accordance with SFAS 88, the
  Company recorded a gain of $1,595 which was a pro-rata portion of the
  unrecognized net actuarial gain at the time of the settlement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | During the third quarter of the Companys 2007 fiscal year, the Company announced that it is discontinuing
post-65 retiree medical and life insurance coverage for all current participants (except for eight retirees and their dependents
which have individual agreements with the Company) effective September 1, 2007. In accordance with SFAS No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions, the Company accounted for this
discontinuation as a negative plan amendment, remeasured its obligation as of August 31, 2007, and reflected a negative prior
service cost which is being amortized into net periodic benefit cost over the expected remaining lifetime of the post-amendment
population.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Adoption
  of SFAS 158                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | On December 30, 2006, the Company adopted the recognition and disclosure provisions of SFAS 158
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158) SFAS 158
required the Company to recognize the funded status (i.e. the difference between the fair value of plan assets and the projected
benefit obligations) of its pension and postretirement health care plans in the December 30, 2006 statement of financial position,
with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment to accumulated other
comprehensive income at adoption represented the net unrecognized actuarial gains and prior service costs which were previously
netted against the plans funded status in the Companys statement of financial position pursuant to the provisions of
SFAS 87. These amounts are being recognized as net periodic benefit costs pursuant to the Companys historical accounting
policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as
net periodic benefit cost in the same periods will be recognized as a component of other comprehensive income. Those amounts are
being recognized as a component of net periodic benefit cost on the same basis as the amounts recognized in accumulated other
comprehensive income at adoption of SFAS 158.

F-22

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 30, 2006, the Company also early adopted the measurement date provisions of SFAS 158
which requires the Company to measure plan assets and benefit obligations as of the date of its fiscal year-end statement of
financial position. Accordingly, the Company used a measurement date of December 30, 2006 to determine the amounts of the plan
obligations and assets presented below. Under the transition provisions of SFAS 158, net periodic benefit cost for the period
between the measurement date that is used for the immediately preceding fiscal year-end (i.e. the Companys measurement date
that was used for its fiscal year ended December 31, 2005 was September 30, 2005) and the beginning of the fiscal year that the
measurement date provisions are applied (i.e. January 1, 2006) was recognized, net of tax, as a separate adjustment to retained
earnings.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The incremental effects
  of adopting the provisions of SFAS 158 on the Companys statement of
  financial position at December 30, 2006 are presented in the following table.
  The adoption of SFAS 158 had no effect on the Companys consolidated
  statement of operations for the year ended December 30, 2006, or for any
  prior period presented, and it will not effect the Companys operating
  results in future periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                       |  |                            |         |                             |   |                                  |   |   |         | 
|-------------------------------------- |  | -------------------------- | ------- | --------------------------- | - | -------------------------------- | - | - | ------- | 
|                                       |  | Prior to Adopting SFAS 158 |         | Effect of Adopting SFAS 158 |   | As Reported at December 30, 2006 |  
|                                       |  |                            |         |                             |   |                                  |  
|                                       |  |                            |         |                             |   |                                  |   |   |         | 
|Pension obligations, net of assets     |  | $                          | 63,217  |                             | $ | (31,924                          | ) | $ | 31,293  | 
|Postretirement obligations             |  |                            | 29,270  |                             |   | (12,164                          | ) |   | 17,106  | 
|Deferred income tax liability          |  |                            | 1,544   |                             |   | 17,404                           |   |   | 18,948  | 
|Retained earnings                      |  |                            | 267,215 |                             |   | (1,062                           | ) |   | 266,153 | 
|Accumulated other comprehensive income |  |                            | (4      | )                           |   | 28,397                           |   |   | 28,393  | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | We
  provide eligible employees with pension and other postretirement benefits
  based on such factors as years of service and compensation level during
  employment. The pension obligation shown below consists of benefits earned by
  employees to date based on current salary levels (accumulated benefit
  obligation). This table shows how the present value of our obligation
  changed from the beginning of the Companys fiscal year to the end of the
  Companys fiscal year.

|                                             |  |                        |         |                                           |   |                        |   |                                           |         |   |   |        |  
|-------------------------------------------- |  | ---------------------- | ------- | ----------------------------------------- | - | ---------------------- | - | ----------------------------------------- | ------- | - | - | ------ | -
|                                             |  | PensionBenefitsFY 2007 |         | Medical and LifeInsurance BenefitsFY 2007 |   | PensionBenefitsFY 2006 |   | Medical and LifeInsurance BenefitsFY 2006 |        
|                                             |  |                        |         |                                           |   |                        |   |                                           |        
|                                             |  |                        |         |                                           |   |                        |   |                                           |         |   |   |        |  
|Obligation at beginning of the year          |  | $                      | 161,584 |                                           | $ | 17,106                 |   | $                                         | 188,931 |   | $ | 27,772 |  
|Service cost                                 |  |                        |        |                                           |   |                       |   |                                           | 4,647   |   |   | 840    |  
|Interest cost                                |  |                        | 9,054   |                                           |   | 672                    |   |                                           | 9,461   |   |   | 1,341  |  
|Actuarial (gain)/loss                        |  |                        | (4,351  | )                                         |   | 86                     |   |                                           | (14,483 | ) |   | (2,824 | )
|Benefits paid                                |  |                        | (8,759  | )                                         |   | (1,750                 | ) |                                           | (15,210 | ) |   | (1,256 | )
|Plan amendments                              |  |                        |        |                                           |   | (14,122                | ) |                                           |        |   |   | (9,030 | )
|Adjustment due to change in measurement date |  |                        |        |                                           |   |                       |   |                                           | 1,426   |   |   | 263    |  
|Gain due to curtailment                      |  |                        |        |                                           |   |                       |   |                                           | (13,188 | ) |   |       |  
|                                             |  |                        |         |                                           |   |                        |   |                                           |         |   |   |        |  
|Obligation at end of the year                |  | $                      | 157,528 |                                           | $ | 1,992                  |   | $                                         | 161,584 |   | $ | 17,106 |  
|                                             |  |                        |         |                                           |   |                        |   |                                           |         |   |   |        |  

F-23

---

Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Service cost
  represents the present value of the benefits attributed to service rendered
  by employees during the year. No service cost has been recorded in fiscal
  year 2007 due to the freezing of the pension plan on October 31, 2006 and the
  discontinuation of eligibility for postretirement welfare benefits for
  employees who were not retired as of December 31, 2006 as described above.
  Interest cost is the increase in the present value of the obligation due to
  the passage of time. Actuarial (gain) loss is the change in the value of the
  obligation resulting from experience different from that assumed or from a
  change in actuarial assumptions. (The actuarial assumptions used are
  discussed at the end of this note).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | As shown
  above, our pension and postretirement obligations were reduced by net benefit
  payments in 2007 of $8,759 and $1,750, respectively. Expected benefit
  payments over the next ten years are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|          |  |                  |        |                                       |   |     | 
|--------- |  | ---------------- | ------ | ------------------------------------- | - | --- | 
|          |  | Pension Benefits |        | Medical and Life
  Insurance Benefits |  
|          |  |                  |        |                                       |  
|         
|2008      |  | $                | 9,223  |                                       | $ | 407 | 
|2009      |  |                  | 9,289  |                                       |   | 300 | 
|2010      |  |                  | 9,475  |                                       |   | 271 | 
|2011      |  |                  | 9,530  |                                       |   | 229 | 
|2012      |  |                  | 9,654  |                                       |   | 170 | 
|2013-2017 |  |                  | 51,121 |                                       |   | 716 | 

Assets

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
  specifically invests certain assets in order to fund its pension benefit
  obligations. The Companys investment goal is to earn a total return over
  time that will grow assets sufficient to fund its plans liabilities, after
  providing appropriate levels of contributions and accepting prudent levels of
  investment risk. In order to achieve this goal, plan assets are invested
  primarily in funds or portfolios of funds actively managed by outside
  managers. Investment risk is managed to prudent levels by company policies
  that require diversification of asset classes, manager styles and individual
  holdings. The Company measures and monitors investment risk through periodic
  performance reviews and periodic asset/liability studies.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Asset
  allocation is the most important method of achieving the Companys investment
  goals and is based on its assessment of the plans long-term return
  objectives and the appropriate balances needed for liquidity, stability, and
  diversification. The allocation of the Companys pension plan assets at fair
  value on December 29, 2007 and December 29, 2006 and the target allocation
  for 2008, by asset category, are as follows:                                                                                                                                                                                                                                                                                                                                     

|                  |  |             |     |             |  |             |   |  |     |  
|----------------- |  | ----------- | --- | ----------- |  | ----------- | - |  | --- | -
|                  |  | Actual 2007 |     | Actual 2006 |  | Target 2008 |  
|                  |  |             |     |             |  |             |  
|                 
|Equity securities |  |             | 72  | %           |  | 71          | % |  | 75  | %
|Debt securities   |  |             | 13  | %           |  | 13          | % |  | 15  | %
|Real estate       |  |             | 6   | %           |  | 5           | % |  | 5   | %
|Other             |  |             | 9   | %           |  | 11          | % |  | 5   | %
|                  |  |             |     |             |  |             |   |  |     |  
|Total             |  |             | 100 | %           |  | 100         | % |  | 100 | %

F-24

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Table of Contents

| |                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | This table shows how the fair value of the pension assets changed from the beginning of the
Companys fiscal year to the end of the Companys fiscal year. (The Company does not have assets set aside for
postretirement medical or life insurance benefits).

|                                             |  |                          |         |                                             |  |                          |   |                                            |         |   |  |        |  
|-------------------------------------------- |  | ------------------------ | ------- | ------------------------------------------- |  | ------------------------ | - | ------------------------------------------ | ------- | - |  | ------ | -
|                                             |  | Pension Benefits FY 2007 |         | Medical and Life Insurance Benefits FY 2007 |  | Pension Benefits FY 2006 |   | Medical and LifeInsurance Benefits FY 2006 |        
|                                             |  |                          |         |                                             |  |                          |   |                                            |        
|                                            
|Fair value at beginning of year              |  | $                        | 130,291 |                                             |  |                         |   | $                                          | 116,160 |   |  |       |  
|Actual return on plan assets                 |  |                          | 11,131  |                                             |  |                         |   |                                            | 18,327  |   |  |       |  
|Company contributions                        |  |                          | 8,455   |                                             |  | 1,750                    |   |                                            | 13,046  |   |  | 1,256  |  
|                                            
|Benefits paid                                |  |                          | (8,759  | )                                           |  | (1,750                   | ) |                                            | (15,210 | ) |  | (1,256 | )
|Adjustment due to change in Measurement date |  |                          |        |                                             |  |                         |   |                                            | (2,032  | ) |  |       |  
|                                             |  |                          |         |                                             |  |                          |   |                                            |         |   |  |        |  
|Fair value at end of the year                |  | $                        | 141,118 |                                             |  |                         |   | $                                          | 130,291 |   |  |       |  
|                                             |  |                          |         |                                             |  |                          |   |                                            |         |   |  |        |  

| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consistent
  with the Companys funding policy, the Company expects to contribute
  approximately $5,324 to its pension plans and approximately $407 to its
  postretirement plans in 2008.
| |                                                                                                                                                                                            
| | Funded Status                                                                                                                                                                              
| |                                                                                                                                                                                            
| | The funded
  status of a plan refers to the difference between the obligations and assets.
  The table below shows the funded status of the plan.                                          

|              |  |                              |          |                                                 |   |                              |   |                                                 |          |   |   |         |  
|------------- |  | ---------------------------- | -------- | ----------------------------------------------- | - | ---------------------------- | - | ----------------------------------------------- | -------- | - | - | ------- | -
|              |  | Pension
  Benefits
  FY 2007 |          | Medical and Life
  Insurance Benefits
  FY 2007 |   | Pension
  Benefits
  FY 2006 |   | Medical and Life
  Insurance Benefits
  FY 2006 |         
|              |  |                              |          |                                                 |   |                              |   |                                                 |         
|             
|Assets        |  | $                            | 141,118  |                                                 |   |                             |   | $                                               | 130,291  |   |   |        |  
|Obligations   |  |                              | (157,528 | )                                               | $ | (1,992                       | ) |                                                 | (161,584 | ) | $ | (17,106 | )
|              |  |                              |          |                                                 |   |                              |   |                                                 |          |   |   |         |  
|Funded Status |  | $                            | (16,410  | )                                               | $ | (1,992                       | ) | $                                               | (31,293  | ) | $ | (17,106 | )

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  under-funded status of the pension plans of $16,410 and $31,293 at December
  29, 2007 and December 30, 2006, respectively, is recognized in the
  accompanying Consolidated balance sheets as a current liability (reported in
  other current liabilities) of $622, and $629, respectively, and a non-current
  liability of $15,788 and $30,664, respectively (reported in pension
  obligations). The under-funded status of the postretirement healthcare plan
  of $1,992 and $17,106 at December 29, 2007 and December 30, 2006,
  respectively is recognized as a current liability of $407 and $1,253,
  respectively (reported in other current liabilities) and a non-current
  liability of $1,585 and $15,853, respectively (reported in post retirement
  obligations). No plan assets are expected to be returned to the Company
  during the fiscal year-ended December 29, 2007.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The
  accumulated benefit obligation for each of the Companys benefit plans
  exceeds the plan assets. The total accumulated benefit obligation for all
  plans was $159,520 and $178,690 at the end of 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-25

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Table of Contents

| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Accumulated Other Comprehensive Income                                                                                                                                     
| |                                                                                                                                                                            
| | The following table shows the amounts (pre-tax) that have not yet been recognized in net periodic
benefit cost as of December 29, 2007 and December 30, 2006, respectively:

|                                |  |                        |        |                                           |   |                        |  |                                           |        |  |   |        | 
|------------------------------- |  | ---------------------- | ------ | ----------------------------------------- | - | ---------------------- |  | ----------------------------------------- | ------ |  | - | ------ | 
|                                |  | PensionBenefitsFY 2007 |        | Medical and LifeInsurance BenefitsFY 2007 |   | PensionBenefitsFY 2006 |  | Medical and LifeInsurance BenefitsFY 2006 |       
|                                |  |                        |        |                                           |   |                        |  |                                           |       
|                               
|Unrecognized prior service cost |  |                        |       |                                           | $ | 22,110                 |  |                                           |       |  | $ | 8,914  | 
|Unrecognized actuarial gains    |  | $                      | 36,691 |                                           |   | 3,555                  |  | $                                         | 33,070 |  |   | 3,817  | 
|                                |  |                        |        |                                           |   |                        |  |                                           |        |  |   |        | 
|                                |  | $                      | 36,691 |                                           | $ | 25,665                 |  | $                                         | 33,070 |  | $ | 12,731 | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The estimated actuarial gains for all pension plans that will be amortized from accumulated other
comprehensive income into net periodic benefit cost during the 2008 fiscal year is $1,774. The estimated prior service credit and
actuarial gains for the postretirement plan that will be amortized from accumulated other comprehensive income into net periodic
benefit cost during the 2008 fiscal year is $1,380 and $162, respectively.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive
Income                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The table below shows the components of the net periodic benefit expense costs (credited) charged
to income:                                                                                                                                                                                                                                                                                                                                   

|                                                                         |  |                          |         |                                             |   |                          |   |                                             |         |   |   |       |  
|------------------------------------------------------------------------ |  | ------------------------ | ------- | ------------------------------------------- | - | ------------------------ | - | ------------------------------------------- | ------- | - | - | ----- | -
|                                                                         |  | Pension Benefits FY 2007 |         | Medical and Life Insurance Benefits FY 2007 |   | Pension Benefits FY 2006 |   | Medical and Life Insurance Benefits FY 2006 |        
|                                                                         |  |                          |         |                                             |   |                          |   |                                             |        
|                                                                         | 
|Service cost                                                             |  |                          |        |                                             |   |                         |   | $                                           | 4,647   |   | $ | 840   |  
|Interest cost                                                            |  | $                        | 9,054   |                                             | $ | 672                      |   |                                             | 9,461   |   |   | 1,341 |  
|Expected return on assets                                                |  |                          | (10,667 | )                                           |   |                         |   |                                             | (9,629  | ) |   |      |  
|Amortization of:                                                         |  |                          |         |                                             |   |                          |   |                                             |         |   |   |       |  
|Prior service cost (benefit)                                             |  |                          |        |                                             |   | (926                     | ) |                                             |        |   |   | (116  | )
|Actuarial gain                                                           |  |                          | (1,194  | )                                           |   | (176                     | ) |                                             | (426    | ) |   | (16   | )
|                                                                         |  |                          |         |                                             |   |                          |   |                                             |         |   |   |       |  
|Net periodic (benefit)
  expense before curtailment and settlement gains |  |                          | (2,807  | )                                           |   | (430                     | ) |                                             | 4,053   |   |   | 2,049 |  
|SFAS 88 curtailment gain                                                 |  |                          |        |                                             |   |                         |   |                                             | (13,188 | ) |   |      |  
|SFAS 88 settlement gain                                                  |  |                          |        |                                             |   |                         |   |                                             | (1,595  | ) |   |      |  
|                                                                         |  |                          |         |                                             |   |                          |   |                                             |         |   |   |       |  
|Net periodic (benefit) expense                                           |  | $                        | (2,807  | )                                           | $ | (430                     | ) | $                                           | (10,730 | ) | $ | 2,049 |  

| |                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The pension
  benefit recorded during the year was estimated at the beginning of the fiscal
  year. As a result, the amount is calculated using an expected return on plan
  assets rather than the actual return. The difference between actual and
  expected returns is included in the unrecognized net gain or loss at the end
  of the year.

F-26

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Table of Contents

| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | The table below shows the components recognized in other comprehensive income during the current fiscal
year:

|                                               |  |                           |        |                                           |   |         |  
|---------------------------------------------- |  | ------------------------- | ------ | ----------------------------------------- | - | ------- | -
|                                               |  | Pension  Benefits FY 2007 |        | Medical and LifeInsurance BenefitsFY 2007 |  
|                                               |  |                           |        |                                           |  
|                                               |  |                           |        |                                           |  
|Net actuarial (gain) loss                      |  | $                         | (4,815 | )                                         | $ | 86      |  
|Prior service credit                           |  |                           |       |                                           |   | (14,122 | )
|Amortization
  of:                             |  |                           |        |                                           |   |         |  
|Prior service cost (benefit)                   |  |                           |       |                                           |   | 926     |  
|Actuarial gain                                 |  |                           | 1,194  |                                           |   | 176     |  
|                                               |  |                           |        |                                           |   |         |  
|Total recognized in other comprehensive
income |  | $                         | (3,621 | )                                         | $ | (12,934 | )

| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Assumptions and Sensitivity                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                
| | The Company uses various assumptions to determine the obligations and expense related to its
pension and postretirement healthcare plans. The assumptions used in computing benefit plan obligations as of the end of the year
were as follows:

|                               |  |                         |  |                                            |  |                         |  |                                            | 
|------------------------------ |  | ----------------------- |  | ------------------------------------------ |  | ----------------------- |  | ------------------------------------------ | 
|                               |  | Pension BenefitsFY 2007 |  | Medical and Life Insurance BenefitsFY 2007 |  | Pension BenefitsFY 2006 |  | Medical and Life Insurance BenefitsFY 2006 | 
|                              
|Discount rate                  |  | 6.25%                   |  | 5.75%                                      |  | 5.75%                   |  | 5.75%                                      | 
|Rate of salary increase        |  |                        |  |                                           |  | 4.00%                   |  |                                           | 
|Expected return on plan assets |  | 8.50%                   |  |                                           |  | 8.50%                   |  |                                           | 

| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The assumptions used in computing benefit plan expense during the year were as follows:

|                                                 |  |                         |  |                                            |  |                         |  |                                            | 
|------------------------------------------------ |  | ----------------------- |  | ------------------------------------------ |  | ----------------------- |  | ------------------------------------------ | 
|                                                 |  | Pension BenefitsFY 2007 |  | Medical and Life Insurance BenefitsFY 2007 |  | Pension BenefitsFY 2006 |  | Medical and Life Insurance BenefitsFY 2006 | 
|                                                
|Discount rate, beginning of the year             |  | 5.75%                   |  | 5.75%                                      |  | 5.25%                   |  | 5.25%                                      | 
|Discount rate at curtailment re-measurement date |  |                        |  |                                           |  | 5.75%                   |  | 5.75%                                      | 
|Rate of salary increase                          |  |                        |  |                                           |  | 4.00%                   |  |                                           | 
|Expected return on plan assets                   |  | 8.50%                   |  |                                           |  | 8.50%                   |  |                                           | 

| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The discount
  rate represents the interest rate used to discount the cash flow stream of
  benefit payments to a net present value as of the current date. A lower
  assumed discount rate increases the present value of the benefit obligation.                               
| |                                                                                                                                                                                                                                                                                  
| | The assumed
  rate of salary increase reflects the expected annual increase in salaries as
  a result of inflation, merit increases, and promotions. A lower assumed rate
  decreases the present value of the benefit obligation.                                               
| |                                                                                                                                                                                                                                                                                  
| | The expected
  return on plan assets represents the long-term rate of return that the
  Company assumes will be earned over the life of the pension assets,
  considering the distribution of those assets among investment classes and the
  related historical rates of return.

F-27

---

Table of Contents

| |                                                                                   
| | ----------------------------------------------------------------------------------
| | The assumed healthcare cost trend rates as of the end of the year were as follows:

|                                |  |  |                                             |  |                                             |       |  | 
|------------------------------- |  |  | ------------------------------------------- |  | ------------------------------------------- | ----- |  | 
|                                |  |  | Medical and Life Insurance Benefits FY 2007 |  | Medical and Life Insurance Benefits FY 2006 |      
|                                |  |  |                                             |  |                                             |      
|                                |  |  |                                             |  |                                             |      
|Healthcare cost trend rate:     |  |  |                                             |  |                                             |       | 
|Present rate
  before age 65    |  |  | 9.00%                                       |  |                                             | 7.19% | 
|Present rate
  age 65 and after |  |  | 8.50%                                       |  |                                             | 7.94% | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
  projects healthcare cost trend rates to decline gradually to 5.5% by 2012 and
  to remain level after that. Assumed healthcare cost trend rates have an
  effect on the amounts reported for postretirement healthcare plans. A one
  percentage point increase in assumed healthcare cost trend rates would
  increase the accumulated postretirement benefit obligation as of December 29,
  2007 by $76 and the annual aggregate service and interest cost by $26. A one
  percentage point decrease in assumed healthcare cost trend rates would
  decrease the accumulated postretirement benefit obligation as of December 29,
  2007 by $76 and the annual aggregate service and interest cost by $26.                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Savings Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company
  has qualified contributory retirement plans (the Plans) under Section
  401(k) of the Internal Revenue Code which covers substantially all full-time
  and certain part-time employees who meet certain eligibility requirements.
  Voluntary contributions are made by participants and Company matching
  contributions are made at the discretion of the Board of Directors, subject
  to certain limitations. Certain of the Plans also allow the Company to make
  discretionary profit-sharing contributions to the Plan up to the maximum
  amount deductible for income tax purposes. All Company contributions are
  invested in a series of diversified investment options at the election of the
  employee. The Company does not make matching or profit sharing contributions
  in Company stock. The Companys total profit-sharing contributions were $0,
  $0, and $1,254 for the years ended December 29, 2007, December 30, 2006 and
  December 31, 2005, respectively.

|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|11. | INCOME TAXES                                                                                                                                  
|    |                                                                                                                                               
|    | The
  provision for income taxes for the years ended December 29, 2007, December
  30, 2006, and December 31, 2005 consisted of the following:

|                                                                  |  |      |         |      |   |        |   |   |        |  
|----------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------ | - | - | ------ | -
|                                                                  |  | 2007 |         | 2006 |   | 2005   |  
|                                                                  |  |      |         |      |   |        |  
|                                                                  |  |      |         |      |   |        |  
|Current:                                                          |  |      |         |      |   |        |  
|Federal                                                           |  | $    | (9,831  | )    | $ | (1,475 | ) | $ | 10,830 |  
|State                                                             |  |      | (62     | )    |   | (198   | ) |   | 1,964  |  
|Foreign                                                           |  |      |        |      |   | 44     |   |   | 16     |  
|Deferred:                                                         |  |      |         |      |   |        |   |   |        |  
|Federal                                                           |  |      | 322     |      |   | 741    |   |   | (2,154 | )
|State                                                             |  |      | (1,811  | )    |   | 103    |   |   | (510   | )
|Adjustment
  of prior year tax accruals                           |  |      | (1,966  | )    |   | (1,010 | ) |   |       |  
|                                                                  |  |      |         |      |   |        |   |   |        |  
|(Benefit)
  provision for income taxes from continuing operations |  |      | (13,348 | )    |   | (1,795 | ) |   | 10,146 |  
|Benefit for
  income taxes from discontinued operations           |  |      |        |      |   |       |   |   | (1,227 | )
|                                                                  |  |      |         |      |   |        |   |   |        |  
|(Benefit)
  provision for income taxes                            |  | $    | (13,348 | )    | $ | (1,795 | ) | $ | 8,919  |  
|                                                                  |  |      |         |      |   |        |   |   |        |  

| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2007
  and 2006, the Company reversed $1,966 and $1,010, respectively, of tax
  accruals that were no longer needed as a result of the expiration of the
  applicable statue of limitations and the completion of tax audits.

F-28

---

Table of Contents

| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | The
  reconciliation between income tax expense based on statutory income tax rates
  and the provision for income taxes is as follows:

|                                                                  |  |      |         |      |   |         |   |   |        |  
|----------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | - | ------ | -
|                                                                  |  | 2007 |         | 2006 |   | 2005    |  
|                                                                  |  |      |         |      |   |         |  
|                                                                  |  |      |         |      |   |         |  
|(Benefit) provision for income taxes at
  federal statutory rate  |  | $    | (10,211 | )    | $ | (17,872 | ) | $ | 9,624  |  
|Valuation allowance                                               |  |      |        |      |   | (1,520  | ) |   |       |  
|State income taxes, net of federal income
  tax benefit           |  |      | (1,393  | )    |   | 58      |   |   | 979    |  
|Goodwill impairment                                               |  |      |        |      |   | 18,030  |   |   |       |  
|Charitable donations of inventory                                 |  |      | (152    | )    |   | (104    | ) |   | (32    | )
|Adjustments to uncertain tax positions                            |  |      | (1,966  | )    |   | (1,010  | ) |   |       |  
|Other                                                             |  |      | 374     |      |   | 623     |   |   | (425   | )
|                                                                  |  |      |         |      |   |         |   |   |        |  
|(Benefit) provision for income taxes from
  continuing operations |  |      | (13,348 | )    |   | (1,795  | ) |   | 10,146 |  
|Benefit for income taxes from discontinued
  operations           |  |      |        |      |   |        |   |   | (1,227 | )
|                                                                  |  |      |         |      |   |         |   |   |        |  
|(Benefit) provision for income taxes                              |  | $    | (13,348 | )    | $ | (1,795  | ) | $ | 8,919  |  
|                                                                  |  |      |         |      |   |         |   |   |        |  

The components of the net deferred tax (liability) asset at December 29, 2007 and
December 30, 2006 were as follows:

|                                           |  |      |         |      |   |         |  
|------------------------------------------ |  | ---- | ------- | ---- | - | ------- | -
|                                           |  | 2007 |         | 2006 |  
|                                           |  |      |         |      |  
|DEFERRED TAX ASSETS:                       |  |      |         |      |   |         |  
|Defined benefit pension reserve
obligation |  | $    | 3,574   |      | $ | 8,415   |  
|Asset valuation reserves                   |  |      | 14,811  |      |   | 13,629  |  
|Deferred compensation                      |  |      | 481     |      |   | 1,422   |  
|Accrued liabilities                        |  |      | 5,113   |      |   | 2,148   |  
|Severance and restructuring reserves       |  |      | 276     |      |   | 665     |  
|Other deferred tax assets                  |  |      | 1,641   |      |   | 1,166   |  
|Deferred gain on sale of facility          |  |      | 1,515   |      |   | 1,565   |  
|Charitable Contribution Carryforward       |  |      | 1,420   |      |   |        |  
|Net Operating Loss Carryforward            |  |      | 2,502   |      |   |        |  
|                                           |  |      |         |      |   |         |  
|Total deferred tax assets                  |  |      | 31,333  |      |   | 29,010  |  
|                                           |  |      |         |      |   |         |  
|DEFERRED TAX
  LIABILITIES:                |  |      |         |      |   |         |  
|Intangible assets                          |  |      | (36,209 | )    |   | (28,975 | )
|Property and equipment depreciation        |  |      | (1,721  | )    |   | (2,009  | )
|Prepaids and other                         |  |      | (1,587  | )    |   | (2,427  | )
|                                           |  |      |         |      |   |         |  
|Total deferred tax liabilities             |  |      | (39,517 | )    |   | (33,411 | )
|                                           |  |      |         |      |   |         |  
|                                           |  | $    | (8,184  | )    | $ | (4,401  | )
|                                           |  |      |         |      |   |         |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The $8,184
  net deferred tax liability at December 29, 2007 is presented as a net
  deferred current asset of $17,347 and a net deferred noncurrent liability of
  $25,531. The $4,401 net deferred tax liability at December 30, 2006 is
  presented as a net deferred current asset of $13,896 and a net deferred
  noncurrent liability of $18,297.                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | As of December 29, 2007, the federal net operating loss carry forward for income tax purposes was
approximately $3,154 which will expire in 2027. The state net operating loss carry forward at December 29, 2007 was approximately
$31,724 which will expire between 2011 and 2027. The alternative minimum tax (AMT) credit carry forward was $543 at December 29,
2007. Management has determined that it is more likely than not that the deferred tax assets will be realized through the reversal
of existing deferred tax liabilities and future taxable income and, therefore, no valuation allowance has been recorded at
December 29, 2007.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The Company paid income taxes of $(268), $1,897, and $8,979 during the years ended December 29,
2007, December 30, 2006, and December 31, 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-29

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Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective December 31, 2006, the Company adopted provisions of FIN 48, which did not have a
material impact on its financial statements. The Companys total unrecognized tax benefit as of December 29, 2007 and
December 30, 2006 was $1,078 and $3,715 respectively, of which approximately $835 and $2,517 would affect the effective tax rate
if the Company were to recognize the tax benefit. The unrecognized tax benefit decreased by $2,637 in the 52 weeks ended December
29, 2007 primarily relating to the expiration of statute of limitations on certain tax items in the first and third quarters of
2007, which had a positive effect on the tax provision. The Company is unable to estimate the change in the amount of unrecognized
tax benefits during the next 12 months.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | A
 reconciliation of the beginning and ending amount of unrecognized tax
 benefits is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                                         |  |   |        |  
| | ------------------------------------------------------- |  | - | ------ | -
| | Gross
 unrecognized tax benefits at December 30, 2006   |  | $ | 3,715  |  
| | Increases in
 tax positions taken in prior periods      |  |   |       |  
| | Decreases in
 tax positions taken in prior periods      |  |   |       |  
| | Increases in
 tax positions taken in the current period |  |   | 255    |  
| | Decreases in
 tax positions taken in the current period |  |   |       |  
| | Settlements                                             |  |   | (87    | )
| | Lapse of
 statute of limitations                        |  |   | (2,805 | )
| |                                                         |  |   |        |  
| | Gross
 unrecognized tax benefits at December 29, 2007   |  | $ | 1,078  |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The Company
 recognizes interest accrued and penalties related to unrecognized tax
 benefits within income tax expense in the Condensed Consolidated Statements
 of Operations, which is consistent with the recognition of these items in
 prior reporting periods. To the extent these unrecognized tax benefits are
 ultimately recognized, there will be an impact on the effective tax rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As of
 December 30, 2006, the Company had recorded liabilities of approximately $712
 and $112, respectively, for the payment of interest and penalties. The
 liability for the payment of interest and penalties decreased by $500 and
 $42, respectively, for the 52 weeks ended December 29, 2007 primarily due to
 the expiration of the statute of limitations as noted above. At December 29,
 2007, the Company had liabilities of $212 and $70 respectively, for the
 payment of interest and penalties, of which approximately $137 and $70 would
 affect the effective tax rate if the Company were to recognize the tax
 benefit.                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The
 Companys federal income tax returns for 2004 through 2006 are open tax
 years. The Company files tax returns in numerous state jurisdictions with
 varying statutes of limitation. The Companys unrecognized state tax benefits
 are primarily related to state returns open from 2003 through 2006 or 2004
 through 2006, depending on each states statute of limitation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|12. | DEFERRED
 COMPENSATION OBLIGATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company
 has a deferred compensation plan with certain key employees. Under this plan,
 employees may elect to defer (contribute) a portion of their eligible
 compensation into the plan. The Company, at its discretion, may also
 contribute amounts into the plan on behalf of the key employees. The Company
 funds this plan by purchasing and owning securities which are considered trading
 securities in accordance with SFAS No. 115, Accounting
 for Certain Investments in Debt and Equity Securities, and are
 consequently marked-to-market. These securities are recorded in Marketable
 Securities in the Companys Consolidated Balance Sheets. The plan
 participants bear the potential economic risks and rewards of the
 investments performance and their interests in the underlying plan assets
 are subordinate to general creditors.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|13. | CONCENTRATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | At December
 29, 2007 one customer accounted for approximately 17% of the Companys total
 accounts receivable. For the 52 weeks ended December 29, 2007, this same
 customer accounted for approximately 17% of the Companys total net sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-30

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Table of Contents

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|14. | STOCK-BASED
 COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Effective
 January 1, 2006, the Company adopted SFAS No. 123R (revised 2004), Share-Based Payment(SFAS 123R), which
 revised SFAS No. 123, Accounting for
 Stock-Based Compensation (SFAS
 123), and supersedes APB Opinion No. 25, Accounting
 for Stock Issued to Employees (APB 25). This standard requires
 compensation costs related to share-based payment transactions to be
 recognized in the financial statements. The Company adopted the standard
 using the modified prospective transition method, which requires the application
 of the accounting standard to all share-based awards issued on or after the
 date of adoption and any outstanding share-based awards that were issued but
 not vested as of the date of adoption. Accordingly, the Company did not
 restate the financial information for 2005 as a result of the adoption.                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Total
 stock-based compensation benefit for the year ended December 29, 2007 was
 $97. The adoption of SFAS 123R in 2006 resulted in the recognition of
 incremental pre-tax stock-based compensation expense for the years ended
 December 29, 2007 and December 30, 2006 of $172 and $181, respectively, and
 an increase in net loss of $104 and $112, respectively, (the impact on basic
 and diluted earnings per share during the years ended December 29, 2007 and
 December 30, 2006 was $0.01 and $0.01, respectively). The adoption also
 resulted in an increase in cash flows from operating activities of $7 and a
 decrease in cash flows from financing activities of $7 for the year ended
 December 29, 2007, and a decrease in cash flows from operating activities of
 $7 and an increase in cash flows from financing activities of $7 for the year
 ended December 30, 2006. Additionally, upon adoption of SFAS 123R, the
 Company reclassified unearned compensation on non-vested restricted stock of
 $3,469 to additional paid-in capital. The cumulative effect adjustment for
 forfeitures related to nonvested restricted stock and options was not
 material.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Total
 stock-based compensation expense for the year ended December 31, 2005 was
 $989 (which is included in the net income as reported figures in the table
 below). Prior to 2006, the Company applied APB 25 and the disclosure-only
 provisions of SFAS 123. The following table illustrates the effect on net
 income and net income per share if the Company had applied the fair value
 recognition provisions of SFAS 123 to stock-based employee compensations for
 the year ended December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |                                                       |  |      |        |  
| | ----------------------------------------------------- |  | ---- | ------ | -
| |                                                       |  | 2005 |       
| |                                                       |  |      |       
| | Net income:                                           |  |      |       
| | As reported                                           |  | $    | 15,170 |  
| | Stock-based compensation, net of related
 tax effects |  |      | (2,388 | )
| |                                                       |  |      |        |  
| | Pro forma                                             |  |      | 12,782 |  
| |                                                       |  |      |        |  
| | Net income
 per common share  basic:                 |  |      |        |  
| | As reported                                           |  | $    | 1.11   |  
| | Pro forma                                             |  |      | 0.94   |  
| |                                                       |  |      |        |  
| | Net income
 per common share  assuming dilution:     |  |      |        |  
| | As reported                                           |  | $    | 1.10   |  
| | Pro forma                                             |  |      | 0.93   |  

| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
 estimated the fair values of each option using the Black-Scholes-Merton
 option-pricing model using the following assumptions:

| |                                  |  |             |  |             |  |             | 
| | -------------------------------- |  | ----------- |  | ----------- |  | ----------- | 
| |                                  |  | 2007        |  | 2006        |  | 2005        | 
| |                                  |  |             |  |             |  |             | 
| | Risk-free
 interest rate         |  | 3.8% - 4.7% |  | 4.6% - 5.1% |  | 3.8% - 4.1% | 
| | Expected
 dividend yield         |  | 0%          |  | 0%          |  | 0%          | 
| | Expected
 stock price volatility |  | 39%         |  | 49%         |  | 32%         | 
| | Expected
 life (in years)        |  | 5           |  | 6           |  | 6           | 

| |                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The expected
 term of options is based on the historical exercise behavior of employees.
 The expected volatility is based on historical volatility for a period equal
 to the stock options expected term. The risk-free rate is based on the U.S.
 Treasury yield curve in effect at the time of grant.

F-31

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Table of Contents

| |                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Stock Incentive Plans                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                              
| | As of
 December 29, 2007, the Company had incentive plans allowing the Company to
 grant options, stock appreciation rights, shares or performance units to
 employees, directors, officers, consultants and advisors. As of December 29,
 2007, 674,212 shares were available for granting under the stock incentive
 plans.
| |                                                                                                                                                                                                                                                                                                                              
| | Stock Options  Under the stock incentive
 plans, all employee options granted have an exercise price equal to the
 market value of the common stock at the date of grant, generally have a term
 of ten years and are exercisable at various times after the first anniversary
 date of the grant date.                     
| |                                                                                                                                                                                                                                                                                                                              
| | A summary of
 the status of the Companys stock option activity as of December 29, 2007 and
 changes during the year then ended is presented below:                                                                                                                                                                          

|                                    |  |        |           |                                    |   |                                                |  |                                      |     |  |   |   | 
|----------------------------------- |  | ------ | --------- | ---------------------------------- | - | ---------------------------------------------- |  | ------------------------------------ | --- |  | - | - | 
|                                    |  |        |           | 2007                              
|                                    |  |        |           |                                    |   |                                                |  |                                      |    
|                                    |  | Shares |           | Weighted
 Average
 Exercise
 Price |   | Weighted
 Remaining
 Contractual
 Life (Years) |  | Average
 Aggregate
 Intrinsic
 Value |    
|                                    |  |        |           |                                    |   |                                                |  |                                      |    
|Outstanding
 at beginning of year   |  |        | 2,079,478 |                                    | $ | 13.74                                          |  |                                      |     |  |   |   | 
|Granted                             |  |        | 32,000    |                                    |   | 7.00                                           |  |                                      |     |  |   |   | 
|Exercised                           |  |        |          |                                    |   |                                               |  |                                      |     |  |   |   | 
|Forfeited                           |  |        | (31,333   | )                                  |   | 12.20                                          |  |                                      |     |  |   |   | 
|Expired or
 Canceled                |  |        | (565,701  | )                                  |   | 14.95                                          |  |                                      |     |  |   |   | 
|                                    |  |        |           |                                    |   |                                                |  |                                      |     |  |   |   | 
|Outstanding
 at end of year         |  |        | 1,514,444 |                                    |   | 13.14                                          |  |                                      | 3.6 |  | $ | 0 | 
|                                    |  |        |           |                                    |   |                                                |  |                                      |     |  |   |   | 
|Options
 exercisable at end of year |  |        | 1,420,041 |                                    |   | 13.51                                          |  |                                      | 3.2 |  | $ | 0 | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The vested
 or expected to vest approximates shares outstanding as the Company does not
 anticipate significant forfeitures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The
 weighted-average grant date fair value of options granted for the years ended
 December 29, 2007, December 30, 2006 and December 31, 2005 was estimated to
 be $2.90, $5.04 and $5.25 per share, respectively. The total intrinsic value
 of options that were exercised for the years ended December 29, 2007, December
 30, 2006 and December 31, 2005 was $0, $86 and $755, respectively. As of
 December 29, 2007, the total unrecognized compensation cost related to stock
 options was $156 and is expected to be recognized over a weighted average
 period of 0.95 years.                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Cash
 received from option exercises for the years ended December 29, 2007,
 December 30, 2006 and December 31, 2005 was $0, $340 and $1,640,
 respectively. The actual tax benefit realized for the tax deductions from
 option exercises totaled $0, $32 and $272 for years ended December 29, 2007,
 December 30, 2006 and December 31, 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Performance- and Time- Vesting Restricted Stock
  The Company granted 173,417 restricted shares of common stock to executive
 officers, directors and employees during the 52 weeks ended December 29,
 2007. Under SFAS 123R, these shares are considered to be nonvested shares, as
 defined. Of these shares, 157,417 shares were performance-vesting and 16,000
 shares were time-vesting. Performance-vesting shares may be earned and become
 vested in a specific percentage depending upon the extent to which the target
 performance is met as of the last day of the performance cycle. Time-vesting
 shares generally become vested after the duration of a specified period of
 time, assuming that the employee remains employed with the Company.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-32

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Table of Contents

| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A summary of the status of the Companys nonvested restricted stock activity as of
December 29, 2007 and changes during the year then ended is presented below:

|                                  |  |        |          |                          |   |       | 
|--------------------------------- |  | ------ | -------- | ------------------------ | - | ----- | 
|                                  |  | 2007   |         
|                                  |  |        |         
|                                  |  | Shares |          | Grant
 Date
 Fair
 Value |  
|                                  |  |        |          |                          |  
|                                  |  |        |          |                          |  
|Outstanding
 at beginning of year |  |        | 327,529  |                          | $ | 12.61 | 
|Granted                           |  |        | 173,417  |                          |   | 3.79  | 
|Vested                            |  |        | (20,739  | )                        |   | 10.56 | 
|Forfeited                         |  |        | (138,796 | )                        |   | 14.15 | 
|                                  |  |        |          |                          |   |       | 
|Outstanding
 at end of year       |  |        | 341,411  |                          |   | 7.41  | 
|                                  |  |        |          |                          |   |       | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of
 December 29, 2007, the total unrecognized compensation cost related to
 nonvested restricted stock granted was $861 and is expected to be recognized
 over a weighted average period of 1.7 years. The total fair value of
 restricted stock vested for the years ended December 29, 2007, December 30,
 2006 and December 31, 2005 was $116, $125 and $197, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Stockholder Rights Plan On January 14,
 2008, the Companys Board of Directors adopted a stockholder rights plan (the
 Rights Plan).Under the
 Rights Plan one right was distributed for each share of Lenox common stock
 outstanding at the close of business on January 28, 2008. If any person or
 group acquires 15% or more of the outstanding shares of the Companys common
 stock, there will be a triggering event under the Rights Plan causing
 substantial dilution to such person or group. Any person or group who
 currently owns in excess of 15% of the outstanding shares of the Companys
 common stock will not trigger the Rights Plan until such person or group
 acquires additional shares of then Companys common stock. At any time prior
 to the date of a public announcement of a triggering event, the Board may
 redeem the rights in whole, but not in part, at a price of $0.001 per right.
 In addition, the Rights Plan includes a provision that the exercise of rights
 will not be triggered by a qualified offer, as defined in the Rights Plan,
 if holders of at least 10% of shares of common stock outstanding (excluding
 shares of common stock owned by the party making the offer) request that a
 special meeting of Lenox stockholders be convened, and, at such meeting, a
 majority of shares of common stock outstanding (excluding shares of common
 stock owned by the party making the offer) votes to redeem all of the
 outstanding rights. The Rights Plan will be in effect for three years, until
 January 14, 2011. A committee of independent directors of the Board will
 assess annually whether the Rights Plan remains in the best interests of all
 of the Companys stockholders.

F-33

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Table of Contents

|    |                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|15. | COMMITMENTS
 AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Operating Leases  The Company leases
 warehouse, office and retail store space, equipment, and showroom display
 facilities under renewable operating leases with remaining terms of up to 14
 years. In addition to the base rent, the Company pays its proportionate share
 of taxes, special assessments, and operating expenses of the warehouse and
 retail store space and showroom display facilities.
|    |                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The
 following is a schedule of future annual minimum lease payments for
 noncancelable operating leases as of December 29, 2007:                                                                                                                                                                                                                                                                             

|           |  |   |         | 
|---------- |  | - | ------- | 
|2008       |  | $ | 14,541  | 
|2009       |  |   | 13,357  | 
|2010       |  |   | 11,875  | 
|2011       |  |   | 10,254  | 
|2012       |  |   | 8,726   | 
|Thereafter |  |   | 44,252  | 
|           |  |   |         | 
|           |  | $ | 103,005 | 
|           |  |   |         | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain of
 the Companys leases contain pre-determined rent increases over the life of
 the lease. These rent increases are included in the above-referenced minimum
 lease table in the year in which the rent increase occurs. When recording
 rent expense, the Company amortizes the total amount of the rent payments on
 a straight-line basis over the term of the lease. When the Company receives
 leasehold improvement funding as an incentive to enter into a lease, the
 Company amortizes these incentives against rent expense on a straight line
 basis over the term of the lease. The Companys rent expense was $16,485,
 $13,224, and $7,275 for the years ended December 29, 2007, December 30, 2006,
 and December 31, 2005, respectively.                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Letters of Credit  The Company had
 outstanding standby and commercial letters of credit of $6,689 at December
 29, 2007 relating primarily to securing our performance to third-parties
 under self-insurance programs, providing guarantees for our environmental
 costs and for purchase commitments issued to foreign suppliers and vendors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (A.) In Re
 Tableware Antitrust Litigation - In August 2004,
 plaintiffs purporting to represent a class of consumers who purchased
 tableware sold in the United States filed suit against Federated Department
 Stores, the May Department Stores Company, Waterford Wedgwood U.S.A. and
 Lenox, Incorporated (Lenox) in United States District Court for the
 Northern District of California. In November 2004, plaintiffs filed a
 consolidated amended complaint alleging that, for the period beginning at
 least as early as May 1, 2001, through the filing of the amended complaint on
 November 12, 2004, defendants violated Section 1 of the Sherman Act by
 conspiring to fix prices and to boycott sales to Bed, Bath & Beyond
 (hereinafter the Action). Plaintiffs sought to recover an undisclosed
 amount of damages, trebled in accordance with antitrust laws, as well as
 costs, attorneys fees and injunctive relief.       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | On February
 22, 2007, without admitting any violation of any statute or law or any
 liability or wrongdoing whatsoever, Lenox entered into a settlement agreement
 with the plaintiff class representatives. Pursuant to the terms of the
 settlement agreement, Lenox paid $500 in return for which Lenox and its
 affiliates will be completely released from any and all claims, demands and
 actions concerning the Action and any claims that could have been alleged in
 the Action. This settlement agreement is subject to final approval of the
 court and a final judgment dismissing the Action with prejudice as to Lenox.
 Plaintiffs and Lenox have sought court approval of the settlement agreement
 and dismissal of the Action with prejudice and are awaiting the courts
 order.                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (B.) Curiale v Lenox Group, Inc. - On April 12, 2007, Amanda Curiale filed a complaint in
the United States District Court for the Eastern District of Pennsylvania, which is a purported class action alleging that the
Company willfully violated the Federal Fair and Accurate Credit Transactions Act (FACTA) by continuing to print after
December 1, 2006 the expiration dates on receipts provided to debit card and credit cardholders transacting business with the
Company (hereinafter the FACTA Litigation). The Company understands that similar complaints have been filed against a
large number of retailers. The plaintiff seeks, on behalf of herself and the class, statutory damages of not less than one hundred
dollars and not more than one thousand dollars for each violation, as well as unspecified punitive damages, costs and
attorneys fees and a permanent injunction from further engaging in violations of FACTA.

F-34

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On September
 20, 2007, the parties held an all-day mediation session and reached a
 tentative settlement which is subject to the parties signing a definitive
 settlement agreement and court approval. Under the terms of the settlement,
 Lenox denies all claims as to liability, damages, penalties, interest, fees,
 restitution and all other forms of relief sought in the FACTA Litigation.
 Pursuant to the terms of the proposed settlement, the Company will pay a
 non-material sum for attorneys fees, a charitable contribution and a
 plaintiffs incentive fee, and will provide participating claimants with a
 coupon off a future purchase or a free product through Company-operated retail
 stores. In return, the Company and its affiliates will be completely released
 from any and all claims, demands and actions concerning the FACTA Litigation
 and any claims that could have been alleged in the FACTA litigation.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (C.) Period
 Design, Inc v D56, Inc (D56) - On February 17,
 2008, a trial commenced in Period Design case. D56 is a subsidiary of the
 Company. Plaintiff alleges a breach of contract claim and seek compensatory
 damages based upon D56s alleged failure to pay royalties alleged to be due
 Period Design, Inc. on various products marketed and sold by D56, together
 with pre-judgment interest thereon, the aggregate claims for which, if
 accepted by the court, would be material to the Companys financial condition
 and results of operations. The matter was tried before the Minnesota State
 District Court (Hennepin County) from February 17 through February 28, 2008.
 The parties are in the process of filing post-trial submissions, and
 anticipate a decision by the Court in late March 2008. The Company intends to
 vigorously defend against this alleged breach of contract claim.                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In addition
 to the above actions, the Company is involved in various legal proceedings,
 claims and governmental audits in the ordinary course of its business. The
 Company believes it has meritorious defenses to all proceedings, claims and
 audits. Management believes the impact, if any, of these legal proceedings
 would not be material to the results of operations, financial position or
 cash flows of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-35

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|16. | SEGMENTS OF
 THE COMPANY AND RELATED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In
 connection with the Companys acquisition of Lenox, the Company redefined its
 operating segments to include three reportable segments  Wholesale, Retail,
 and Direct. Although the product produced and sold for each segment is
 similar, the type of customer for the product and the method used to
 distribute the product are different. The segmentation of these operations
 also reflects how the Companys chief executive officer currently reviews the
 results of these operations. Operating income (loss) from continuing
 operations for each operating segment includes specifically identifiable
 operating costs such as cost of sales and selling expenses. General and
 administrative expenses are generally not allocated to specific operating
 segments and are therefore reflected in the corporate category. Other
 components of the statement of operations, which are classified below
 operating income (loss) from continuing operations, are also not allocated by
 segment. In addition, the Company does not account for or report assets,
 capital expenditures or certain depreciation and amortization by segment. Net
 sales derived from customers outside the United States for the years ended
 December 29, 2007, December 30, 2006 and December 31, 2005 were approximately
 2%, 2% and 3%, respectively. Less than 3% of all long-lived assets were
 located outside the United States for the periods ending December 29, 2007,
 December 30, 2006 and December 31, 2005. All transactions between operating
 segments have been eliminated and are not included in the following table.

|                                                                                                  |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|------------------------------------------------------------------------------------------------- |  | -------------------------------- | -------- | --------------- |  | -------------------------------- | -- | --------------- | ------- | -------------------------------- |  | --------------- | -- | - | ------- | - |  | ----- | -
|The
 following table presents the Companys segment information for the last three
 fiscal years: |  |                                  |          |                
|                                                                                                  |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|(In thousands)                                                                                    |  | 52 WEEKS ENDED DECEMBER 29, 2007 |          | % of
 Net Sales |  | 52 WEEKS ENDED DECEMBER 30, 2006 |    | % of
 Net Sales |         | 52 WEEKS ENDED DECEMBER 31, 2005 |  | % of
 Net Sales |   
|                                                                                                  |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |   
|                                                                                                  |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|WHOLESALE:                                                                                        |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|Net sales                                                                                         |  | $                                | 300,985  |                 |  | 100                              | %  | $               | 330,352 |                                  |  | 100             | %  | $ | 217,009 |   |  | 100   | %
|Gross profit                                                                                      |  |                                  | 128,386  |                 |  | 43                               | %  |                 | 135,928 |                                  |  | 41              | %  |   | 90,800  |   |  | 42    | %
|Selling expenses                                                                                  |  |                                  | 37,531   |                 |  | 13                               | %  |                 | 42,324  |                                  |  | 13              | %  |   | 26,473  |   |  | 12    | %
|Restructuring charges                                                                             |  |                                  | 542      |                 |  | 0                                | %  |                 |        |                                  |  | 0               | %  |   |        |   |  | 0     | %
|Goodwill impairment                                                                               |  |                                  |         |                 |  | 0                                | %  |                 | 55,269  |                                  |  | 17              | %  |   |        |   |  | 0     | %
|Income from continuing operations                                                                 |  |                                  | 90,313   |                 |  | 30                               | %  |                 | 38,335  |                                  |  | 12              | %  |   | 64,327  |   |  | 30    | %
|                                                                                                  |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|RETAIL:                                                                                           |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|Net sales                                                                                         |  | $                                | 62,146   |                 |  | 100                              | %  | $               | 76,198  |                                  |  | 100             | %  | $ | 74,734  |   |  | 100   | %
|Gross profit                                                                                      |  |                                  | 26,887   |                 |  | 43                               | %  |                 | 41,474  |                                  |  | 54              | %  |   | 42,259  |   |  | 57    | %
|Selling expenses                                                                                  |  |                                  | 30,283   |                 |  | 49                               | %  |                 | 33,451  |                                  |  | 44              | %  |   | 22,537  |   |  | 30    | %
|Restructuring charges                                                                             |  |                                  | 1,198    |                 |  | 2                                | %  |                 |        |                                  |  | 0               | %  |   |        |   |  | 0     | %
|(Loss) Income from continuing operations                                                          |  |                                  | (4,594   | )               |  | (7                               | %) |                 | 8,023   |                                  |  | 11              | %  |   | 19,722  |   |  | 26    | %
|                                                                                                  |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|DIRECT:                                                                                           |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|Net sales                                                                                         |  | $                                | 86,714   |                 |  | 100                              | %  | $               | 94,190  |                                  |  | 100             | %  | $ | 39,172  |   |  | 100   | %
|Gross profit                                                                                      |  |                                  | 59,433   |                 |  | 69                               | %  |                 | 65,406  |                                  |  | 69              | %  |   | 25,011  |   |  | 64    | %
|Selling expenses                                                                                  |  |                                  | 47,808   |                 |  | 55                               | %  |                 | 46,165  |                                  |  | 49              | %  |   | 16,831  |   |  | 43    | %
|Restructuring charges                                                                             |  |                                  | 213      |                 |  | 0                                | %  |                 |        |                                  |  | 0               | %  |   |        |   |  | 0     | %
|Income from continuing operations                                                                 |  |                                  | 11,412   |                 |  | 13                               | %  |                 | 19,241  |                                  |  | 20              | %  |   | 8,180   |   |  | 21    | %
|                                                                                                  |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|CORPORATE:                                                                                        |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|Unallocated net sales                                                                             |  | $                                | 2,270    |                 |  |                                  |    | $               | 1,766   |                                  |  |                 |    | $ | 813     |   |  |       |  
|Unallocated general and administrative expenses                                                   |  |                                  | 99,194   |                 |  |                                  |    |                 | 112,736 |                                  |  |                 |    |   | 60,553  |   |  |       |  
|Restructuring charges                                                                             |  |                                  | 7,587    |                 |  |                                  |    |                 |        |                                  |  |                 |    |   |        |   |  |       |  
|Unallocated pension curtailment and settlement gains                                              |  |                                  |         |                 |  |                                  |    |                 | (14,783 | )                                |  |                 |    |   |        |   |  |       |  
|Unallocated trademark impairment                                                                  |  |                                  |         |                 |  |                                  |    |                 | 3,743   |                                  |  |                 |    |   |        |   |  |       |  
|Loss from operations                                                                              |  |                                  | (104,511 | )               |  |                                  |    |                 | (99,930 | )                                |  |                 |    |   | (59,740 | ) |  |       |  
|                                                                                                  |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|CONSOLIDATED:                                                                                     |  |                                  |          |                 |  |                                  |    |                 |         |                                  |  |                 |    |   |         |   |  |       |  
|Net sales                                                                                         |  | $                                | 452,115  |                 |  | 100                              | %  | $               | 502,506 |                                  |  | 100             | %  | $ | 331,728 |   |  | 100.0 | %
|Operating (loss) income from continuing operations                                                |  |                                  | (7,380   | )               |  | (2                               | %) |                 | (34,331 | )                                |  | (7              | %) |   | 32,489  |   |  | 10    | %

| |                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Reclassifications  Certain reclassifications were made to the 2006 and 2005 Retail
and Direct segment information in order to conform to the 2007 presentation. These reclassifications had no impact on consolidated
net (loss) income as previously reported.

F-36

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|    |                               
|--- | ------------------------------
|17. | INCOME (LOSS) PER COMMON SHARE

|                                                                                                                                                                             |  |      |            |      |   |            |   |   |            | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | 
|The
 following tables reconcile income (loss) from continuing operations per
 common share and income (loss) from continuing operations per common share
 assuming dilution:
|                                                                                                                                                                             |  |      |            |      |   |            |   |   |            | 
|                                                                                                                                                                             |  | 2007 |            | 2006 |   | 2005       |  
|                                                                                                                                                                             |  |      |            |      |   |            |  
|                                                                                                                                                                             |  |      |            |      |   |            |   |   |            | 
|(Loss) Income from continuing operations                                                                                                                                     |  | $    | (15,827    | )    | $ | (49,268    | ) | $ | 17,352     | 
|Weighted average number of shares
 outstanding                                                                                                                               |  |      | 13,816,000 |      |   | 13,749,000 |   |   | 13,669,000 | 
|(Loss) Income per share from continuing
 operations  basic                                                                                                                  |  | $    | (1.15      | )    | $ | (3.58      | ) | $ | 1.27       | 
|                                                                                                                                                                            
|(Loss) Income from continuing operations                                                                                                                                     |  | $    | (15,827    | )    | $ | (49,268    | ) | $ | 17,352     | 
|Weighted average number of shares
 outstanding                                                                                                                               |  |      | 13,816000  |      |   | 13,749,000 |   |   | 13,669,000 | 
|Dilutive impact of options outstanding                                                                                                                                       |  |      |           |      |   |           |   |   | 83,000     | 
|                                                                                                                                                                             |  |      |            |      |   |            |   |   |            | 
|Weighted average number of shares and
 potential dilutive shares outstanding                                                                                                 |  |      | 13,816,000 |      |   | 13,749,000 |   |   | 13,752,000 | 
|(Loss) Income per share from continuing
 operations  assuming dilution                                                                                                      |  | $    | (1.15      | )    | $ | (3.58      | ) | $ | 1.26       | 

Options to
purchase 1,514,444, 1,923,909, and 865,949 shares of common stock were
outstanding at December 29, 2007, December 30, 2006, and December 31, 2005,
respectively, but were not included in the computation of income (loss) per
common share assuming dilution because the exercise prices were greater than
the average market price of the common stock. Also excluded from the
computation of income (loss) per common share assuming dilution for the year
ended December 29, 2007 were 0 options to purchase shares of common stock and
341,411 outstanding shares of nonvested restricted stock, which were excluded
because they had an antidilutive effect on earnings per share.

|    |                       
|--- | ----------------------
|18. | ENVIRONMENTAL
 MATTERS

As a result of
the acquisition of Lenox, the Company is responsible for the cleanup and/or
monitoring of two environmental sites located in New Jersey pursuant to an
Administrative Consent Order and Memorandum of Understanding with the New
Jersey Department of Environmental Protection (NJDEP). The Company is also
responsible for monitoring solid waste management units at its Pomona, NJ
manufacturing facility pursuant to a Hazardous & Solid Waste Amendment
(HSWA) permit with the U.S. Environmental Protection Agency. The Company
accrues for losses associated with environmental cleanup obligations when such
losses are probable and can be reasonably estimated. The Company established
letters of credit totaling $1,410 to secure its performance at these sites.

At one of the
NJDEP sites there are other potentially responsible parties who bear part of
the cost of the cleanup, in which case the Companys accrual is based on the
Companys estimated share of the total costs. A portion of the cleanup costs
with respect to the two NJDEP sites is paid by insurance. The estimated
recovery of cleanup costs is recorded as an asset when receipt is deemed
probable.

As of December 29, 2007, the Company estimated, based on engineering
studies, total remediation and ongoing monitoring costs to be $3,279, including the effects of inflation. Accordingly, the Company
recorded a liability of approximately $2,299 in other noncurrent liabilities, which represents the net present value of the
estimated future costs discounted at 5.25%. In accordance with Statements of Position (SOP) 96-1, Environmental Remediation
Liabilities, the Company measures this liability on a discounted basis as it believes the amount and timing of cash payments
for the liability are reliably determinable. The estimated insurance recovery assets as of December 29, 2007 were $1,183 and
are included in other assets.

F-37

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|    |                   
|--- | ------------------
|19. | SUBSEQUENT
 EVENTS

On January 14,
2008, the Company announced the adoption of a stockholder rights plan, the
Companys year-end liquidity position and the commencement of a comprehensive
review of strategic, financial and operational alternatives to enhance
stockholder value, including a potential merger, sale of all or part of the
Company or recapitalization of the Company. The Board of Directors has retained
Berenson & Company LLC as its financial advisor to assist with this
process. There can be no assurance that the exploration of strategic
alternatives will result in any transaction. The Company does not anticipate
any further public comment on this issue unless and until the Board of
Directors deems it necessary and appropriate.

F-38

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|                                 
|---------------------------------
|LENOX GROUP INC. AND SUBSIDIARIES
|                                 
|SCHEDULE II                      
|VALUATION AND QUALIFYING ACCOUNTS
|(In thousands)                   
|                                 

|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|--------------------------------------- |  | ----------------------------- | ------ | ------------------------------- | - | -------------- |  | ---------- | ----- | ----------------------- | - | ------ | --- | - | ------ | 
|Description                             |  | Balance
 Beginning
 of Period |        | Charged to
 Costs and
 Expenses |   | Other
 Changes |  | Deductions |       | Balance
 End of
 Period |  
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |  
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|Year ended December 29, 2007:           |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|Allowance for doubtful accounts         |  | $                             | 6,573  |                                 | $ | 4,909          |  | $          |      |                         | $ | 5,965  | (c) | $ | 5,517  | 
|Allowance for sales returns and credits |  |                               | 6,883  |                                 |   | 21,295         |  |            |      |                         |   | 22,155 |     |   | 6,023  | 
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|                                        |  | $                             | 13,456 |                                 | $ | 26,204         |  | $          |       |                         | $ | 28,120 |     | $ | 11,540 | 
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|Year ended December 30, 2006:           |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|Allowance for doubtful accounts         |  | $                             | 6,866  |                                 | $ | 4,961          |  | $          | 20    | (a)                     | $ | 5,274  | (c) | $ | 6,573  | 
|Allowance for sales returns and credits |  |                               | 6,668  |                                 |   | 20,612         |  |            |      |                         |   | 20,397 |     |   | 6,883  | 
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|                                        |  | $                             | 13,534 |                                 | $ | 25,573         |  | $          | 20    |                         | $ | 25,671 |     | $ | 13,456 | 
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|Year ended December 31, 2005:           |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|Allowance for doubtful accounts         |  | $                             | 5,051  |                                 | $ | 3,025          |  | $          | 2,729 | (b)                     | $ | 3,939  | (c) | $ | 6,866  | 
|Allowance for sales returns and credits |  |                               | 1,352  |                                 |   | 9,734          |  |            | 4,373 | (b)                     |   | 8,791  |     |   | 6,668  | 
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 
|                                        |  | $                             | 6,403  |                                 | $ | 12,759         |  | $          | 7,102 | (b)                     | $ | 12,730 |     | $ | 13,534 | 
|                                        |  |                               |        |                                 |   |                |  |            |       |                         |   |        |     |   |        | 

|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Purchase
 accounting adjustments.                                                                                                                            
|   
|(b) | Amounts
 acquired as part of the acquisition of Lenox, Incorporated.                                                                                         
|   
|(c) | Accounts
 determined to be uncollectible and charged against allowance account, net of
 collections on accounts previously charged against allowance account.

S-1

---