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United States

Securities and Exchange Commission

Washington, D.C. 20549





FORM 10-K







|x | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended June 27, 2009

or



| ̈ | 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 333-127173





Harry & David
Holdings, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 20-0884389                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

2500 South Pacific Highway, Medford, OR, 97501

(Address of Principal Executive Offices)

(541) 864-2362

(Registrants telephone number including area code)

None

(Former name, former address,
and former fiscal year if changed since last report)





None

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

None

(Securities registered pursuant to Section 12(g) of the Act)





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  x    No   ̈

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 if 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   ̈    No  x

Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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.   ̈

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 (check one):

Large accelerated   ̈    Accelerated filer   ̈    Non-accelerated
filer  x    Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes  ̈ No x

The aggregate market value of the voting stock held by non-affiliates of the registrant is not applicable as the registrants common stock is not publicly-held or
publicly traded.

The number of outstanding shares of the registrants common stock as of August 31, 2009 was 1,033,295.









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AVAILABLE INFORMATION



We voluntarily file annual, quarterly, and current reports, and amendments to reports filed
or furnished consistent with Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The public may read and copy any document we file with the SEC at the SECs Public Reference Room at
100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports,
information statements and other information regarding Harry & David Holdings, Inc. and other companies that file materials with the SEC electronically. We also make available free of charge through our website, www.hndcorp.com, copies of
our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished to the SEC.



FORWARD-LOOKING STATEMENTS



This Form 10-K contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements.
Such forward-looking statements include, without limitation, projections of earnings, revenues or financial items, statements of the plans, strategies and objectives of management for future operations, statements related to the future performance
and growth potential of our brands, statements related to litigation matters, statements related to introducing new core and seasonal merchandise assortments, statements related to reducing returns, replacements and damages, statements related to
new marketing initiatives and expanding electronic direct marketing initiatives, statements related to transportation costs, statements related to costs and availability of raw materials, statements related to macroeconomic and retail trends,
statements related to our plans to open new retail stores, statements related to implementing new e-commerce functionality, statements related to future comparable store sales, statements related to our income tax provision and effective tax rate,
statements related to government regulation, statements related to the use of our available cash, statements related to our projected capital expenditures, statements related to the impact of new accounting pronouncements, statements related to the
impact of acquisitions, statements related to indemnifications under our agreements, and statements of belief and statements of assumptions underlying any of the foregoing. You can identify these and other forward-looking statements by the use of
words such as will, may, should, expects, plans, anticipates, believes, estimates, predicts, intends, potential,
continue, or the negative of such terms, or other comparable terminology.



The risks, uncertainties and assumptions referred to above that could cause our results to differ materially from the results expressed or implied by such forward-looking statements include, but are not limited to, those set forth in Part I
 Item 1A  Risk Factors and the risks, uncertainties and assumptions discussed from time to time in our other public filings and public announcements. All forward-looking statements included in this report are based on
information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements, unless required by law.



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TABLE OF CONTENTS



|                           |  |                                                                                                                 |  |   
|-------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | --
|AVAILABLE INFORMATION      |  | i                                                                                                              
|                           | 
|FORWARD-LOOKING STATEMENTS |  | i                                                                                                              
|                           |  |                                                                                                                
|                           |  | PART I                                                                                                          |  |   
|                           |  |                                                                                                                
|ITEM 1.                    |  | BUSINESS                                                                                                        |  | 1 
|                           |  |                                                                                                                
|ITEM 1A.                   |  | RISK FACTORS                                                                                                    |  | 6 
|                           |  |                                                                                                                
|ITEM 1B.                   |  | UNRESOLVED STAFF COMMENTS                                                                                       |  | 13
|                           |  |                                                                                                                
|ITEM 2.                    |  | PROPERTIES                                                                                                      |  | 13
|                           |  |                                                                                                                
|ITEM 3.                    |  | LEGAL PROCEEDINGS                                                                                               |  | 14
|                           |  |                                                                                                                
|ITEM 4.                    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  | 14
|                           |  |                                                                                                                
|                           |  | PART II                                                                                                         |  |   
|                           |  |                                                                                                                
|ITEM 5.                    |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 15
|                           |  |                                                                                                                
|ITEM 6.                    |  | SELECTED FINANCIAL DATA                                                                                         |  | 15
|                           |  |                                                                                                                
|ITEM 7.                    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                           |  | 17
|                           |  |                                                                                                                
|ITEM 7A.                   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                       |  | 33
|                           |  |                                                                                                                
|ITEM 8.                    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                     |  | 34
|                           |  |                                                                                                                
|ITEM 9.                    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |  | 34
|                           |  |                                                                                                                
|ITEM 9A.                   |  | CONTROLS AND PROCEDURES                                                                                         |  | 34
|                           |  |                                                                                                                
|ITEM 9B.                   |  | OTHER INFORMATION                                                                                               |  | 35
|                           |  |                                                                                                                
|                           |  | PART III                                                                                                        |  |   
|                           |  |                                                                                                                
|ITEM 10.                   |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                          |  | 36
|                           |  |                                                                                                                
|ITEM 11.                   |  | EXECUTIVE COMPENSATION                                                                                          |  | 38
|                           |  |                                                                                                                
|ITEM 12.                   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                  |  | 47
|                           |  |                                                                                                                
|ITEM 13.                   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                       |  | 49
|                           |  |                                                                                                                
|ITEM 14.                   |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                          |  | 49
|                           |  |                                                                                                                
|                           |  | PART IV                                                                                                         |  |   
|                           |  |                                                                                                                
|ITEM 15.                   |  | EXHIBITS, FINANCIAL STATEMENT, AND FINANCIAL STATEMENT SCHEDULES                                                |  | 50
|                           | 
|SIGNATURES                 |  |                                                                                                                



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PART I



|ITEM 1. | BUSINESS
|------- | --------

Unless otherwise indicated, as
used in this Form 10-K, the terms we, our and us refer to Harry & David Holdings, Inc. and its consolidated subsidiaries. Harry & David Holdings, Inc. is a holding company owned by funds
sponsored by Wasserstein Partners, LP, and its affiliates (Wasserstein), funds sponsored by Highfields Capital Management LP (Highfields), and certain members of management. References to Harry and David and
Harry & David are to our subsidiaries that grow, manufacture, design, market and package our gift-quality fruit and gourmet food products and gifts. References to Harry and David® and Harry & David® are to the trademarks.

Note that the dollar amounts presented
in this Form 10-K are in thousands except per share data, unless otherwise indicated.

OVERVIEW

We are a leading multi-channel specialty retailer and producer of branded premium gift-quality fruit, gourmet food products and other gifts marketed
under the Harry & David® and our recently acquired Wolfermans® and Cushmans® brands. Our signature
Harry & David® products include our flagship Royal Riviera® pears, our Fruit-of-the-Month Club®
products, our Tower of Treats® gifts and Moose Munch® caramel and chocolate popcorn snacks. Our Wolfermans® products include specialty English muffins and other breakfast products and our Cushmans® product line includes the Cushman HoneyBells® citrus, among other products. Our marketing channels include direct marketing (via catalog, phone, Internet, mail/fax and telemarketing), business-to-business, our Harry and David stores, seasonal Cushmans stores, and wholesale
distribution through select retailers.

We grow, manufacture, design or package products that account for the significant majority of our sales annually.
In addition, we have created a substantial and scalable infrastructure in our production, fulfillment and distribution capabilities, our information technology systems, and our retail stores network. Our vertically integrated operations allow us to
efficiently monitor our costs, quality assurance, manufacturing flexibility and inventory. Accordingly, we expect to derive cost structure and operating margin benefits as revenues increase. We believe that our vertical integration allows us to
maintain a high degree of control over product quality compared with that of our competitors as we rely less heavily on third-party suppliers, particularly during peak periods.

OUR HISTORY

Harry & David Holdings, Inc. (formerly known as Bear Creek Holdings, Inc.) was incorporated in
March 2004 in Delaware for the purpose of acquiring Harry and David (formerly known as Bear Creek Corporation).

On June 17, 2004,
Harry & David Holdings, Inc. purchased all of the outstanding shares of common stock of Harry and David, from Yamanouchi Consumer Inc., (YCI) (the 2004 Acquisition). In conjunction with the 2004 Acquisition, the
Company issued 1,000,000 shares of $.01 par value stock to Wasserstein & Company, LP (Wasserstein) and affiliates of funds sponsored by Highfields Capital Management LP (Highfields). As of June 27, 2009,
affiliates of Wasserstein, together with current and former members of management, own a 66% controlling interest in the Company, and Highfields owns 34%.

Acquisition of Wolfermans business

On January 15, 2008, we completed the acquisition of Wolfermans,
LLC, a direct-marketing company specializing in English muffins and other breakfast products sold primarily under the Wolfermans® brand, from Williams Foods, Inc., for a net purchase price of $22,784. We paid for the acquisition of Wolfermans with available cash balances. The operating
results of Wolfermans are included in both of our Direct Marketing and Wholesale segments according to the nature of the operating activity. For further information see Note 5-Acquisition in the notes to our consolidated financial
statements within Item 15 of this Form 10-K.

Acquisition of Cushmans business

On August 8, 2008, we completed the acquisition of certain assets of Cushman Fruit Company, Inc., a privately held, multi-channel direct marketer of specialty foods,
primarily Florida citrus, (Cushmans), for a net purchase price of $8,509. We paid for the acquisition of Cushmans with available cash balances. Our revolving credit agreement was amended to permit the acquisition and to
address other administrative matters. The operating results of Cushmans are included in both of our Direct Marketing and Wholesale segments according to the nature of the operating activity. For further information see Note
5-Acquisition in the notes to our consolidated financial statements within Item 15 of this Form 10-K.



Sale of the Jackson & Perkins businesses

As discussed elsewhere in this Form 10-K, we
sold our Jackson & Perkins businesses in the fourth quarter of fiscal 2007, including the direct marketing and wholesale businesses, the Jackson & Perkins® brand, catalog, e-commerce website and associated inventory, as well as its direct marketing and wholesale customer lists. We provided transitional services to the
buyer of the J&P businesses through June 2009.



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In a separate transaction associated with the sale of our Jackson & Perkins businesses, we also sold
approximately 3,200 acres of land in Wasco, California, as well as the related buildings and equipment. Cash proceeds on these sales, net of transaction fees were $47,206.

The total net gain recognized on the sale of the Jackson & Perkins businesses was $5,581, which is included within the results of discontinued operations in the consolidated statement of operations for fiscal
2009, 2008 and 2007. The net gain reflects a reserve of $1,497 related to the receivable of $1,000 and the product credit of $497 recorded in fiscal 2009 related to amounts due or past due from the buyer. Also included in discontinued operations are
the historical operating results of Jackson & Perkins business and the transitional revenues and expenses.

The results of operations of these
components are presented in the consolidated statements of operations and cash flows as discontinued operations.

Unless otherwise noted, the former
Jackson & Perkins segment is generally not discussed in this Item 1 Business section.

For further information regarding the divestiture of
the Jackson & Perkins business, see Note 6  Discontinued Operations in the notes to our audited consolidated financial statements included in Part IV, Item 15 in this Form 10-K.

OUR SEGMENTS

Our net sales are derived primarily from our Direct
Marketing, Stores, and Wholesale segments. For further information on how we evaluate and define our reporting segments, see Note 16  Segment Reporting in the notes to our audited consolidated financial statements included in Part
IV, Item 15 in this Form 10-K.

Our Brands

Direct Marketing

Our Direct Marketing segment offers a wide variety of gift-quality fruit and specialty foods and other gifts
through our Harry and David, Wolfermans and Cushmans catalogs, the Internet and our business-to-business and consumer telemarketing. Certain of the Direct Marketing metrics below include Wolfermans and Cushmans activity from
their respective acquisition date forward and therefore may not be comparable to prior periods.

Catalogs.Our catalogs have historically been, and
continue to be, our primary marketing tool for both existing and new customers and help to generate the majority of our orders and sales in each of our direct marketing response channels. We maintain an active marketing and purchasing history, and
we model a customers propensity to respond to future promotions. For prospective customers, we employ a similar strategy based on names and information that we rent from or exchange with third parties. In fiscal 2009, we circulated
approximately 106.5 million Harry and David, Wolfermans and Cushmans catalogs, an increase of approximately 1.8% over the prior fiscal year which did not include a significant number of Wolfermans catalogs and did not include
any Cushmans catalogs. In fiscal 2008, we circulated approximately 104.6 million Harry and David and Wolfermans catalogs, an increase of approximately 5.8% over the prior fiscal year. In fiscal 2007, we circulated approximately
98.9 million Harry and David catalogs, an increase of approximately 0.7% over the prior fiscal year.

Internet.Our Harry and David website, at
www.harryanddavid.com, our Wolfermans website, at www.wolfermans.com, and our Cushmans website, at www.honeybell.com, provide growing and complementary channels that enable customer access and convenience to our
catalog business, enable timely communication through email, enhance our market share of last minute gift-giving sales and increase our brand awareness. In fiscal 2009, nearly 56% of all our direct marketing orders were placed over the Internet,
which on a dollar basis, represents approximately 46% of net sales, and approximately 76% of our new customers placed at least one order on our website. In fiscal 2008, nearly 52% of all our direct marketing orders were placed over the Internet,
which on a dollar basis, represents approximately 42% of net sales, and approximately 70% of our new customers placed at least one order on our website. In fiscal 2007, nearly 46% of all direct marketing orders were placed over the Internet, which
on a dollar basis, represents approximately 38% of net sales, and approximately 63% of our new customers placed at least one order on our website.

Increased Internet orders help lower infrastructure and operating costs and improve inventory management through pricing flexibility, as well as lower customer acquisition expenses compared to catalogs. The Internet also allows us to
capture a larger share of our customers gifting orders. We believe that our highly recognizable brand name has enabled us to develop strategic on-line partnerships, strategic advertising placement on websites and key word search placement on
search engine websites.

Business-to-business sales.We offer business-to-business sales of our products for corporate gift-giving, incentive and
consumer promotional programs throughout the year. Business-to-business customers tend to generate higher average order sizes and generally become valuable long-term customers. Our relationships with these customers are typically established for a
specific period of time and are tied to a specific selling season or event.



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Customer profile.In fiscal 2009, individuals accounted for the majority of our Direct Marketing net sales, while
businesses accounted for the remaining sales. Our Direct Marketing customers are primarily affluent, well-educated, brand responsive family oriented women. The top 100 customers in our Direct Marketing segment represented approximately 1.6% of
Direct Marketing segment net sales both fiscal 2009 and fiscal 2008 compared to 1.5% in fiscal 2007.

Competition.The U.S. consumer markets for
flowers, cards and gifts, and specialty foods are highly competitive and fragmented. We compete based on product quality, package design, shopping convenience, customer service and previous brand experience. In our direct marketing channel, we
compete with traditional distribution channels, other web sites, floral and specialty gift direct marketers and catalog companies. Direct Marketings primary competitors include Wine Country Gift Baskets, Liberty Media Corporation (the parent
company of ProFlowers), 1-800 Flowers, FTD.com, Williams Sonoma and Omaha Steaks.

Stores

Our Stores provide a platform to capture consumer demand for year-round gifts, self-consumption, as well as entertaining needs. Our stores also
increase our access to new customers and allow us to extend our Harry & David® brand presence to a wider audience.

Our outlet stores focus on products for self-use along with selections from our core gift product line. Our specialty stores focus on our core product
line, gift-ready packaging, selected tabletop, home décor accessory and entertainment products. Our flagship Country Village store in Medford, Oregon, offers the full selection of Harry and David retail products as well as expanded offerings
consisting of fresh fruit, vegetables and produce, and gourmet specialty foods and wine selections.

Store locations. We operate our stores in
leading outlet and lifestyle centers, specialty malls and other high traffic shopping areas throughout the United States. The number of stores in operation by type at fiscal year end was as follows:



|                             |  |               |  |               |  |              
|---------------------------- |  | ------------- |  | ------------- |  | -------------
|Store Type                   |  | June 27, 2009 |  | June 28, 2008 |  | June 30, 2007
|Country Village stores       |  | 1             |  | 1             |  | 1            
|Factory outlet center stores |  | 91            |  | 95            |  | 88           
|Specialty stores             |  | 46            |  | 47            |  | 46           
|                             |  |               |  |               |  |              
|Total stores in operations   |  | 138           |  | 143           |  | 135          
|                             |  |               |  |               |  |              

We had two Cushmans seasonal stores in operation during fiscal 2009.

Customer profile. Similar to our Direct Marketing segment customers, our Stores segment customers are primarily affluent, well-educated, brand-responsive and
family-oriented women. Our store customers purchase primarily for self-use and entertaining purposes, while our Direct Marketing customers primarily make purchases for gifts. Stores customers make purchases year-round and more frequently in the
non-holiday period than Direct Marketing customers and, therefore, provide us with new year-round customers to target through our Direct Marketing segment at favorable customer acquisition costs.

Competition. Our Stores compete based on proprietary, diverse and high-quality product offerings, and focus on customer satisfaction and gift services. Our
primary competitors in the confections sector include Sees Candies, Lindt & Sprüngli (the parent company of Ghirardelli), Godiva and Rocky Mountain Chocolate Factory. Our primary competitors in the specialty food and home
accessories sector include Liberty Media Corporation (the parent company of QVC), Williams-Sonoma for our specialty stores and Kitchen Connection and Le Gourmet Chef for our outlets.

Wholesale

Our Wholesale segment focuses primarily on building relationships with leading retailers, generally
including select club channel retailers, mass merchants, department stores, specialty retailers and grocery accounts. The top ten wholesale customers represented approximately 63%, 86% and 88% of Wholesale segment gross product revenues in fiscal
2009, 2008 and 2007, respectively. We believe that our wholesale relationships increase our brand presence and awareness, and allow us to produce and sell greater amounts during our non-holiday selling season.

All of the products that we sell through the wholesale channel are branded, proprietary and packaged appropriately for retail customers. Harry and
David products sold through the wholesale channel include chocolates and confections, such as Moose Munch® caramel and
chocolate popcorn confection and Moose Munch® bars, as well as channel-appropriate gift baskets and other food gifts.
Wolfermans products sold through the wholesale channel include English muffins and scones. Cushmans products sold through the wholesale channel include Honeybell® citrus and other fresh fruit.

Competition.Our Wholesale
segments primary competitors in the confections sector include Houdini Inc., Lindt & Sprüngli (the parent company of Ghirardelli) and Godiva.



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Production, Manufacturing and Support Functions

We own approximately 3,400 acres of land in Oregon, of which approximately 1,900 acres are planted orchards geographically dispersed throughout the Rogue Valley of
Southern Oregon at varying elevations and micro-climates. This dispersion has historically allowed us to successfully mitigate the risks associated with frost, wind, hail, storm damage and other inclement weather as well as dependence on any single
water source. Also included in our 3,400 acres is our 93-acre campus in Medford, Oregon, which houses our 54,000 square foot bakery, confectionery and chocolate complex dedicated to the production of baked goods, chocolates and confections, our
646,000 square foot fruit packing and gift assembly complex including cold storage, our 72,000 square foot year-round call center and various other distribution and storage facilities. Our owned acreage also includes housing for our seasonal
agricultural workforce. We also own a 51-acre campus in Hebron, Ohio, which houses our 275,000 square foot fruit packing and gift assembly complex including cold storage and our 55,000 square foot call center and office space.

RAW MATERIALS, INVENTORY MANAGEMENT AND SOURCING

Our primary raw
materials include paper for our catalogs; corrugated paper for our delivery needs; and chocolate, butter, cheese and fruit that we do not produce or grow ourselves. We attempt to have multiple suppliers for critical raw materials in order to avoid
dependency on any one particular supplier. We develop our products based on projected demand and attempt to maintain flexibility in our manufacturing operation to change the quantity and assortment of products to ensure we have adequate supply while
minimizing lost sales or excess inventory.

We outsource some of our products including selected fresh produce, meats, certain confections, snacks,
condiments and tabletop, entertaining and home décor accessories. We maintain high quality standards in our selection of third-party vendors to which we outsource and from which we purchase.

DISTRIBUTION AND LOGISTICS

We operate two year-round distribution
centers, located in Medford, Oregon and Hebron, Ohio, to deliver our products to our customers. In Medford, Oregon, our products along with other store merchandise are distributed through two discrete buildings. In Hebron, Ohio, our products are
packaged and distributed in a combination of owned and leased buildings. In addition to our owned facilities, we lease storage and distribution facilities throughout the United States during the holiday selling season.

From our manufacturing and packaging facilities, products are typically shipped by refrigerated truck or common carrier to one of our distribution centers. Depending on
the ultimate customer, subsequent distribution may include truck shipment to regional distribution points, to our Stores or to our wholesale customers. Larger wholesale customers sometimes pick up products directly from our distribution centers.

INFORMATION TECHNOLOGY

Our information technology
systems consist of both purchased systems and proprietary software. Our internally developed order fulfillment software is integrated with our manufacturing and distribution operations. At the point of order, a customer is able to select a desired
receipt date to coincide with gift-giving occasions. In addition, the system is able to select products from our inventory that comply with state or international agricultural restrictions, as appropriate, and assign the distribution facility from
which the order will be shipped.

We have invested significant capital to develop our information technology infrastructure and we estimate annual
expenditures will generally include selected system replacements, normal maintenance and functional enhancements.

Our information technology systems were
designed with an emphasis on infrastructure stability. While several of our systems are linked, in the event of a system error, built-in redundancy and fail-safe capabilities are generally designed to keep remaining systems operational whenever
possible.

CALL CENTERS AND CUSTOMER SERVICE

We accept
orders through two year-round call centers located in Medford, Oregon and Hebron, Ohio, which collectively operate 24 hours a day, seven days a week. In order to support our peak selling season, we also operate a seasonal call center in Eugene,
Oregon.

Our in-house call centers enable us to retain greater control of the quality, timeliness and cost of taking product orders than other marketers
who outsource call center services to third-party contractors. Through our toll-free numbers, customers place orders, request catalogs or make merchandise and order inquiries. Our experienced customer service representatives, including many of our
seasonal staff who return each year to assist us during our peak selling periods, are an integral part of our business.



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Defining attributes of the call centers are their scalability and integration. The information technology systems that
support the call centers are scalable, supporting few call center workstations during non-peak seasons and expanding during peak seasons. In addition, the call centers are all fully integrated such that in the event of a hardware or software error
at one call center, all incoming calls will be rerouted to functioning call centers.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

We hold trademark registrations covering the form and style of most of the slogans and trademarks used in our advertisements and packaging materials,
including Royal Riviera® pears, Fruit-of-the-Month Club® product shipments, Tower of Treats® gifts,
Moose Munch® caramel and chocolate popcorn snacks, Wolfermans®products and recipes and Cushman HoneyBells® citrus. We believe that our trademark registrations are of significant
value to our business.

We own or have rights to trademarks and trade names that we use in conjunction with the operation of our
business. Our service marks and trademarks used in this Form 10-K include: Harry and David®; Harry & David®; Royal Riviera®; Fruit-of-the-Month Club®; Tower of
Treats®; Moose Munch®; Wolfermans® and Cushman
HoneyBells®. Each trademark, trade name or service mark of any other company appearing in this Form 10-K belongs to its
holder. Use or display by us of other parties trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship by us of, the trademark, trade name or service mark owner.

EMPLOYEES

At August 31, 2009, we had 1,168
full-time employees. During the fiscal 2009 holiday selling season, we employed approximately 8,262 workers.

GOVERNMENT REGULATION

Our food operations are subject to regulations enforced by, among others, the U.S. Food and Drug Administration and state, local and foreign equivalents, and to
inspection by the U.S. Department of Agriculture and other federal, state, local and foreign environmental, health and safety authorities. The U.S. Food and Drug Administration enforces statutory standards regarding the labeling and safety of food
products, establishes ingredients and manufacturing procedures for certain foods, establishes standards of identity for foods and determines the safety of food substances in the U.S. Similar functions are performed by state, local and foreign
governmental entities with respect to food products produced or distributed in their respective jurisdictions. See Item 1A  Risk Factors.

We are subject to various labor, health and pension regulations, which, among others, includes the Employee Retirement Income Security Act (ERISA) and regulations set forth by the Occupational Safety and Health Administration (OSHA).

Our operations are subject to comprehensive federal, state and local laws and regulations relating to environmental protection. Some of our operations
require environmental permits and controls to prevent and reduce air and water pollution, or the risk of exposure to chemicals, and these permits are subject to modification, renewal and revocation by issuing authorities. We use pesticides,
petroleum products, refrigerants and other hazardous materials in the operation of our business. If we do not fully comply with applicable environmental laws and regulations or the permits required for our operations, or if a release of hazardous
materials occurs at or from one of our facilities, we could become subject to fine, penalties, or other sanctions as well as to lawsuits alleging exposure, personal injury or property damage. We could also be held liable for the cost of remedying
the condition or incur costs related to retrofitting or upgrading our facilities. In addition, maintaining or achieving compliance with the existing and increasingly stringent future environmental requirements could require us to make material
additional expenditures.

We have incurred, and may in the future incur, costs to investigate and clean up soil contamination at some of our current and
former properties.

Our operations are also subject to federal and state laws governing the collection and use of personal identifying information obtained
from individuals. In addition, governmental authorities have enacted and/or proposed regulations to govern the collection and use of personal information that may be obtained from customers or visitors when accessing the Internet. These regulations
may include requirements that procedures be established to disclose and notify users of our websites of our privacy and security policies, obtain consent from users for collection and use of information and provide users with the ability to access,
correct or delete personal information stored by us. In addition, the Federal Trade Commission has made inquiries and investigations of companies practices with respect to their information collection and dissemination practices to confirm
that these are consistent with stated privacy policies and to determine whether companies take precautions to secure the privacy policies of these customers, including policies relating to security of consumers personal information. In some
situations, the Federal Trade Commission has brought actions against companies to enforce the privacy of these customers, including policies relating to the security of consumers personal information. Additionally, U.S. and foreign laws
regulate our ability to use customer information and to develop, buy and sell mailing lists.



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|ITEM 1A. | RISK FACTORS
|-------- | ------------

The following information describes certain
significant risks and uncertainties inherent in our business, which should be carefully considered together with the other information contained in this Form 10-K and in our other filings with the SEC. If any such risks and uncertainties actually
occur, our business, financial condition or other operating results could differ materially from the plans, projections and other forward-looking statements included in Item 7  Managements Discussion & Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-K and in our other public filings. See Forward-looking Statements discussion at the beginning of this Form 10-K. In addition, if any of the following risks
and uncertainties, or if any other risks and uncertainties actually occur, our business, financial condition or operating results could be harmed substantially. In addition, the current economic environment may exacerbate some of the risks noted
below.

Demand for our merchandise is difficult to gauge and our inability to predict consumer spending patterns and consumer preferences may reduce
our revenues, gross margins and earnings.

Consumer spending patterns are difficult to predict and are sensitive to the general economic climate,
the consumers level of disposable income, consumer debt, and overall consumer confidence. Declines in consumer spending could reduce our revenues, gross margins, earnings, and thus our liquidity. We are currently operating in challenging
macroeconomic conditions which have had a negative impact on our revenues, gross margins and earnings. While we are taking steps to implement changes in our business strategy that we hope over time will both increase revenue and reduce costs, these
initiatives will take time to implement and we cannot assure that these initiatives will be successful or that they will have any positive effect on our operating results.

Forecasting consumer demand for our merchandise is difficult given the nature of changing consumer preferences, which can vary by season and from one geographic region to another. If the demand for our merchandise is
lower than expected we will be forced to discount more merchandise, which reduces our gross margins and earnings. Our inventory levels fluctuate seasonally, and at certain times of the year, such as during the holiday season, we maintain higher
inventory levels and are particularly susceptible to risks related to demand for our merchandise. If we elect to carry relatively low levels of inventory and demand is stronger than we anticipated, we may be forced to backorder merchandise in our
direct channels or not have merchandise available for sale in our retail stores, which may result in lost sales and lower customer satisfaction.

The
majority of our sales and net earnings are realized during the holiday selling season from October through December; therefore, if sales during this period are below our expectations, there may be a disproportionate effect on our revenues and
expenses.

We experience significantly increased sales activity during the holiday selling season, particularly between the Thanksgiving and
Christmas holidays. For example, in fiscal 2009 our Direct Marketing and Stores segments collectively generated approximately 63% of their annual net sales during the holiday selling season. If sales during this period are below our expectations,
there may be a disproportionate effect on our revenues and expenses. Accordingly, changing economic conditions or deviations from projected demand for products during the holiday selling season in the fourth calendar quarter could have a material
adverse effect on our financial results and liquidity for the full year.

In anticipation of the holiday selling season, we incur significant expenses and
we also make up-front advance commitments. For example, we typically incur significant expenses related to catalog paper and printing. We also increase our inventory levels and hire a substantial number of seasonal employees to supplement our
existing workforce. In addition, because we commit to these costs, as well as certain fixed costs, in anticipation of expected sales during the holiday selling season, in the event that our actual sales during that calendar quarter are lower than
anticipated, our results of operations and profitability will be negatively impacted.

Disruption in our operations in preparing for, or experienced
during, the holiday season could result in decreased sales. Such disruptions can result from interruptions or delays in telecommunication systems or the Internet that interfere with our order-taking process, and/or supply chain disruptions caused by
an interruption in our information technology systems or at our distribution centers. These disruptions could impede the timely and effective delivery of our products and result in cancelled orders, a delay in the



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circulation of our holiday catalogs, or other problems with our information technology or order-fulfillment operations as discussed below.

Our quarterly operating results may fluctuate significantly due to a variety of factors, including seasonality and the timing of various holidays.

Our quarterly results have fluctuated in the past and may fluctuate in the future, depending upon a variety of factors, including, but not limited
to, shifts in the timing of holidays, including Easter, Thanksgiving and Christmas. Because of the timing of our fiscal quarter ends, a holiday may occur during different fiscal quarters from year to year. Holiday selling season sales may also
significantly fluctuate annually depending upon the number of shopping days between Thanksgiving and Christmas, which is our peak season. As a result, our year-to-year comparisons may be inconsistent.

In addition, most of our operating expenses, such as depreciation and amortization, rent expenses, advertising and promotional expenses and core employee wages and
salaries, do not vary directly with sales and are difficult to adjust in the short term. As a result, if sales for a particular quarter are below our expectations, we may not be able to proportionately reduce operating expenses for that quarter, and
therefore a sales shortfall could have a disproportionate effect on our operating results for that quarter. As a result of these factors, our operating results for any one quarter is not indicative of our operating results for the full fiscal year.

Comparable store performance may fluctuate significantly due to a variety of factors.

Comparable store sales may fluctuate in the future due to a variety of factors, including:



| |  |  | the general retail sales environment, including local competition and economic conditions;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | changes in our merchandise mix or pricing strategies;
| | - |  | -----------------------------------------------------



| |  |  | our ability to efficiently source and distribute products;
| | - |  | ----------------------------------------------------------



| |  |  | the timing of release of new merchandise and promotional events;
| | - |  | ----------------------------------------------------------------



| |  |  | the success of our marketing programs;
| | - |  | --------------------------------------



| |  |  | our ability to attract and retain a qualified sales staff, particularly during the holiday season;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | the number of stores we open, expand or close in any period; and
| | - |  | ----------------------------------------------------------------



| |  |  | weather conditions which can reduce customer traffic, thereby affecting comparable store sales.
| | - |  | -----------------------------------------------------------------------------------------------

If we are unable to accurately target the appropriate segment of the consumer market with our catalog mailings and fail to achieve adequate response rates through
our catalog mailings, we could experience lower sales, significant markdowns or write-offs of inventory and lower margins, all of which would have a negative impact on our liquidity.

We have historically relied on revenues generated from customers initially contacted through our catalog mailings. The success of our direct marketing business largely
depends on our ability to achieve adequate response rates to our catalog mailings, which have historically fluctuated. Although we track the purchasing history of our customers to extrapolate a customers propensity to respond to future catalog
circulations, any of the following could cause customers to forego or defer purchases:



| |  |  | the failure by us to offer a mix of products that is attractive to our catalog customers;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the size, breadth and pricing of our product offering and the timeliness and condition of delivery of our catalog mailings;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | the inability to design appealing catalogs; and
| | - |  | -----------------------------------------------



| |  |  | the customers particular economic circumstances or general economic conditions.
| | - |  | --------------------------------------------------------------------------------

We must timely and effectively deliver merchandise to our stores and customers; if we fail to successfully manage our order-taking, fulfillment and distribution
operations, merchandise may not be delivered in a timely and effective manner and the reputation of our brands may be damaged, resulting in decreased sales or unanticipated expenses.

In order to deliver high-quality products on a timely, reliable and accurate basis, we must successfully manage our order-taking, fulfillment and distribution operations.
Our call centers and websites must be able to handle increased traffic, particularly during peak holiday periods. As is common in our industry, our order taking operations rely, in part, on third parties who provide telecommunications, data,
electrical and other systems. If these third parties experience system failures, interruptions or long response times, degradation of our service may result. If orders are incorrect, incomplete, defective, or not delivered on time, customer
retention rates could decline and, in turn, cause our revenues and profitability to decline.

We conduct the majority of our distribution operations
through two year-round distribution centers and seasonal distribution centers. A serious disruption or slow-down at any of these facilities could materially impair our ability to distribute our products to customers



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in a timely manner or at the anticipated cost. We could incur significantly higher costs and longer lead times associated with distributing our products to
our customers during the time that it takes for us to reopen or replace any of our distribution centers or systems, which could reduce our revenues and profits and may harm our relationships with our customers. A significant portion of our products
are perishable goods, and any disruption in operations, particularly any failure of our cold storage facilities, could damage a significant portion of our inventory and require us to write off that damaged inventory, thereby increasing our expenses.

We are dependent on our management team, and the loss of any key member of this team may prevent us from implementing our business plan in a timely
manner.

Our success depends largely upon the continued services of our executive officers and other key personnel, including senior design,
marketing, operational and finance executives. Any loss or interruption of the services of one or more of our executive officers or key personnel could result in our inability to manage our operations effectively and/or pursue our business strategy.

Because competition for our employees is intense, we may not be able to attract and retain the highly skilled and seasonal employees we need to
support our current operations and planned growth, or if we experience work stoppages or slow-downs, we could be adversely affected.

Our ability to
provide high quality products, as well as our ability to execute our business plan generally, depends in large part upon our ability to attract and retain highly qualified personnel. Competition for such personnel is intense. We have in the past
experienced, and we expect to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. The location of our corporate offices outside of a major metropolitan area, under some
circumstances, makes it more difficult to recruit personnel in certain fields. At certain times, we may have difficulty in our efforts to recruit and retain the required personnel. If we fail to attract new personnel or retain and motivate our
current personnel, our business and future growth prospects could be severely harmed.

We require a large number of seasonal workers to meet customer
demand during our peak season, as well as seasonal agricultural workers in late summer and early fall to meet our harvest demands. While we have been successful in the past, if we are unable to hire an adequate number of seasonal workers, we may be
unable to meet production schedules. In addition, we may experience higher wage costs if wage increases are required to attract adequate seasonal labor.

No unions currently exist at our facilities; however, any disruption of our operations due to labor difficulties could result in our inability to timely meet customer demand or affect the quality or breadth of the products we offer. The
reputation of our company and brands could suffer and we could lose customers as a result. In addition, increased labor costs, to the extent they cannot be passed on to our customers, could negatively impact our profitability.

Upgrades or modifications to our information technology systems and disruptions to our IT operations and other areas may result in decreased sales or cause us to
incur unanticipated expenses.

Our success depends on our ability to take orders and source and distribute merchandise efficiently through
appropriate systems and procedures. We regularly evaluate our information technology systems and requirements and, from time to time, we may substantially upgrade or otherwise modify the information technology systems that support our product
pipeline, including systems relating to product design, sourcing, merchandise planning, forecasting, purchase orders, inventory, order taking, distribution, transportation and price management. There are inherent risks associated with modifying our
core systems, including possible supply chain disruptions that would affect our ability to take orders and ship products to our stores and customers on a timely basis. Any disruptions could result in decreased sales or cause us to incur
unanticipated expenses, thereby reducing our profitability.

We must successfully manage our Internet business.

The success of our Internet business depends, in part, on factors over which we have limited control. In addition to changing consumer preferences and buying trends
relating to Internet usage, we are vulnerable to certain additional risks and uncertainties associated with the Internet, including changes in required technology interfaces, website downtime and other technical failures, costs and technical issues
as we upgrade our website software, computer viruses, changes in applicable federal and state regulation, security breaches, consumer privacy concerns as well as the need to protect our brands and intellectual property against online trademark
infringement by our competitors. Our failure to successfully respond to these risks and uncertainties might adversely affect the sales in our Internet business, as well as damage our reputation and brands.

Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting and could harm our ability to manage
our expenses.

SEC reporting obligations place a considerable strain on our financial and management systems, processes and controls, as well as on
our personnel. In addition, we are required to document and test our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 so that our management can certify as to the effectiveness of our internal
controls. This process



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requires us to document our internal controls over financial reporting and to potentially make significant changes thereto. See also Part II 
Item 9A  Controls and Procedures.

We rely on the products and services of third parties and if we fail to establish, maintain and
develop strategic relationships with high quality, well-known, reputable and reliable vendors and suppliers, our sales may decline or our costs may increase.

Our business is dependent on continued good relations with our third-party vendors and suppliers for some of our products and services. Outsourced products include some of our produce, meats, snacks and condiments,
gift plants, and tabletop and home décor accessories. We do not directly control these vendors or the quality of their goods and therefore cannot control the selection, grading and shipping of some of these fresh products. If these vendors
and suppliers do not fulfill orders to our customers satisfaction, including our customers expectation of quality, our customers may not purchase from us in the future. Further, if we are unable to produce sufficient inventory for any
reason, we may also be dependent on third parties for products we usually produce ourselves.

We rely upon third-party carriers for our product shipments,
including shipments to, from and between our stores. Accordingly, we are subject to risks, including employee strikes and inclement weather, which may affect our third-party carriers abilities to meet our delivery needs. Among other things,
any circumstances that require us to use other delivery services for all or a portion of our shipments could result in increased costs and delayed deliveries and could materially harm our business. In addition, we are subject to the risk that our
service providers may increase the rates they charge, terminate their contract with us, decrease the rate discounts provided to us when an existing contract is renewed or that we may be unable to agree on the terms of a new contract, any of which
could materially adversely affect our operating results.

Increases in delivery rates or changes in the availability of rate discounts could have a
negative impact on our operating results to the extent that we are unable to pass such increased costs on directly to customers or offset such increased costs by raising our selling prices. In addition, fuel costs are a significant component of our
product delivery costs. There is a risk of continued higher fuel costs, which, because of the inability of our third-party carriers to absorb such increases, could result in higher delivery expenses for us. In the event that our third-party carriers
raise their prices to ship our goods, our customers might choose to buy comparable products locally to avoid delivery charges, which could negatively impact our sales.

In addition to outsourcing materials and production for some of our products, we also depend on third parties for our cold storage, telecommunications, maintenance of certain of our technology systems and shipment of
our products. Our inability to acquire such services, or the loss of one or more key vendors, could have a negative effect on our business and financial results.

Any decrease in the availability, or increase in the cost, of raw materials could materially affect our earnings.

Our operations
depend, in part, on the availability of various raw materials, including paper for our catalog operations; corrugated paper for our delivery needs; and chocolate, butter, sugar and cheese used to produce some of our products, and fruit and produce
that we do not grow ourselves. The availability of raw materials may decrease and their prices are likely to be volatile as a result of, among other things, changes in overall supply and demand levels, and new laws or regulations. Disruption in the
supply of our raw materials could temporarily impair our ability to manufacture some of our products or require us to pay higher prices in order to obtain these raw materials from other sources. In the event our raw material costs increase, we may
not be able to pass these higher costs on to our customers in full or at all. Any increase in the prices for raw materials could materially increase our costs and therefore lower our gross margins.

Extreme weather conditions, crop diseases and pests could reduce both our crop size and quality, and we may be unable to produce or acquire sufficient inventory,
resulting in lost sales, increased costs or lost customers.

Our business activities are subject to a variety of agricultural risks. Extreme weather
conditions, such as droughts, frosts, hail or other storms can cause unfavorable growing conditions that adversely affect the quality and quantity of the pears and peaches grown in our orchards. Moreover, all of our irrigation rights are subject to
and limited by adequate availability of irrigation water within a particular water shed system. Seasonal circumstances such as lower annual rainfall or snow accumulation may negatively affect the availability of water and consequently, in such a
year, we may not receive our full allotment of water. The loss or reduction of the supply of water to any of our orchards or farms as a result of a drought at a particular water shed could result in our inability to produce sufficient inventory.
Furthermore, weather conditions may also affect the availability and ripening of the fruit we use in various programs and



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promotions, which in turn may shift sales between quarters on a comparable year-to-year basis. Pests and crop diseases can also reduce our crop size and
quality. If any of these factors affect a substantial portion of our production facilities in any year, we may be unable to produce sufficient crop inventory, resulting in lost sales, shifts in fruit sales between fiscal quarters, increased costs
and/or lost customers.

Our primary growing season occurs during the second and third calendar quarters; the timing of ripening of seasonal fruits,
if delayed, could cause delayed product shipments and therefore cause revenue recognition to be inconsistent from quarter to quarter.

Because we
must commit to certain fixed costs before we know the results of a particular harvest, inclement weather conditions and agricultural pests leading to lower harvest yields can also negatively impact our sales and profitability.

Our operations and the food products that we grow, manufacture and market, including products we source from third parties, are subject to regulation and
inspection by the U.S. Department of Agriculture and the U.S. Food and Drug Administration, among other regulatory agencies, and we may incur increased costs to comply with applicable regulations.

We are subject to regulations enforced by, among others, the U.S. Food and Drug Administration and state, local and foreign equivalents, and to inspection by the U.S.
Department of Agriculture and other federal, state, local and foreign environmental, health and safety authorities. These agencies enforce statutory standards and regulate matters such as the nature and amounts of pesticides that may be used in
growing fruit, the sanitary condition of storage, processing and packing facilities and equipment, documentation of shipments, traceability of food products, the use of various additives, labeling, sales promotion, marketing practices, and, in some
cases, the fruit that may be shipped to or from a state. Although we believe that our operations and our products, including products we source from third parties, are substantially in compliance with all currently applicable regulations and
licensing requirements, we may be required to incur costly changes to operations in the future if regulations change or if new rules are adopted or if it is ultimately determined that we are not in compliance with existing regulations. Applicable
federal, state or local regulations may cause us to incur substantial compliance costs or delay the availability of items at one or more of our orchards, food production facilities, or storage and distribution centers, which could result in
decreased sales. In addition, if violations occur, regulators can impose fines, penalties or other sanctions, and we could be subject to private lawsuits alleging injury and/or property damage. Our products could also become subject to quarantine by
regulatory authorities, which would result in significant lost sales.

The industries in which we compete are highly competitive and a failure to
effectively compete could result in lost revenues if our customers take their business elsewhere or we are unable to attract new customers.

The
U.S. gift, gourmet food gift and specialty foods industries are highly competitive. The market for specialty retail products has undergone significant changes and growth over the past several years as consumer spending levels have increased, leaving
the industries in which we compete highly fragmented and open to entry by new competitors. We compete with national, regional and local businesses and Internet retailers, as well as department stores and specialty stores, discount stores, big box
retailers, supermarkets, club store chains and mass merchants, some of whom are also customers that offer goods substantially similar to those we offer through our brands. Some of our existing and potential competitors may have competitive
advantages over us, including larger customer bases, more widespread brand recognition, a more developed Internet presence or greater financial resources. We face a variety of competitive challenges, including:



| |  |  | maintaining favorable brand recognition and achieving customer perception of value;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | anticipating and quickly responding to changing consumer demands better than our competitors;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | developing innovative, high-quality products that appeal to our target customers; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | sourcing, manufacturing, and distributing merchandise effectively.
| | - |  | ------------------------------------------------------------------

If we fail to effectively compete, we may have to reduce prices, resulting in decreased revenues and lower profit margins, loss of market share or increased marketing expenditures.

Because we specialize in hard to find and best in class products and our business is heavily dependent upon brand name and product recognition, the failure to
protect our intellectual property could adversely affect our brand name and reputation which could result in a loss of customer confidence and lower sales, which may increase costs and reduce our profitability.

Our patents, trademarks, service marks, copyrights, trade dress rights, trade secrets, domain names and other intellectual property are valuable assets that are critical
to our success. Our success, competitive position and amount of potential future income also depend on our ability to obtain and maintain our reputation for brand name proprietary products.

The unauthorized reproduction or other misappropriation of our intellectual property could diminish the value of our brand names or goodwill and cause a decline in
consumer confidence, resulting in a decline in our sales. Any unauthorized use of our trademarks, such



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as Harry & David®,
Fruit-of-the-Month Club®, Wolfermans®, Royal Riviera® or Cushman Honeybells® by another party, in particular for use in connection with products of a lower quality than the products we offer, may dilute the
value of our products and damage our reputation as a producer of high-quality, proprietary goods.

We cannot guarantee we will be able to adequately
protect our intellectual property or that the costs of defending our intellectual property will not adversely affect our operating results. We are also subject to the risk of adverse claims and litigation alleging that our business practices
infringe on the intellectual property rights of others. Litigation to establish the validity of any of our intellectual property, to defend against infringement claims of others or to assert infringement claims against others, can be expensive and
time-consuming even if the outcome is favorable to us. If the outcome is unfavorable to us, we may be required to pay damages, stop production and sales of infringing products or be subject to increased competition from similar products.

The amount of our outstanding borrowings could adversely affect our financial condition and adversely affect our ability to execute our business strategy.

We have a significant amount of indebtedness. As of June 27, 2009, we had $198,671 of long-term debt outstanding, representing the total
outstanding principal amount of our Senior Notes and the long-term portion of our capital lease obligations. As of June 27, 2009, we also had $123,939 available under our revolving credit facility, excluding $1,061 in letters of credit
outstanding. The maximum available borrowings under the revolving credit facility are determined in accordance with our asset-based debt limitation formula. Our total available borrowing capacity at June 27, 2009 was $919.

Our leverage may have important consequences. For example, it may:



| |  |  | limit our ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions or other general corporate purposes;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require us to dedicate a substantial portion of our cash flow from operations to debt service, reducing the availability of our cash flow to use for other purposes;
and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increase our vulnerability to economic downturns, limit our ability to capitalize on significant business opportunities and restrict our flexibility to react to
changes in market or industry conditions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our ability to satisfy our outstanding debt obligations will depend upon our future operating
performance, which will be affected by prevailing economic and financial conditions, business and other factors, many of which are beyond our control. We anticipate that our operating cash flow, together with borrowings under our revolving credit
facility, will be sufficient to meet our anticipated operating expenses and to service our debt obligations as they become due. If, however, we do not generate sufficient cash flow for these purposes, we may be unable to service our indebtedness and
may have to adopt alternative strategies that could include reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking equity capital.

We may not be able to obtain additional financing, if needed, in amounts or on terms acceptable to us, if at all. If sufficient funds are not available or are not
available on terms acceptable to us, our ability to fund expansion, take advantage of acquisition opportunities, develop or enhance our products, or otherwise respond to competitive pressures would be significantly limited. These limitations could
materially and adversely affect our business, results of operations and financial condition.

Our operations are restricted by the terms of our debt.

Our revolving credit facility and the indenture governing our Senior Notes include a number of restrictive covenants. Our credit facility covenants
limit us and our subsidiary, Harry and David, and certain of its subsidiaries, and the indenture governing our Senior Notes limit Harry and David, and certain of its subsidiaries in, among other things:



| |  |  | incurring additional indebtedness or issuing preferred stock;
| | - |  | -------------------------------------------------------------



| |  |  | paying dividends or making other distributions or repurchasing or redeeming its stock or subordinated indebtedness;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | making certain investments;
| | - |  | ---------------------------



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| |  |  | selling assets and issuing capital stock of restricted subsidiaries;
| | - |  | --------------------------------------------------------------------



| |  |  | incurring liens;
| | - |  | ----------------



| |  |  | entering into agreements restricting our subsidiaries ability to pay dividends;
| | - |  | --------------------------------------------------------------------------------



| |  |  | entering into transactions with affiliates; and
| | - |  | -----------------------------------------------



| |  |  | consolidating, merging or selling all or substantially all of Harry and David or any of the guarantors assets.
| | - |  | ---------------------------------------------------------------------------------------------------------------

These covenants could limit our ability to plan for or react to market conditions or to meet our capital needs. If we are not able to comply with these covenants and
other requirements contained in the indenture governing our Senior Notes or our revolving credit facility, an event of default under the relevant debt instrument could occur which could also trigger similar rights under other agreements and cause
holders of the defaulted debt to declare amounts outstanding with respect to that debt to be immediately due and payable.

We consider our customer
databases to be proprietary information and any change in privacy laws or security breaches may negatively impact our sales or threaten our competitive advantage.

We maintain proprietary information about our customers and their purchasing history. In connection with our efforts to seek new customers, we rely on our ability to rent customer lists from third parties and on our
ability, subject to our privacy policy, to exchange our lists with third parties. Subject to confidentiality agreements and our privacy policy, we also rent our customer list to third parties.

Our operations are also subject to federal and state laws governing the collection and use of personal identifying information obtained from individuals when accessing
the Internet. In addition, other governmental authorities have enacted and/or proposed regulations to govern the collection and use of personal information that may be obtained from customers or visitors when accessing the Internet. These
regulations may include requirements that procedures be established to disclose and notify users of our websites of our privacy and security policies, obtain consent from users for collection and use of information and provide users with the ability
to access, correct or delete personal information stored by us. In addition, the FTC has made inquiries and investigations of companies practices with respect to their information collection and dissemination practices to confirm that these
are consistent with stated privacy policies and to determine whether companies take precautions to secure consumers personal information. In some situations, the FTC has brought actions against companies to enforce the privacy policies of
these companies, including policies relating to security of consumers personal information. Additionally, U.S. and foreign laws regulate our ability to use customer information and to develop, buy and sell mailing lists.

Becoming subject to the FTCs regulatory and enforcement efforts, to those of another governmental authority or to those of private litigation could have an adverse
effect on our ability both to collect demographic and personal information from our customers and to rent or exchange such information with third parties, which, in turn, could have an adverse effect on our marketing efforts, business, financial
condition, results of operations and cash flow. In addition, the adverse publicity regarding the existence or results of an investigation could have an adverse impact on customers willingness to use our websites and catalogs and thus could
adversely impact our future revenues.

In addition, if there is a compromise or breach of the technology or other methods we use to protect customer
transaction data, we could be held liable for claims based on unauthorized purchases or fraud claims, among others. These claims could damage our reputation, negatively affect sales and expose us to a risk of loss or litigation.

We may incur unexpected costs associated with environmental compliance or liabilities.

Our operations are subject to comprehensive federal, state and local laws and regulations relating to environmental protection. Some of our operations require environmental permits and controls to prevent and reduce
air and water pollution, or the risk of exposure to chemicals, and these permits are subject to modification, renewal and revocation by the issuing authorities. We use pesticides, petroleum products, refrigerants and other hazardous materials in the
operation of our business. If we do not fully comply with applicable environmental laws and regulations or the permits required for our operations, or if a release of hazardous materials occurs at or from one of our facilities, we could become
subject to fines, penalties, or other sanctions as well as to lawsuits alleging exposure, personal injury or property damage. We could also be held liable for the cost of remedying the condition or incur costs related to retrofitting or upgrading
our facilities. In addition, maintaining or achieving compliance with the existing and increasingly stringent future environmental requirements could require us to make material additional expenditures.

We are subject to the risk of product liability claims, which may result in the payment of damages or settlement fees, and which may exceed or be outside of our
insurance coverage, and even in unsuccessful claims, negative publicity may adversely affect our brand image.



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The sale of food products for human consumption involves the risk of injury to consumers. Injuries may result from
tampering by unauthorized third parties, spoilage or product contamination, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling or transportation process. We
have from time to time been involved in product liability lawsuits and claims, none of which were material to our business. While we are subject to governmental inspection and regulations and believe our facilities and operations, as well as those
of third-party growers, comply in all material respects with all applicable laws and regulations, consumption of our products could cause a health-related illness or injury in the future and we could become subject to claims or lawsuits relating to
such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential
customers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product liability insurance in
an amount which we believe to be adequate. However, such insurance may not continue to be available at a reasonable cost, or we may incur claims or liabilities for which we are either not insured or indemnified, or which exceed the amount of our
insurance coverage.

If we are required to recall a product because of a defect in the product or other reasons, the recalls may provide the basis for
product liability claims against us. In addition, recalls, whether or not the basis for a product liability claim against us, could damage our reputation.

Additionally, we are involved from time to time, in litigation incidental to our business. Management believes, after considering a number of factors and the nature of the legal proceedings to which we are subject, that the outcome of
current litigation is not expected to have a material adverse effect upon our results of operations or financial condition. However, managements assessment of our current litigation could change in light of the discovery of facts not presently
known to us or determinations by judges, juries or other finders of fact that are not in accord with managements evaluation of the possible liability or outcome of such litigation. As a result, there can be no assurance that the actual outcome
of pending or future litigation will not have a material adverse effect on our results of operations or financial condition.

The effects of natural
disasters, terrorism, acts of war and retail industry conditions may adversely affect our business.

Our retail stores, corporate offices,
manufacturing facilities, distribution centers, infrastructure projects and catalog distribution, as well as the operations of vendors from which we receive goods and services, are vulnerable to damage from earthquakes, hurricanes, tornados, fires,
floods, power losses, telecommunications failures, computer viruses, acts of terrorism, acts of war and similar events. If any of these events result in damage to our facilities or systems, or those of our vendors, we may experience interruptions in
our business until the damage is repaired, resulting in the potential loss of customers and revenues. In addition, we may incur costs in repairing any damage beyond our applicable insurance coverage.

Additionally, the continued threat of terrorism and related heightened security measures in the U.S. may disrupt commerce and the U.S. economy. Any further acts of
terrorism or a war may disrupt commerce and undermine consumer confidence, which could negatively impact sales revenue by causing consumer spending and/or shopping center traffic to decline. Furthermore, acts of terrorism, acts of war and military
action both in the United States and abroad can have a significant effect on economic conditions and may negatively affect our ability to purchase merchandise from vendors for sale to our customers. Any significant declines in general economic
conditions, public safety concerns or uncertainties regarding future economic prospects that affect customer spending habits could have a material adverse effect on customer purchases of our products.



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

Not applicable.



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

The following table summarizes the location and general
size of facilities that we own and are used by our operating segments as of June 27, 2009.



|            |  |                                        |  |                      
|----------- |  | -------------------------------------- |  | ---------------------
|Location    |  | Function                               |  | Size                 
|Medford, OR |  |                                        |  |                      
|            |  | Campus                                 |  | 93 acres             
|            |  | Orchards Planted / Undeveloped / Other |  | 1,900/1,000/400 acres
|            |  | Manufacturing / Distribution           |  | 386,000 sq ft        
|            |  | Call Center                            |  | 72,000 sq ft         
|            |  | Office                                 |  | 329,000 sq ft        
|            |  | Warehouse / Cold Storage               |  | 260,000 sq ft        



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##### Table of Contents

|           |  |                                      |  |              
|---------- |  | ------------------------------------ |  | -------------
|Location   |  | Function                             |  | Size         
|           |  |                                     
|Hebron, OH |  |                                      |  |              
|           |  | Campus                               |  | 51 acres     
|           |  | Packaging / Distribution / Warehouse |  | 148,000 sq ft
|           |  | Call Center / Office                 |  | 55,000 sq ft 
|           |  | Cold Storage                         |  | 127,000 sq ft

Our leased store space totaled 376,301 square feet for 138 stores as of June 27, 2009 compared to 390,098
square feet for 143 stores as of June 28, 2008. The retail stores are leased by us with original terms ranging generally from 5 to 20 years. Certain leases contain renewal options for periods of up to 10 years. The rental payment requirements
in our store leases are typically structured as either minimum rent, minimum rent plus additional rent based on a percentage of store sales if a specified store sales threshold is exceeded, or rent based on a negotiated threshold of sales after
which a percent of sales is paid to the landlord.

The following table summarizes the location and general size of support facilities that we lease as of
June 27, 2009.



|            |  |              |  |              
|----------- |  | ------------ |  | -------------
|Location    |  | Function     |  | Size         
|Medford, OR |  | Cold Storage |  | 406,365 sq ft
|Hebron, OH  |  | Warehouse    |  | 50,000 sq ft 
|Eugene, OR  |  | Call Center  |  | 26,500 sq ft 

We believe that our facilities are adequate for our current needs and that suitable additional or substitute space
will be available in the future to replace our existing facilities, if necessary, or to accommodate the expansion of our operations.



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

In the normal course of business, we are
involved from time to time in claims and legal actions incidental to our operations, both as plaintiff and defendant. In the opinion of management as of June 27, 2009, the ultimate liability, if any, arising from the actions or claims to which
we are a party is not expected to have a material adverse effect, individually or in the aggregate, on our business or financial condition.



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

There were no
matters submitted to a vote of security holders during the fourth quarter of fiscal 2009.



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##### Table of Contents

PART II



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

MARKET INFORMATION

There is no established public trading market for
our common stock and we have no authorized preferred stock.

HOLDERS

The outstanding voting securities of Harry & David Holdings, Inc. consist of shares of its common stock, par value $0.01 per share. As of June 27, 2009, there were 1,033,295 shares of our common stock
outstanding. As of June 27, 2009, all shares of Harry & David Holdings, Inc.s common stock were held by funds sponsored by Wasserstein and their affiliates, Highfields and their affiliates, and current and former employees of
Harry and David.

DIVIDENDS

Although we paid dividends
in fiscal 2006 and fiscal 2005, we do not plan to pay dividends on our common stock for the foreseeable future. Rather, for the foreseeable future, we expect to retain any future earnings to support the development and expansion of our business or
make additional payments under our credit facility.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Equity Compensation Plan Information Summary

The table below sets
forth information regarding our Equity Compensation Plans as of June 27, 2009:



|                                                           |  |                                                                                             |  |                                                                             |        |                                                                                                                                          |       
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ------ | ---------------------------------------------------------------------------------------------------------------------------------------- | ------
|Plan Category                                              |  | Number of securities tobe issued upon exerciseof outstanding options,warrants and
rights(a) |  | Weighted-averageexercise price ofoutstanding options,warrants and rights(b) |        | Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a))(c)
|Equity Compensation Plans approved by security holders     |  | 59,568                                                                                      |  | $                                                                           | 113.92 |                                                                                                                                          | 57,136
|Equity Compensation Plans not approved by security holders |  |                                                                                            |  |                                                                             |       |                                                                                                                                          |      
|                                                           |  |                                                                                             |  |                                                                             |        |                                                                                                                                          |       
|Total                                                      |  | 59,568                                                                                      |  | $                                                                           | 113.92 |                                                                                                                                          | 57,136

RECENT SALES OF UNREGISTERED SECURITIES

None in the current fiscal year.



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

The selected historical consolidated
financial information as of June 27, 2009 and June 28, 2008, and for the 52 weeks ended June 27, 2009, June 28, 2008, and the 53 weeks ended June 30, 2007, has been derived from, and should be read together with, the
audited consolidated financial statements and accompanying notes of Harry & David Holdings, Inc. appearing elsewhere in this Form 10-K.



15



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##### Table of Contents

The following discussion should also be read together with Item 7. - Managements Discussion and Analysis of
Financial Condition and Results of Operations and our audited Consolidated Financial Statements and accompanying notes appearing in Part IV, Item 15 in this Form 10-K.



|                                                        |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|------------------------------------------------------- |  | ----------------- | --------- | -- | ---------------- | - | --------- | ------------------- |  | - | ---------------- | - |  | ---------------- | --------- | - |  | - | --------- | -
|                                                        |  | Fiscal Year Ended |          
|Dollars in thousands, except per share data             |  | June 27,2009 (1)  |           |    | June 28,2008 (1) |   |           | June 30,2007 (1)(3) |  |   | June 24,2006 (1) |   |  | June 25,2005 (1) |          
|Statement of Operations Data:                           |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Net sales                                               |  | $                 | 489,596   |    |                  | $ | 545,064   |                     |  | $ | 561,017          |   |  | $                | 524,384   |   |  | $ | 490,738   |  
|Gross profit                                            |  |                   | 202,429   |    |                  |   | 249,170   |                     |  |   | 265,806          |   |  |                  | 221,995   |   |  |   | 220,743   |  
|Operating income (loss)                                 |  |                   | (27,906   | )  |                  |   | 31,162    |                     |  |   | 50,734           |   |  |                  | 22,776    |   |  |   | 26,469    |  
|Net income (loss) from continuing operations            |  |                   | (19,733   | )  |                  |   | 4,337     |                     |  |   | 30,697           |   |  |                  | (5,661    | ) |  |   | (5,274    | )
|Net income (loss) from discontinued operations          |  |                   | (446      | )  |                  |   | 271       |                     |  |   | 1,304            |   |  |                  | (4,052    | ) |  |   | 951       |  
|Net income (loss)                                       |  |                   | (20,179   | )  |                  |   | 4,608     |                     |  |   | 32,001           |   |  |                  | (9,713    | ) |  |   | (4,323    | )
|Basic net income (loss) per share:                      |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Continuing operations                                   |  |                   | (19.10    | )  |                  |   | 4.20      |                     |  |   | 29.90            |   |  |                  | (5.58     | ) |  |   | (5.27     | )
|Discontinued operations                                 |  |                   | (0.43     | )  |                  |   | 0.26      |                     |  |   | 1.27             |   |  |                  | (4.00     | ) |  |   | 0.95      |  
|                                                        |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Total basic net income (loss) per share                 |  | $                 | (19.53    | )  |                  | $ | 4.46      |                     |  | $ | 31.17            |   |  | $                | (9.58     | ) |  | $ | (4.32     | )
|                                                        |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Diluted net income (loss) per share:                    |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Continuing operations                                   |  |                   | (19.10    | )  |                  |   | 4.16      |                     |  |   | 29.90            |   |  |                  | (5.58     | ) |  |   | (5.27     | )
|Discontinued operations                                 |  |                   | (0.43     | )  |                  |   | 0.26      |                     |  |   | 1.27             |   |  |                  | (4.00     | ) |  |   | 0.95      |  
|                                                        |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Total diluted net income (loss) per share               |  | $                 | (19.53    | )  |                  | $ | 4.42      |                     |  | $ | 31.17            |   |  | $                | (9.58     | ) |  | $ | (4.32     | )
|                                                        |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Weighted-average shares used in per share calculations: |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Basic                                                   |  |                   | 1,033,295 |    |                  |   | 1,032,577 |                     |  |   | 1,026,604        |   |  |                  | 1,013,560 |   |  |   | 1,000,000 |  
|                                                        |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Diluted                                                 |  |                   | 1,033,295 |    |                  |   | 1,043,471 |                     |  |   | 1,026,604        |   |  |                  | 1,013,650 |   |  |   | 1,000,000 |  
|                                                        |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Balance Sheet Data:                                     |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Cash and cash equivalents                               |  | $                 | 15,395    |    |                  | $ | 40,792    |                     |  | $ | 49,408           |   |  | $                | 18,637    |   |  | $ | 19,677    |  
|Working capital (2)                                     |  |                   | 13,562    |    |                  |   | 47,782    |                     |  |   | 74,106           |   |  |                  | 22,867    |   |  |   | 27,021    |  
|Total assets                                            |  |                   | 276,692   |    |                  |   | 356,637   |                     |  |   | 370,518          |   |  |                  | 350,183   |   |  |   | 339,606   |  
|Long-term debt                                          |  |                   | 198,671   |    |                  |   | 235,599   |                     |  |   | 245,669          |   |  |                  | 245,000   |   |  |   | 245,000   |  
|Stockholders equity (deficit)                          |  |                   | (21,782   | )  |                  |   | 4,152     |                     |  |   | 4,264            |   |  |                  | (30,450   | ) |  |   | (20,227   | )
|Other Operating Metrics:                                |  |                   |           |    |                  |   |           |                     |  |   |                  |   |  |                  |           |   |  |   |           |  
|Increase (decrease) in store comparable sales (dollars) |  | $                 | (14,514   | )  |                  | $ | (8,235    | )                   |  | $ | 6,368            |   |  | $                | 9,937     |   |  | $ | 10,461    |  
|Increase (decrease) in store comparable sales (%)       |  |                   | (10.8     | )% |                  |   | (6.0      | )%                  |  |   | 4.9              | % |  |                  | 8.2       | % |  |   | 8.8       | %



|(1) | The fiscal 2007 sale of the Jackson & Perkins businesses is accounted for as discontinued operations in each of fiscal 2009, 2008, 2007, 2006, and 2005. For further
information, refer to Note 6  Discontinued Operations in our Consolidated Financial Statements within Part IV, Item 15 of this Form 10-K.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Working capital represents current assets (which includes cash and short-term investments), less current liabilities.
|--- | ---------------------------------------------------------------------------------------------------------------------



|(3) | The fiscal year ended June 30, 2007 contained 53 weeks.
|--- | -------------------------------------------------------



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

The following management assessment of the financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related notes in Part IV, Item 15 in this Form
10-K. Our Consolidated Financial Statements and certain disclosures made in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and require us to make
estimates and assumptions that affect reported amounts of assets and liabilities and contingent assets and contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during each reporting
period. The estimates most susceptible to material changes due to significant judgment are identified as critical accounting policies. The results of these estimates are critical because they affect our profitability and may affect key indicators
used to measure our performance. For further information, see Critical Accounting Policies and Estimates below.

The following discussion
should be read in conjunction with and is qualified in its entirety by reference to, the audited Consolidated Financial Statements and accompanying notes. See Part IV Item 15 in this Form 10-K.

OVERVIEW

General

We are a leading multi-channel specialty retailer and producer of branded premium gift-quality fruit and gourmet food products and other gifts, which
are marketed under the Harry & David®, Wolfermans® and Cushmans® brands. We market our
products through multiple channels, including direct marketing (via catalog, phone, Internet, mail/fax and telemarketing), business-to-business, our Harry and David stores, Cushmans seasonal stores and wholesale distribution through select
retailers.

Net sales are derived primarily from our Direct Marketing, Stores, and Wholesale segments. For further information on how we evaluate and
define our reporting segments, see Note 16  Segment Reporting in the notes to our audited consolidated financial statements included in Part IV, Item 15 in this Form 10-K.

Our Other segment includes the business units that support our operations, including orchards, product supply, distribution, customer operations, facilities,
information technology services and administrative and marketing support functions. The costs relating to the operation of these business units are allocated at cost to one of our operating segments through cost of goods sold or selling, general and
administrative expense.

Acquisition of Wolfermans business

On January 15, 2008, we completed the acquisition of Wolfermans, LLC, a direct-marketing company specializing in English muffins and other breakfast products sold primarily under the Wolfermans® brand, for a net purchase price of $22,784. The operating results of Wolfermans are included in our Direct Marketing and
Wholesale segments according to the nature of the operating activity. For further information see Note 5-Acquisitions in the notes to our audited consolidated financial statements included in Part IV, Item 15 in this Form 10-K.

Acquisition of Cushmans business

On
August 8, 2008, we completed the acquisition of substantially all of the assets of Cushman Fruit Company, Inc., a privately held, multi-channel direct marketer of specialty foods, primarily Florida citrus, (Cushmans) for a net
purchase price of $8,509. Our revolving credit agreement was amended to permit the acquisition and to address other administrative matters. The operating results are included in both our Direct Marketing and Wholesale segments according to the
nature of the operating activity. The acquisition was completed subsequent to our fiscal year ended June 28, 2008, and, as such, Cushmans results of operations are not included in our fiscal 2008 or 2007 results. For further information
see Note 5-Acquisitions in the notes to our audited consolidated financial statements included in Part IV, Item 15 in this Form 10-K.

Sale of the Jackson & Perkins businesses

We sold our Jackson & Perkins business in the fourth quarter of fiscal 2007. In
association with the sale of the Jackson & Perkins business, we also sold land in Wasco, California, which had been used primarily to support the rose growing operations of Jackson & Perkins, as well as the related buildings and
equipment. We provided transitional services to the buyer through June of fiscal 2009.



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For further information regarding the sale of the Jackson & Perkins businesses, see Note 6 
Discontinued Operations in the notes to our audited consolidated financial statements included in Part IV, Item 15 in this Form 10-K.

Unless
otherwise noted, the results of our former Jackson & Perkins segment are generally not discussed in this management discussion and analysis, which is limited to continuing operations.

Factors and trends

Historically, our business has been subject to
significant seasonal variations in demand and a substantial portion of our net sales and net earnings are realized during the holiday selling season from October through December. This is a general pattern for the direct-to-customer and retail
industries, but it is more pronounced for our company than for others due to the gift-giving nature of many of our products.

Accordingly, changing economic conditions or deviations from projected demand for products during the second fiscal quarter can have a materially favorable or adverse impact on our financial position and results for the full year. Because
we commit to certain fixed costs in anticipation of expected sales during the holiday selling season in the second fiscal quarter, if our actual sales during that fiscal quarter are lower than anticipated, our results of operations, profitability
and our liquidity will be negatively impacted. In addition, our primary growing season occurs during the fourth and first fiscal quarters. Because we must commit to certain costs before we know the results of a particular harvest, inclement weather
conditions and agricultural pests leading to lower harvest yields can also negatively impact our sales and profitability. Additionally, a portion of our Direct Marketing sales are derived from Fruit-of-the-Month Club® product shipments. As such, results in this segment may vary between periods due to variations in fruit availability year-to-year, as well as other
factors.

Several economic and industry trends and factors can impact our business, results of operations, liquidity and financial condition. Additionally,
the amount of our outstanding debt could adversely affect our financial condition. For a discussion of risk factors, see Item 1A  Risk Factors, within Part 1 of this Form 10-K.

BASIS OF PRESENTATION

Fiscal Year

Our fiscal year ends the last Saturday of June of each year. There were 52 weeks in both fiscal 2009 and 2008 and 53 weeks in fiscal 2007.

The following discussion and analysis focuses on financial results of continuing operations. The historical results of our operations included in the following
discussion do not reflect what our results of operations, financial position and cash flows may be in the future.

CRITICAL ACCOUNTING POLICIES AND
ESTIMATES

Managements discussion and analysis of financial condition and results of operations is based on our audited consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses and related
disclosures of contingent assets and liabilities. The estimates and assumptions are evaluated on an ongoing basis and are based on historical experiences and various other factors that are believed to be reasonable under the circumstances. Actual
results may differ significantly from these estimates. For a further discussion of some of the risks that could cause actual results to differ from estimates, see Item 1A  Risk Factors, included in Part 1 of this Form 10-K.

Our critical accounting policies and estimates are described in this section. An accounting estimate is considered critical if:



| |  |  | the estimate requires management to make assumptions about matters that are highly uncertain at the time the estimate was made;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | different estimates reasonably could have been used; or
| | - |  | -------------------------------------------------------



| |  |  | changes in the estimate would have a material impact on our financial condition or results of operations are likely to occur from period to period.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

However, you should also review all of our significant accounting policies, including the use of estimates in connection with these
policies, which are described in more detail in Note 3  Summary of Significant Accounting Policies in the notes to our audited consolidated financial statements included in Part IV, Item 15 in this Form 10-K.



18



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Revenue Recognition



In accordance with Staff Accounting Bulletin No.104, Revenue Recognition,we recognize revenue from product sales when the following four revenue recognition
criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.



For our direct marketing revenue and a portion of our wholesale revenue, product sales and
shipping revenues, net of promotional discounts, rebates, and return allowances, are recorded upon shipment as either our or our customers standard terms and conditions provide for transfer of title upon delivery to the carrier. For certain
wholesale customers, revenue is recognized upon receipt by the customer, at which time title passes to the customer in accordance with the terms of the sale. We record a reserve for estimated product returns and allowances in each reporting period.
If returns were to increase or decrease, changes to the reserves could be required. We present sales taxes on a net basis.



Deferred revenue represents amounts received from customers for merchandise to be shipped in subsequent periods. We defer incremental direct costs of order processing
related to those orders for which revenue is deferred. Revenues from sales of gift cards are deferred until redeemed. Our gift cards and certificates generally do not lose value over time and do not expire. Unredeemed gift cards or certificates that
are subject to escheatment ultimately revert to the appropriate state and are not recorded as income. Unredeemed gift cards or certificates not subject to escheatment are recognized in income after being outstanding for ten years at which time we
consider the possibility of redemption to be remote.



Inventories



Inventories in our Direct Marketing, Wholesale and Other segments are
valued at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Inventories in our Stores segment are valued at the lower of cost (which approximates actual cost on a first-in, first-out basis) or
market using the retail inventory method. We estimate a provision for damaged, obsolete, excess, and slow-moving inventory based on specific identification and inventory aging reports. We provide for excess and obsolete inventories in the period
when excess and obsolescence are determined to have occurred.



We capitalize
into inventory both direct and indirect production costs. Indirect production costs include indirect labor and overhead costs related to growing, manufacturing and assembly. Costs of unharvested crops are included in inventory and include direct
labor and other expenses related to unharvested fruit, including the amortization of orchard development costs. Fruit crop inventories are accounted for on a crop year that spans from November to October.



Income Taxes



We account for income taxes under the liability method pursuant to Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes (SFAS No. 109). Under this method, deferred income tax liabilities and assets are based on the difference between the financial
statements and tax basis of assets and liabilities multiplied by the expected tax rate in the year the differences are expected to reverse. Deferred income tax expense or benefit results from the change in the net deferred tax asset or liability
between periods.



We record a valuation allowance to reduce our deferred tax
assets to an amount that is more likely than not to be realized. We have considered carryback and carryforward periods, historical and forecasted income, the apportioned earnings in the jurisdictions in which we and our subsidiaries operate, and tax
planning strategies in estimating a valuation allowance against our deferred tax assets. If we determine that it is more likely than not that some portion or all of the deferred tax assets will not be realized, an adjustment to the deferred tax
assets is charged to earnings in the period in which we make such a determination. Conversely, if we determine that it is more likely than not that the deferred tax assets will be realized, we would reverse the applicable portion of the previously
estimated valuation allowance.



The amount of income taxes we pay is subject to
periodic audits by federal and state tax authorities and these audits may result in proposed deficiency assessments. In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109 (FIN 48) which clarifies the accounting for uncertainty in income taxes in an enterprises financial statements in accordance with SFAS No. 109.FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. We adopted FIN 48 as of July 1, 2007. For further information, see Note 10  Income Taxes included in the notes to our audited consolidated financial
statements included in Part IV, Item 15 in this Form 10-K.



Deferred catalog expenses and advertising expenses



Deferred catalog expenses are incurred in connection with the direct response marketing of certain products. Catalog costs consist of creative design, photography, separations, paper, print, distribution, postage, and
list costs for all direct response catalogs. Such costs



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are capitalized as deferred catalog expenses and are amortized over their expected periods of future benefit based on the
estimated sales curve of each promotion. Each catalog is generally amortized over 3 to 4 months. However, for sales that extend up to 12 months, such as multiple club shipments, catalog expense is generally amortized up to a 12-month period. Prepaid
catalog expenses are evaluated for realizability at each reporting period by comparing the carrying amount associated with each catalog to the estimated remaining future net revenues associated with that promotion. Estimated future revenues are
based on various factors such as the total number of catalogs and pages circulated, the probability and likely magnitude of consumer response, and the assortment of merchandise offered. If the carrying amount is in excess of estimated future net
revenues, the excess is expensed in the reporting period. Non-direct response advertising is expensed as incurred.

Impairment of Long-lived Assets

Fixed assets

In accordance with SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we evaluate our long-lived assets for impairment. Recoverability of assets is measured by a comparison of the carrying amount of an asset to undiscounted future net
cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value, which is calculated on a
discounted cash flow basis.

Intangible assets

Intangible assets primarily consist of trade names, trademarks, a proprietary recipe, customer mailing and rental lists and favorable lease agreements. The trade names, trademarks and the recipe have indefinite lives. The customer lists
have a remaining estimated useful life of four years. The favorable lease agreements have estimated useful lives, which equal the remaining lives of the underlying leases, ranging from two to three years. Goodwill and intangible assets with
indefinite lives are tested for impairment annually using the guidance and criteria described in SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). The impairment testing compares carrying values to fair
values, and generally, if the carrying value of these assets is in excess of fair value, which is calculated on a discounted cash flow basis, an impairment loss would be recognized. The customer mailing lists and rental lists are amortized using a
weighted-average method over the remaining estimated useful lives and favorable lease agreements are amortized using the straight-line method.

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired through our
acquisition of Wolfermans and Cushmans (see Note 5-Acquisition included in the notes to our audited consolidated financial statements included in Part IV, Item 15 in this Form 10-K). Under SFAS No. 142, goodwill is
evaluated for potential impairment on an annual basis or whenever events or circumstances indicate that an impairment may have occurred. SFAS No. 142 requires that goodwill be tested for impairment using a two-step process. The first step of
the goodwill impairment test, used to identify potential impairment, compares the estimated fair value of the reporting unit containing goodwill with the related carrying amount. If the estimated fair value of the reporting unit exceeds its carrying
amount, the reporting units goodwill is not considered to be impaired and the second step of the impairment test is unnecessary. If the reporting units carrying amount exceeds its estimated fair value, the second step test must be
performed to measure the amount of the goodwill impairment loss, if any. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that
excess.

As required by SFAS No. 142, we identified the Wolfermans direct marketing division within our Direct Marketing segment as the
reporting unit to be tested for goodwill impairment. We identified Cushmans goodwill as allocated between our Direct Marketing division and our Wholesale division and tested for potential impairment at that level. The allocation of goodwill
was based on the assignment of operating responsibilities and the reporting of financial results of the acquired business. (See Note 5-Acquisition included in the notes to our audited consolidated financial statements included in Part
IV, Item 15 in this Form 10-K).

Pension Plans

Effective June 30, 2007, we adopted SFAS No. 158 Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R). Our pension
benefit costs and liabilities are developed from actuarial valuations. Inherent in these valuations are assumptions we determine after consultation with our actuaries, including discount rates, expected returns on plan assets and rates of
compensation increases. In determining the expected rates and returns, we are required to consider current market conditions, including changes in interest rates.

Material changes in our pension and post-retirement benefit costs may occur in the future, resulting from changes in assumptions or other management decisions. For further discussion, see Note 9  Benefit Programs included
in the notes to our audited consolidated financial statements included in Part IV, Item 15 in this Form 10-K.



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RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

We adopted SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Retirement Plans, effective June 30, 2007 through a cumulative adjustment to accumulated other comprehensive income
of $1,119, net of tax, we adopted Emerging Issues Task Force Issue No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to Financial Accounting Standards Board Statement No. 43, Accounting for Compensated
Absences as of July 1, 2007 through a cumulative adjustment to retained earnings totaling $256, net of tax.

During June 2009, the Financial
Accounting Standards Board (FASB) issued FAS No. 168, FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162(FAS 168), which establishes the FASB Accounting Standards Codification as the single official source of authoritative US GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force, and related literature. FAS 168 will become effective as of the beginning of the first annual reporting period that begins after November 15, 2009 and for interim periods within
that period. We do not expect that the adoption of FAS 168 will have an impact on our results of operations or financial position.

In May 2009, the
FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The adoption of this statement did not have a material effect on
our consolidated statements. We evaluated subsequent events after the balance sheet date of June 27, 2009 through September 17, 2009, the date the financial statements were issued.

In April 2009, the FASB issued FASB Staff Position (FSP) No. 107-1 (FSP FAS 107-1) and APB 28-1 (APB 28-1), which amends FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments, and APB Opinion No. 28, Interim Financial Reporting, to require disclosures about the fair value of financial instruments for interim reporting periods. FSP FAS
107-1 and APB 28-1 will be effective for interim reporting periods ending after June 15, 2009. The adoption of this staff position is not expected to have a material impact on our financial position or results of operations.

In April 2009, the FASB issued FASB Staff Position No. 115-2 (FSP FAS 115-2) and FASB Staff Position No. 124-2 (FSP FAS 124-2), which
amends the other-than-temporary impairment guidance for debt and equity securities. FSP FAS 115-2 and FSP FAS 124-2 shall be effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this staff position did
not have a material effect on the consolidated financial statements.

In April 2009, the FASB issued FSP FAS 141R-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends and clarifies SFAS No. 141 (Revised) to address application issues on initial recognition and measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies in a business combination. This FSP shall be effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is during or after
fiscal 2010. After the effective date, we will apply the requirements of SFAS No. 141R-1 to any future business combinations.

In December 2008, the
FASB issued Staff Position No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets, which provides additional guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement
plan. This interpretation is effective for financial statements issued for fiscal years ending after December 15, 2009. The Company will adopt this interpretation in fiscal 2010. We are currently evaluating the impact of adopting FSP
132(R)-1 on our consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles (GAAP) for non-governmental entities. SFAS 162 was effective November 15, 2008. The adoption of SFAS 162 did not have a material effect on our consolidated
financial statements.

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3)
which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is
effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company will adopt FSP 142-3 in fiscal year 2010. Early adoption is prohibited. The guidance for determining the useful life of a
recognized intangible asset in FSP 142-3 is to be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements in FSP 142-3 are to be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date. We are currently evaluating the impact the adoption of FSP 142-3 may have, if any, on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R (revised 2007), Business Combinations, which replaces SFAS No. 141. SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The statement also establishes disclosure requirements which will enable users to evaluate the
nature and financial effects of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the effective date of December 15, 2008. We will apply the
requirements of SFAS No. 141R to any future business combinations.



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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 expands the use of fair value accounting but does not affect existing standards, which requires assets or liabilities to be carried at fair value. This statement
gives entities the option to record certain financial assets and liabilities at fair value with the changes in fair value recorded in earnings. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. We have not elected the option to record certain financial assets and liabilities at fair value and, therefore, the adoption of this pronouncement did not have a material impact on our consolidated financial statements.



In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements, which establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather it eliminates inconsistencies in the
guidance found in various prior accounting pronouncements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and to allow additional time to resolve certain issues, the FASB delayed the effective date for one
year for certain types of nonfinancial assets and nonfinancial liabilities, via the issuance of FSP No. FAS 157-2, Effective Date of FASB Statement No. 157. In October 2008, the FASB also issued FSP SFAS 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is
not active. In April 2009, the FASB also issued FSP No. 157-4, which provides additional guidance in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability has significantly
decreased. This FSP does not change the requirements in paragraphs 2427 of Statement 157, which provide guidance on the use of Level 1 inputs. FSP FAS 157-4 shall be effective for interim and annual reporting periods ending after June 15,
2009.



The adoption of this statement, except for nonfinancial assets and
nonfinancial liabilities, did not have a material impact on our consolidated financial statements. We currently hold cash and cash equivalents that are subject to our current SFAS No. 157 adoption and are measured using Level 1 inputs. We are
continuing our evaluation of the impact of adopting the provisions of SFAS No. 157 as it relates to nonfinancial assets and liabilities, primarily as it relates to the measurement of fair value used when evaluating goodwill, other intangible
assets and certain other long-lived assets for impairment and valuing asset retirement obligations.



SFAS No. 157 defines fair value and establishes a three-level hierarchy for measuring fair value of certain financial instruments based on the source of information used to determine fair value. SFAS No. 157
also expands disclosures about fair value measurements. The hierarchy of fair value measurements is described below.



Level 1  Quoted prices in active markets for identical assets or liabilities.



Level 2  Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.



Level 3  Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or liabilities.



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RESULTS OF OPERATIONS

The following table summarizes our consolidated operating results from continuing operations for fiscal 2009, 2008 and 2007 (dollars in thousands).



|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|------------------------------------------------------------ |  | ----------- | ------- | - | ----------- | - | ------- | ----------- |  | - | ------- | -
|                                                             |  | Fiscal 2009 |         |   | Fiscal 2008 |   |         | Fiscal 2007 | 
|Net sales                                                    |  | $           | 489,596 |   |             | $ | 545,064 |             |  | $ | 561,017 |  
|Costs of goods sold                                          |  |             | 287,167 |   |             |   | 295,894 |             |  |   | 295,211 |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|Gross profit                                                 |  |             | 202,429 |   |             |   | 249,170 |             |  |   | 265,806 |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|Operating expenses:                                          |  |             |         |   |             |   |         |             |  |   |         |  
|Selling, general and administrative                          |  |             | 229,335 |   |             |   | 217,008 |             |  |   | 214,004 |  
|Selling, general and administrative  related party          |  |             | 1,000   |   |             |   | 1,000   |             |  |   | 1,068   |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|                                                             |  |             | 230,335 |   |             |   | 218,008 |             |  |   | 215,072 |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|Operating income (loss)                                      |  |             | (27,906 | ) |             |   | 31,162  |             |  |   | 50,734  |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|Other (income) expense:                                      |  |             |         |   |             |   |         |             |  |   |         |  
|Interest income                                              |  |             | (241    | ) |             |   | (2,708  | )           |  |   | (3,126  | )
|Interest expense                                             |  |             | 21,476  |   |             |   | 25,227  |             |  |   | 28,199  |  
|Pension curtailment gain                                     |  |             |        |   |             |   |        |             |  |   | (15,844 | )
|Gain on debt prepayment                                      |  |             | (15,416 | ) |             |   | (303    | )           |  |   |        |  
|Other (income) expense, net                                  |  |             | 869     |   |             |   | (39     | )           |  |   | (348    | )
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|                                                             |  |             | 6,688   |   |             |   | 22,177  |             |  |   | 8,881   |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|Income (loss) from continuing operations before income taxes |  |             | (34,594 | ) |             |   | 8,985   |             |  |   | 41,853  |  
|Provision (benefit) for income taxes                         |  |             | (14,861 | ) |             |   | 4,648   |             |  |   | 11,156  |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|Net income (loss) from continuing operations                 |  |             | (19,733 | ) |             |   | 4,337   |             |  |   | 30,697  |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|Discontinued operations:                                     |  |             |         |   |             |   |         |             |  |   |         |  
|Gain (loss) on sale of Jackson & Perkins                     |  |             | (1,414  | ) |             |   | 282     |             |  |   | 6,713   |  
|Operating income (loss) on discontinued operations           |  |             | 632     |   |             |   | 8       |             |  |   | (4,282  | )
|Provision (benefit) for income taxes                         |  |             | (336    | ) |             |   | 19      |             |  |   | 1,127   |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|Net income (loss) from discontinued operations               |  |             | (446    | ) |             |   | 271     |             |  |   | 1,304   |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  
|Net income (loss)                                            |  | $           | (20,179 | ) |             | $ | 4,608   |             |  | $ | 32,001  |  
|                                                             |  |             |         |   |             |   |         |             |  |   |         |  

Fiscal 2009 Operating Results Summary

In fiscal 2009, we experienced a challenging economic environment characterized by negative economic growth and reduced consumer confidence. The
weaker economy contributed to lower sales in our Direct Marketing and Stores segments, offset by increases in our Wholesale segment related to the Cushmans acquisition. Gross profit and gross margin declines were primarily related to lower
overall product demand, higher product and delivery markdowns and discounts, and the effect of lower sales volume over our fixed costs. Our selling, general and administrative expenses rose due to $14,855 of non-cash charges related to goodwill,
intangible assets and certain other long-lived assets; the addition of Wolfermans® and Cushmans 
advertising costs, as well as severance costs, partially offset by lower advertising in the Harry and David Direct Marketing division and lower payroll costs. Despite the years challenges, we were able to complete the $8,509 acquisition of the
Cushmans business and to complete a partial repurchase of $20,366 of our outstanding bonds.

Net Sales

The following table summarizes our net sales from continuing operations and net sales by reportable business segment for the periods indicated (dollars in thousands).



|                 |  |             |         |                 |       |   |             |   |                 |  |       |             |  |                 |         |  |       |  
|---------------- |  | ----------- | ------- | --------------- | ----- | - | ----------- | - | --------------- |  | ----- | ----------- |  | --------------- | ------- |  | ----- | -
|                 |  | Fiscal 2009 |         | Percent ofTotal |       |   | Fiscal 2008 |   | Percent ofTotal |  |       | Fiscal 2007 |  | Percent ofTotal |        
|Direct Marketing |  | $           | 325,902 |                 | 66.6  | % |             | $ | 372,552         |  | 68.4  | %           |  | $               | 384,439 |  | 68.5  | %
|Stores           |  |             | 125,921 |                 | 25.7  |   |             |   | 138,129         |  | 25.3  |             |  |                 | 139,478 |  | 24.9  |  
|Wholesale        |  |             | 37,773  |                 | 7.7   |   |             |   | 34,383          |  | 6.3   |             |  |                 | 37,100  |  | 6.6   |  
|                 |  |             |         |                 |       |   |             |   |                 |  |       |             |  |                 |         |  |       |  
|Total net sales  |  | $           | 489,596 |                 | 100.0 | % |             | $ | 545,064         |  | 100.0 | %           |  | $               | 561,017 |  | 100.0 | %
|                 |  |             |         |                 |       |   |             |   |                 |  |       |             |  |                 |         |  |       |  



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Net sales decreased $55,468, or 10.2%, to $489,596 for fiscal 2009 compared to $545,064 for fiscal 2008; decreased
$15,953, or 2.8%, to $545,064 for fiscal 2008 compared to $561,017 for fiscal 2007. The extra week in fiscal 2007 contributed additional net sales of approximately $3,200 as compared to fiscal 2008.

Direct Marketing

Our Direct Marketing segment net sales, which
include consumer catalog, Internet, business-to-business and outbound telemarketing channels, decreased $46,650, or 12.5%, to $325,902 for fiscal 2009 compared to fiscal 2008. The sales decline was driven by reduced overall order demand in our Harry
and David Direct Marketing division and, to a lesser extent, lower average order size reflecting higher discounts and fewer items per order. These declines attributable to the Harry and David division were partially offset by the addition of
Wolfermans and Cushmans products.

Direct Marketing segment net sales decreased $11,887, or 3.1%, to $372,552 for fiscal
2008 compared to fiscal 2007. The sales decline was driven by lower volumes resulting from soft consumer demand, a shift in our Fruit-of-the-Month Club® product shipments, and, to a lesser extent, the extra week in fiscal 2007, which contributed approximately $1,400 of net sales in fiscal 2007. The decline was
partially offset by higher average selling prices as well as sales volume from our newly acquired Wolfermans products.

Stores

Our Stores segment net sales decreased $12,208, or 8.8%, to $125,921 for fiscal 2009 compared to fiscal 2008 as comparable store sales decreased 10.8%, or $14,514. The
decrease was driven by lower customer traffic and overall transaction volume, reflecting similar trends in the broader retail environment. The decrease was partially offset by the contribution of $624 from our new (non-comparable) stores.

Fiscal 2008 Stores segment net sales decreased $1,349, or 1.0%, to $138,129 compared to fiscal 2007 as comparable store sales decreased approximately
6.0%, or $8,235, offset by $7,993 of new store sales volume. The decrease in Stores segment net sales was due to lower customer traffic and the extra week in fiscal 2007, which contributed approximately $1,600 of net sales in fiscal 2007. The
decrease was partially offset by new (non-comparable) store sales and higher average selling prices. Comparable stores sales declined 4.9%, or $6,726, after adjusting for the extra week in fiscal 2007.

A store becomes comparable in the first fiscal month after it has been open for a full twelve months, at which point its results are included in comparable store sales.
When a stores square footage has been changed as a result of reconfiguration or relocation within the same retail complex, the store continues to be treated as a comparable store.

The following table summarizes our store openings and closures for the last three fiscal years:



|                                         |  |             |   |  |             |   |  |             |  
|---------------------------------------- |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                         |  | Fiscal 2009 |   |  | Fiscal 2008 |   |  | Fiscal 2007 |  
|Stores in operation, beginning of period |  | 143         |   |  | 135         |   |  | 130         |  
|Stores opened                            |  | 1           |   |  | 13          |   |  | 6           |  
|Store closures                           |  | (6          | ) |  | (5          | ) |  | (1          | )
|                                         |  |             |   |  |             |   |  |             |  
|Stores in operation, end of period       |  | 138         |   |  | 143         |   |  | 135         |  
|                                         |  |             |   |  |             |   |  |             |  

The Company also operated two Cushmans seasonal stores during fiscal year 2009.

Wholesale

Our Wholesale segment net sales increased $3,390, or 9.9%,
to $37,773 for fiscal 2009 compared to fiscal 2008. The increase was primarily due to the addition of Cushmans wholesale activity as well as year-over-year increases in commercial fruit sales, slightly offset by lower volumes with certain
wholesale customers.

In fiscal 2008, net sales decreased by $2,717, or 7.3%, to $34,383 as compared to fiscal 2007. The decrease was primarily due to
lower repeat volumes with certain customers and the extra week in fiscal 2007, which contributed approximately $200 of net sales. The decrease was partially offset by new wholesale customers and Wolfermans wholesale activity.

Gross Profit

Gross profit equals net sales less cost of goods sold.
Cost of goods sold includes cost of goods, occupancy expenses for manufacturing and distribution facilities, warehouse and fulfillment costs and product delivery costs. Cost of goods consists of raw materials, manufacturing costs, costs of
externally purchased merchandise, inbound freight expenses, freight to other production/fulfillment locations, freight to stores, and other inventory-related costs such as shrinkage, markdowns and surplus write-offs. Occupancy expenses consist of
depreciation, rent, utilities and other general occupancy costs. Occupancy expenses for our stores and corporate facility are reflected in selling, general and administrative expenses. Warehouse and fulfillment costs consist of labor, storage and



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equipment expenses and other costs related to inventory positioning, shipment planning, receiving, picking, packing and delivering product to the end
customer, stores and production/fulfillment locations. Product delivery costs consist of third-party delivery services to customers.

The following table
summarizes our gross profit from continuing operations, gross profit by reportable business segment, and gross profit as a percentage of consolidated and segment net sales for the periods indicated (dollars in thousands).



|                   |  |             |         |                 |      |   |             |   |                 |  |      |             |  |                 |         |  |      |  
|------------------ |  | ----------- | ------- | --------------- | ---- | - | ----------- | - | --------------- |  | ---- | ----------- |  | --------------- | ------- |  | ---- | -
|                   |  | Fiscal 2009 |         | Percent ofSales |      |   | Fiscal 2008 |   | Percent ofSales |  |      | Fiscal 2007 |  | Percent ofSales |        
|Direct Marketing   |  | $           | 138,752 |                 | 42.6 | % |             | $ | 179,467         |  | 48.2 | %           |  | $               | 188,469 |  | 49.0 | %
|Stores             |  |             | 57,458  |                 | 45.6 |   |             |   | 65,550          |  | 47.5 |             |  |                 | 69,514  |  | 49.8 |  
|Wholesale          |  |             | 6,219   |                 | 16.5 |   |             |   | 4,153           |  | 12.1 |             |  |                 | 7,823   |  | 21.1 |  
|                   |  |             |         |                 |      |   |             |   |                 |  |      |             |  |                 |         |  |      |  
|Total gross profit |  | $           | 202,429 |                 | 41.3 | % |             | $ | 249,170         |  | 45.7 | %           |  | $               | 265,806 |  | 47.4 | %
|                   |  |             |         |                 |      |   |             |   |                 |  |      |             |  |                 |         |  |      |  

Gross profit decreased $46,741, or 18.8%, in fiscal 2009 from fiscal 2008 and decreased $16,636, or 6.3%, in
fiscal 2008 from fiscal 2007. The extra week in fiscal 2007 contributed additional gross profit of approximately $1,200 as compared to fiscal 2008. Consolidated gross profit as a percentage of consolidated net sales was 41.3%, 45.7%, and 47.4% in
fiscal 2009, fiscal 2008, and fiscal 2007, respectively.

Direct Marketing

Our Direct Marketing segment gross profit decreased $40,715, or 22.7%, to $138,752 in fiscal 2009 from fiscal 2008. Gross profit as a percentage of Direct Marketing segment net sales was 42.6% in fiscal 2009 as
compared to 48.2% in fiscal 2008. The gross profit and gross margin declines were primarily due to lower overall product demand, higher product and delivery markdowns and discounts, and, to a lesser extent, the addition of slightly lower gross
margins in our acquired brands. Also contributing to the declines were increased inventory write-downs, higher material costs, and the effect of lower sales volume over our fixed costs, slightly offset by lower delivery expense.

Direct Marketing segment gross profit decreased $9,002, or 4.8%, to $179,467 in fiscal 2008 from fiscal 2007. Gross profit as a percentage of Direct Marketing segment
net sales was 48.2% in fiscal 2008 as compared to 49.0% in fiscal 2007. The gross margin decline was due to a combination of increased fulfillment and delivery costs as well as a favorable inventory adjustment to prior year costs of goods sold.
These declines were partially offset by improved variable product margin as selected sales price increases helped offset some of the increase in product costs as well as lower cost allocations from our manufacturing and corporate support divisions.

Stores

Our Stores segment gross profit decreased
$8,092, or 12.3%, to $57,458 in fiscal 2009 from fiscal 2008. Gross profit as a percentage of Stores segment net sales was 45.6% in fiscal 2009 and 47.5% in fiscal 2008. The gross profit decline in fiscal 2009 was primarily due to lower sales volume
and increased product discounts. The decline in gross margin was attributable to higher product discounts reflecting a more aggressive promotional stance driven by increased competition across the broader retail market.

Stores segment gross profit decreased $3,964, or 5.7%, to $65,550 in fiscal 2008 from fiscal 2007. Gross profit as a percentage of Stores segment net sales was 47.5% in
fiscal 2008 and 49.8% in fiscal 2007. The gross margin decline in fiscal 2008 was primarily driven by higher allocated costs from our manufacturing and support divisions, as discussed above, increased product costs and higher freight. These factors
were partially offset by higher average selling prices. The gross profit decrease was driven by lower transaction volume as a result of weaker consumer traffic in our comparable stores and the extra week in fiscal 2007, which contributed
approximately $600 of segment gross profit, as well as the factors discussed above, partially offset by the contribution of eight net new stores.

Wholesale

Our Wholesale segment gross profit increased $2,066, or 49.7%, to $6,219 in fiscal 2009 from fiscal 2008. Gross profit as a
percentage of segment net sales was 16.5% and 12.1% for fiscal 2009 and 2008, respectively. The gross profit and gross margin increases were primarily attributable to the addition of Cushmans, lower overall freight costs, lower inventory
write-offs and favorable overhead costs.

Wholesale segment gross profit decreased $3,670, or 46.9%, to $4,153 in fiscal 2008 from fiscal 2007. Gross
profit as a percentage of segment net sales was 12.1% and 21.1% for fiscal 2008 and 2007, respectively. The gross profit and margin decline in fiscal 2008 was largely due to higher allocated costs from our manufacturing and support division, (as
discussed above under Direct Marketing),



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which were coupled with lower sales volume. Also contributing to the decline were higher inventory write-offs and higher
delivery, freight and fulfillment costs and the extra week in fiscal 2007 which contributed approximately $100 of gross profit.

Selling, General and
Administrative Expenses

Selling, general and administrative expenses consist of occupancy costs associated with our stores and corporate facility,
advertising, credit costs, call center expenses, depreciation and amortization for store leasehold improvements and fixtures, corporate facilities, IT equipment and software, and corporate administrative functions. Occupancy expenses associated with
the stores and corporate facility include rent, common area maintenance, utilities and other general expenses. Corporate administrative functions include the costs of executive administration, legal, human resources, finance, insurance, information
technology and other general expenses.

The following table summarizes our selling, general and administrative expenses from continuing operations and by
reportable business segment as a percentage of net sales for the periods indicated (dollars in thousands).



|                                                   |  |             |         |                 |      |   |             |   |                 |  |      |             |  |                 |         |  |      |  
|-------------------------------------------------- |  | ----------- | ------- | --------------- | ---- | - | ----------- | - | --------------- |  | ---- | ----------- |  | --------------- | ------- |  | ---- | -
|                                                   |  | Fiscal 2009 |         | Percent ofSales |      |   | Fiscal 2008 |   | Percent ofSales |  |      | Fiscal 2007 |  | Percent ofSales |        
|Direct Marketing                                   |  | $           | 153,126 |                 | 47.0 | % |             | $ | 140,259         |  | 37.6 | %           |  | $               | 140,882 |  | 36.7 | %
|Stores                                             |  |             | 71,958  |                 | 57.1 |   |             |   | 74,408          |  | 53.9 |             |  |                 | 70,842  |  | 50.8 |  
|Wholesale                                          |  |             | 5,251   |                 | 13.9 |   |             |   | 3,341           |  | 9.7  |             |  |                 | 3,348   |  | 9.0  |  
|                                                   |  |             |         |                 |      |   |             |   |                 |  |      |             |  |                 |         |  |      |  
|Total selling, general and administrative expenses |  | $           | 230,335 |                 | 47.0 | % |             | $ | 218,008         |  | 40.0 | %           |  | $               | 215,072 |  | 38.3 | %
|                                                   |  |             |         |                 |      |   |             |   |                 |  |      |             |  |                 |         |  |      |  

Selling, general and administrative expenses increased $12,327, or 5.7%, to $230,335 in fiscal 2009 from fiscal
2008 and increased $2,936, or 1.4%, to $218,008 in fiscal 2008 from fiscal 2007. The extra week in fiscal 2007 contributed additional selling, general and administrative expenses of approximately $2,700 as compared to fiscal 2008.

The increase in selling, general and administrative expense in fiscal 2009 was primarily due to $14,855 of non-cash impairment charges as previously discussed and the
addition of Wolfermans and Cushmans advertising costs in the Direct Marketing segment, severance charges, partially offset by lower advertising costs in the Harry and David Direct Marketing division and lower payroll costs. There
were no incentive compensation expenses in fiscal 2009 or fiscal 2008.

The increase in selling, general and administrative expense in fiscal 2008 was
primarily due to a combination of higher advertising costs in our Direct Marketing segment, higher payroll and related benefit expense tied to merit and personnel increases, higher lease and operating costs related to our new stores and store
impairment charges. Also contributing to the increase were support and integration costs associated with our Wolfermans acquisition. These increases were partially offset by a material decrease in incentive compensation expenses.

Consolidated selling, general and administrative expenses as a percentage of consolidated net sales were 47.0%, 40.0%, and 38.3% for fiscal 2009, fiscal 2008 and
fiscal 2007, respectively.

Other (Income) Expense, net

Other (income) expense consists of interest and other non-operating expense (income). The following table summarizes other (income) expense for the periods indicated (dollars in thousands.)



|                             |  |            |         |   |            |   |        |            |  |   |         |  
|---------------------------- |  | ---------- | ------- | - | ---------- | - | ------ | ---------- |  | - | ------- | -
|                             |  | Fiscal2009 |         |   | Fiscal2008 |   |        | Fiscal2007 | 
|Net interest expense         |  | $          | 21,235  |   |            | $ | 22,519 |            |  | $ | 25,073  |  
|Gain on debt prepayment      |  |            | (15,416 | ) |            |   | (303   | )          |  |   |        |  
|Pension curtailment gain     |  |            |        |   |            |   |       |            |  |   | (15,844 | )
|Other (income) expense, net  |  |            | 869     |   |            |   | (39    | )          |  |   | (348    | )
|                             |  |            |         |   |            |   |        |            |  |   |         |  
|Total other (income) expense |  | $          | 6,688   |   |            | $ | 22,177 |            |  | $ | 8,881   |  
|                             |  |            |         |   |            |   |        |            |  |   |         |  

Net interest expense decreased from fiscal 2008 to fiscal 2009 and from fiscal 2008 to fiscal 2007 primarily due
to a lower outstanding balance on our Senior Notes resulting from our debt repurchases in both fiscal 2009 and 2008. The interest expense savings was partially offset by lower interest income as we had less available cash to invest in fiscal 2009
compared to fiscal 2008. As a result of the debt repurchases, we recorded a gain on debt prepayment in both fiscal 2009 and 2008, as discussed in Note 8  Borrowing Arrangements in Item 15 in this Form 10-K.



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The pension curtailment gain in fiscal 2007 was a result of the freeze of our qualified and non-qualified pension plans.

Other (income) expense, net is comprised of expenses related to FIN 48 liabilities and the write-off of a cost basis investment in fiscal 2009,
miscellaneous other income in fiscal 2008 and legal settlement income in 2007.

Income Taxes

Total income taxes may differ from the amount computed by applying the federal corporate tax rate of 35% due to the net result of permanent differences, changes in the
valuation allowance and the inclusion of state and local income taxes, net of the federal tax benefit. The combined federal and state tax effective rates were 43.0%, 51.7% and 26.7% in fiscal 2009, fiscal 2008 and fiscal 2007, respectively.

In fiscal 2009, the effective tax rate for continuing operations was higher than the federal statutory tax rate primarily due to a decrease in tax
reserves under FIN 48 of $341, the recognition of General Business Credits of $388, state tax benefit of $1,734, and the Domestic Production Activities Deduction of $220. The effective tax rate in fiscal 2008 was higher than the statutory rate
primarily due to a mid-year structural reorganization that resulted in a higher state tax expense and cumulative adjustments to deferred tax items of $686 due to changes in the state tax rate as well as an increase in tax reserves under FIN 48 of
$881, offset by the reversal of the remaining valuation allowance of $795. The effective tax rate in fiscal 2007 is lower than the statutory rate primarily due to a reversal of the valuation allowance of $3,309. The valuation allowance offsets
deferred tax assets in accordance with SFAS No. 109. For further information see Note 3  Summary of Significant Accounting Policies  Income Taxes and Note 10  Income Taxes in the notes to our audited
consolidated financial statements included in Part IV, Item 15 in this Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity and capital resource needs are to service our debt, finance working capital and make capital expenditures. At June 27, 2009, our primary
sources of liquidity were cash and cash equivalents of $15,395 and unused borrowings under our revolving credit facility of approximately $123,939 to the extent of our current available borrowing base. As of June 27, 2009, we had no borrowings
outstanding and $1,061 in letters of credit outstanding under the revolving credit facility. The maximum available borrowings under the revolving credit facility are determined in accordance with our asset-based debt limitation formula. Total
available borrowings at June 27, 2009, were approximately $919. Due to the highly seasonal nature of our business, we rely heavily on our revolving credit facility to finance operations leading up to the holiday selling season. Our available
cash and borrowings are used to fund inventory and inventory related purchases, catalog advertising and marketing initiatives leading up to the holiday selling season. Generally, cash provided by operations peaks during our second fiscal quarter
because of the holiday selling season (see Seasonality below).

The deterioration of the financial, credit and housing markets has led to
declines in consumer confidence, reduced credit availability, and liquidity concerns. We have factored these concerns into our current business plans and have responded by implementing significant cost and capital savings initiatives. Based upon our
historical results, current operations and strategic plans, we believe that our cash flow from operations, together with available cash and borrowings under our revolving credit facility, will be adequate to meet our anticipated requirements for
working capital, capital expenditures, lease payments and scheduled interest payments and to fund our operations for the next twelve months. However, if the macroeconomic environment were to continue to deteriorate, it is possible that consumer
spending could decline further and impact our cash flows, which may require us to seek other forms of working capital. It is also possible that due to the impact of worsening economic conditions on our business, should we need to access our credit
facility, it may not be available in full, or at all, for future borrowings, due to borrowing base and other limitations.

Cash Flows from Operating
Activities from Continuing Operations

Cash used in operating activities from continuing operations totaled $4,897 in fiscal 2009, compared to cash
provided by operating activities was $25,482 and $46,496 in fiscal 2008 and fiscal 2007, respectively. Operating cash decreased in fiscal 2009 and 2008 primarily due to lower operating income as previously discussed.

Cash Flows from Investing Activities from Continuing Operations

Cash
used in investing activities from continuing operations totaled $68 in fiscal 2009 and consisted primarily of $8,509 for the acquisition of Cushmans business and capital expenditures of $6,678 partially offset by $15,097 in proceeds from the
sale of short-term investments. Capital expenditures in fiscal 2009 consisted primarily of distribution and operations projects.

Cash used in investing
activities from continuing operations totaled $30,398 in fiscal 2008 and consisted primarily of $22,784 for the acquisition of Wolfermans, capital expenditures of $17,855, and $14,964 for the purchase of short-term investments partially offset
by $25,173 in proceeds from the sale of short-term investments. Capital expenditures in fiscal 2008 consisted primarily of cash used to fund our ERP system implementation, the development of new stores, our transportation and fulfillment management
systems and our new optical defect pear sorter.

For fiscal 2007, cash used in investing activities from continuing operations were $45,851 and consisted
primarily of $51,838 for the purchases of short-term investments and capital expenditures of $21,459, partially offset by $27,429 in proceeds from the sale of short-term investments. Capital expenditures for fiscal 2007 included investment in an ERP
system, additional manufacturing capacity, new stores, a new transportation and fulfillment management system to support distribution, and infrastructure spending for our seasonal call center in Eugene, Oregon.



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We currently expect our investing activities in fiscal 2010 to include capital expenditures of between $4,000 and $5,000,
consisting primarily of spending for manufacturing and distribution facility upgrade projects, retail store refurbishment and ongoing IT infrastructure projects. However, our actual capital expenditures for fiscal 2010 may differ from those
currently anticipated depending upon the size and nature of new business opportunities, actual cash flows generated by operations, and the timing of new project spending.

Cash Flows from Financing Activities from Continuing Operations

Cash used in financing activities from continuing
operations totaled $21,156, $11,008 and $60 in fiscal 2009, fiscal 2008 and fiscal 2007, respectively. Cash used in financing activities in fiscal 2009, 2008 and 2007 primarily consisted of borrowings and repayments on our revolving credit facility,
funds used to buyback our Senior Notes of $20,366, $9,405 and $0, respectively, and repayments for our capital lease obligations of $790, $1,684 and $1,077, respectively. Cash used in financing activities in fiscal 2007 were partially offset by
$1,017 in proceeds from the exercise of stock options.

Cash Flows from Discontinued Operations

Cash flows provided by operating activities from discontinued operations were $724 and $3,147 in fiscal 2009 and 2008 and a usage of cash of $12,674 in fiscal 2007. Cash
provided by operating activities in fiscal 2009 and 2008 was attributable to cash payments made to us for transitional services we provided to the buyers of the Jackson & Perkins business. Cash used in operating activities in fiscal 2007
was primarily comprised of amounts related to the operations of Jackson & Perkins, which was sold in the fourth quarter of fiscal 2007.

Cash
provided by investing activities from the discontinued Jackson & Perkins operations was $0, $4,161 and $42,860 in fiscal 2009, 2008 and 2007, respectively. Cash provided by investing activities in fiscal 2008 consisted of proceeds from the
divestiture of the Jackson & Perkins business. Cash provided by investing activities in fiscal 2007 was primarily comprised of proceeds from such divestiture partially offset by $185 of capital expenditures.

The divested Jackson & Perkins business did not impact our historical cash flows from financing activities.

Borrowing Arrangements

Revolving Credit Facility

Our principal sources of liquidity are available cash, cash flows from operations, and borrowings under our revolving credit facility. The
revolving credit facility has a maturity date of March 20, 2011. Our ability to borrow under the revolving credit facility is subject to compliance with the borrowing base and with financial covenants and other customary conditions, including
that no default under the facility shall have occurred and be continuing. Borrowings under the revolving credit facility bear interest, at our option, at either a base rate, based on the higher of the federal funds rate plus 0.5% or the corporate
base lending rate of UBS AG, or a Eurodollar rate, based on the rate offered in the London interbank market (LIBOR), plus in each case a borrowing margin based on our consolidated leverage ratio.

Due to the seasonal nature of our business, we draw on our revolving credit facility to provide seasonal working capital to support inventory buildup and catalog
production in advance of the holiday selling season and for other general corporate purposes. We have consistently generated substantial amounts of cash each holiday selling season. We are required by our banks to pay down the revolving credit
facility to zero by the next business day following December 25th of each year. Cash generated during the holiday selling season is also typically used to fund our operations for several months during the post-holiday selling season, until we
begin to build inventories and other working capital components to support our next holiday selling season.

We are required to pay a commitment fee equal
to 0.375% per annum on the daily average unused line of credit. The commitment fees are payable on the last day of each calendar year quarter and the associated expense is included within interest expense in the consolidated statement of
operations.

Harry and Davids obligations under the revolving credit facility are guaranteed by us and by all of Harry and Davids existing and
future direct and indirect domestic subsidiaries and are secured by first-priority pledges of the stock of Harry and David and each of the subsidiary guarantors equity interests and 65% of the equity interests of any future first-tier foreign
subsidiaries, as well as first-priority security interests in and mortgages on all of our, Harry and Davids and each of the subsidiary guarantors respective tangible and intangible property.

The revolving credit facility contains customary affirmative and negative covenants for senior secured credit facilities of this type, including, but not limited to,
limitations on the incurrence of indebtedness, capital expenditures, asset dispositions, acquisitions, investments, dividends and other restricted payments, liens and transactions with affiliates. These covenants significantly limit our ability to
obtain funds from our subsidiaries in the form of loans, dividends or other advances other than dividends paid to us by Harry



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and David for the purpose of paying (i) our income taxes when and as due, (ii) management fees payable to
Wasserstein under the management agreement, or (iii) operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including legal and accounting expenses and similar expenses and customary fees
to non-officer directors in an amount not to exceed $350 in any fiscal year).

The revolving credit facility requires mandatory prepayments upon the
receipt of proceeds from certain asset sales, casualty events and debt offerings. In addition, the revolving credit facility requires that, on a consolidated basis, we maintain as of December 31 each year an available cash balance (defined as
all cash, cash equivalents and short-term investments, minus all accounts payable) of at least $50,000, failing which we are required to meet and maintain a minimum fixed charge coverage ratio, subject to certain definitions and conditions. We also
are also subject to an annual limitation on our capital expenditures, subject to certain adjustments, through the terms of the revolving credit facility.

Our ability to comply with these covenants and to meet and maintain such financial ratios and tests may be affected by events beyond our control, such as those described under Item 1A  Risk Factors in this Form 10-K. If we
do not meet and maintain these financial ratios, we may not be able to borrow and the lenders could accelerate all amounts outstanding to be immediately due and payable which could also trigger a similar right under other agreements, including our
indenture. At June 27, 2009, we were in compliance with all of our covenants under the credit agreement.

Long-term Debt

As of June 27, 2009, Harry and David, our wholly owned subsidiary, had outstanding $58,170 in Senior Floating Rate Notes due March 1, 2012, and $140,192 of
Senior Fixed Rate Notes due March 1, 2013 (collectively, the Senior Notes). The $58,170 in Senior Floating Rate Notes accrues interest at a rate per annum equal to LIBOR plus 5%, calculated and paid quarterly. The interest rate was
set at 5.67% and 7.68% at June 27, 2009 and June 28, 2008, respectively. The $140,192 in Senior Fixed Rate Notes accrues interest at an annual fixed rate of 9.0%, with semiannual interest payments due on the first of March and December.

In fiscal 2009 and 2008, we repurchased $36,638 and $10,000 of our Senior Notes in open market transactions, respectively, which resulted in net gains
recognized of $15,416 and $303, respectively. See Note 8-Borrowing Arrangements in the notes to our audited consolidated financial statements in Part IV, Item 15 in this Form 10-K.

On November 30, 2007, in connection with an internal corporate re-organization, Harry & David Operations Corp. merged with and into Harry and David, its
wholly-owned subsidiary, and Harry and David assumed all of Harry & David Operations Corp.s obligations under the Senior Notes pursuant to a supplemental indenture.

The Senior Notes represent the senior unsecured obligations of Harry and David and are guaranteed on a senior unsecured basis by Harry & David Holdings, Inc. and all of our subsidiaries. See Note
19Condensed Consolidating Financial Statements in Item 15 in this Form 10-K. The indenture governing the Senior Notes contains various restrictive covenants including, but not limited to, limitations on the incurrence of
indebtedness, asset dispositions, acquisitions, investments, dividends and other restricted payments, liens and transactions with affiliates. These covenants significantly limit our ability to obtain funds from our subsidiaries in the form of loans,
dividends or other advances other than (i) dividends or loans in limited circumstances if our fixed charge coverage ratio reaches specified levels or (ii) dividends paid to us by our subsidiary, Harry and David, for the purpose of paying
(A) management fees not to exceed $1,000 per year (excluding out-of-pocket expenses, (B) our consolidated income taxes when and as due, and (C) up to $2,000 (since the date of the indenture) relating to expenses associated with an
initial public offering. With respect to dividends other than as described in the preceding sentence, even if the fixed charge coverage ratio threshold has been met, Harry and David may only pay us dividends up to a specified amount based upon,
among other things, our consolidated net income and any cash proceeds received by Harry and David from the sale of equity securities or contributions to equity.

Our ability to comply with these covenants may be affected by events beyond our control, such as those described under Item 1A  Risk Factors in this Form 10-K. If we do not remain in compliance with these covenants, we may
not be able to borrow additional funds when and if it becomes necessary, and the holders of the Senior Notes and lenders under the credit facility could accelerate all amounts outstanding to be immediately due and payable.

At June 27, 2009, we were in compliance with all of our covenants under the indenture. Our debt service requirements consist primarily of interest expense on the
Senior Notes and on any current and future borrowings under our revolving credit facility. Our other short-term cash requirements are expected to consist mainly of cash to fund our operations, capital expenditures, cash payments under various
operating leases and repayment of any borrowings under our revolving credit facility.

While our recent acquisitions were financed with cash on hand, we
expect to finance any future acquisitions using cash, capital stock, debt securities or the assumption of indebtedness. However, the restrictions imposed on us by the agreements governing our debt outstanding at the time may affect this strategy. In
addition, to fully implement our growth strategy and meet the resulting capital requirements, we may be required to request increases in amounts available under our revolving credit facility, enter into new credit facilities, issue new debt
securities or raise additional capital through equity financings. We may not be able to obtain an increase in



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the amounts available under our revolving credit facility on satisfactory terms, if at all, and we may not be able to successfully complete any future bank
financing or other debt or equity financing on satisfactory terms, if at all. As a result, our ability to make future acquisitions is uncertain. We may also incur expenses in pursuing acquisitions that are never consummated.

Based upon our current operations and historical results, we believe that our cash flow from operations, together with available cash and borrowings under our revolving
credit facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures, lease payments and scheduled interest payments and to fund our future growth for the next 12 months. To the extent additional funding
is required beyond the twelve-month horizon, we expect to seek additional financing in the public or private debt or equity capital markets. Our equity sponsors, Wasserstein & Co. and Highfields Capital Management, are not obligated to
provide financing to us. If we are unable to obtain the capital we require to implement our business strategy on acceptable terms or in a timely manner, we would attempt to take appropriate actions to tailor our activities to match our available
financing, including revising our business strategy and future growth plans to accommodate the amount of available financing.

Certain funds sponsored by
Wasserstein Partners, LP, and its affiliates (Wasserstein) and certain funds sponsored by Highfields Capital Management LP (Highfields) currently own approximately 63% and 34%, respectively, of our common stock. Wasserstein
and/or Highfields have, and may continue to, purchase our outstanding Senior Notes in open market purchases, privately negotiated transactions or otherwise. Such purchases will depend on prevailing market conditions and other factors, and there can
be no assurance as to when or whether any such purchases may occur. The amounts involved may be material.

CONTRACTUAL OBLIGATIONS

The following table presents our contractual obligations as of June 27, 2009 (dollars are in thousands).



|                                                  |  |                       |         |                 |   |          |  |           |         |                  |   |         |  |   |       
|------------------------------------------------- |  | --------------------- | ------- | --------------- | - | -------- |  | --------- | ------- | ---------------- | - | ------- |  | - | ------
|                                                  |  | Amounts due by period
|                                                  |  | Total                 |         | Less than1 year |   | 1-3years |  | 4-5 Years |         | More than5 years
|Long-term debt obligations                        |  | $                     | 198,362 |                 | $ |         |  | $         | 58,170  |                  | $ | 140,192 |  | $ |      
|Estimated interest payments on long-term debt (1) |  |                       | 56,385  |                 |   | 15,916   |  |           | 31,006  |                  |   | 9,463   |  |   |      
|Capital lease obligations (2)                     |  |                       | 483     |                 |   | 161      |  |           | 322     |                  |   |        |  |   |      
|Operating lease obligations                       |  |                       | 106,731 |                 |   | 18,606   |  |           | 29,782  |                  |   | 13,100  |  |   | 45,243
|Purchase obligations                              |  |                       | 58,326  |                 |   | 58,326   |  |           |        |                  |   |        |  |   |      
|Pension obligations                               |  |                       | 28,072  |                 |   | 1,909    |  |           | 14,213  |                  |   | 11,950  |  |   |      
|Other miscellaneous obligations                   |  |                       | 1,024   |                 |   | 158      |  |           | 420     |                  |   | 258     |  |   | 188   
|                                                  |  |                       |         |                 |   |          |  |           |         |                  |   |         |  |   |       
|Total                                             |  | $                     | 449,383 |                 | $ | 95,076   |  | $         | 133,913 |                  | $ | 174,963 |  | $ | 45,431
|                                                  |  |                       |         |                 |   |          |  |           |         |                  |   |         |  |   |       



|(1) | Estimated interest payments exclude interest on borrowings under our revolving credit facility because we are unable to estimate future borrowings. Because we are unable to predict
future LIBOR rates, for purposes of calculating estimated interest payments, we assumed an interest rate of 5.67% per annum on our floating rate notes for all periods, the applicable interest rate as of June 27, 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Capital lease obligations include payments for principal and interest.
|--- | ----------------------------------------------------------------------

OFF BALANCE SHEET ARRANGEMENTS

Leases

We
lease certain properties consisting primarily of retail stores, distribution centers, and equipment with original terms ranging primarily from 3 to 10 years and up to 22 years. Certain of these leases contain purchase options and renewal options for
various terms. In addition to minimum rental payments, certain of our retail store leases require us to make contingent rental payments, which are based upon certain factors such as sales volume and property taxes. The contingent rental expense is
accrued in each reporting period if achievement of any factor is considered probable. Material leasehold improvements are depreciated over the shorter of the estimated useful life or the lease term. For further information see Note 13 
Leases in the notes to our audited consolidated financial statements included in Part IV, Item 15 in this Form 10-K.

NON-U.S. GAAP FINANCIAL
MEASURE: EBITDA

Regulation G, Conditions for Use of Non-GAAP Financial Measures, Item 10(e) of Regulation S-K, define and prescribe the
conditions of use of certain non-U.S. GAAP financial information. Our measure of EBITDA meets the definition of a non-U.S. GAAP financial measure.

EBITDA
is defined as earnings before net interest expense, income taxes, depreciation and amortization and is computed on a consistent method from quarter to quarter and year to year.

We use EBITDA, in conjunction with U.S. GAAP measures such as cash flows from operating activities, cash flows from investing activities and cash flows from financing activities, to assess our liquidity, financial
leverage and ability to service our outstanding debt. For example, certain covenant and compliance ratios under our revolving credit facility and the indenture governing the outstanding notes use EBITDA, as further adjusted for certain items as
defined in each agreement. If we are not able to comply with



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these covenants, we may not be able to borrow additional amounts, incur more debt to finance our ongoing operations and working capital or take other
actions. In addition, the lenders could accelerate the outstanding amounts, which could materially and adversely affect our liquidity and financial position.



We use EBITDA, in conjunction with the other U.S. GAAP measures discussed above, to assess our debt to cash flow leverage, to plan and forecast overall expectations and
to evaluate actual results against such expectations; to assess our ability to service existing debt and incur new debt; and to measure the rate of capital expenditure and cash outlays from year to year and to assess our ability to fund future
capital and non-capital projects. We believe that, like management, debt and equity investors frequently use EBITDA to compare debt to cash flow leverage among companies.



EBITDA, when used as a liquidity measure, has limitations as an analytical tool. These limitations include:



| |  |  | EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | EBITDA is not a measure of discretionary cash available to us to pay down debt;
| | - |  | -------------------------------------------------------------------------------



| |  |  | EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



To compensate for these limitations, we analyze EBITDA in conjunction with other U.S. GAAP
financial measures impacting liquidity and cash flow, including depreciation and amortization, capital spending and net income in terms of the impact on depreciation and amortization, changes in net working capital, other non-operating income and
losses that affect cash flow and liquidity, interest expense and taxes. Similarly, EBITDA should not be considered in isolation or as a substitute for these U.S. GAAP liquidity measures.



We also use EBITDA, in conjunction with U.S. GAAP measures such as operating income and net income, to assess our operating performance and
that of each of our businesses and segments. Specifically, we use EBITDA, alongside the U.S. GAAP measures mentioned above, to measure profitability and profit margins and to make budgeting decisions relating to historical performance and future
expectations of our segments and business as a whole, and to make performance comparisons of our company compared to other peer companies. We believe that, like management, debt and equity investors frequently use (and expect to be able to continue
to use) EBITDA to assess our operating performance and compare it to that of other peer companies.



Furthermore, we use EBITDA (in conjunction with other U.S. GAAP and non-U.S. GAAP measures such as operating income, capital expenditures, taxes and changes in working capital) to measure return on capital employed.
EBITDA allows us to determine the cash return before taxes, capital spending and changes in working capital generated by the total equity employed in our company. We believe return on capital employed is a useful measure because it indicates the
total returns generated by our business, which, when viewed together with profit margin information, allows us to better evaluate profitability and profit margin trends.



As a performance measure, we also use return on capital employed to assist us in making budgeting decisions related to how debt and equity capital is being
employed and how it will be employed in the future. Historical measures of return on capital employed, which include EBITDA, are used in estimating and predicting future return on capital trends. Combined with other U.S. GAAP financial measures,
historical return on capital information helps us make decisions about how to employ capital effectively going forward. However, because EBITDA does not take into account certain of these non-cash items, which do affect our operations and
performance, EBITDA has inherent limitations as an operating measure. These limitations include:



| |  |  | EBITDA does not reflect the cash cost of acquiring assets or the non-cash depreciation and amortization of those assets over time, or the replacement of those
assets in the future;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | EBITDA does not reflect cash capital expenditures on an historical basis or in the current period, or address future requirements for capital expenditures or
contractual commitments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | EBITDA is not a measure of discretionary cash available to us to invest in the growth of our business;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | EBITDA does not reflect changes in working capital or cash needed to fund our business;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | EBITDA does not reflect our tax expenses or the cash payments we are required to make to fulfill our tax liabilities; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------





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| |  |  | Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

To compensate for these limitations we analyze EBITDA alongside other U.S. GAAP financial measures of operating performance, including, operating income, net income and
changes in working capital, in terms of the impact on other non-operating income and losses that affect profitability and return on capital. You should not consider EBITDA in isolation or as a substitute for these U.S. GAAP measures of operating
performance.

Our fiscal 2009 EBITDA from continuing operations decreased $44,720, or 86.0%, from fiscal 2008 primarily due to a decline in operating
performance, as described above. EBITDA from continuing operations in fiscal 2008 decreased $34,028, or 39.6%, from fiscal 2007, primarily due to the decline in operating performance, and to a lesser extent, due to the $15,844 non-cash pension
curtailment gain in fiscal 2007 resulting from the pension freeze, which took effect June 30, 2007.

The following table reconciles EBITDA from
continuing operations to net cash provided by operating activities, which we believe to be the closest GAAP liquidity measure to EBITDA, and net income, which we believe to be the closest GAAP performance measure to EBITDA (dollars are in
thousands).



|                                                                                 |  |             |         |   |             |   |         |             |  |   |         |  
|-------------------------------------------------------------------------------- |  | ----------- | ------- | - | ----------- | - | ------- | ----------- |  | - | ------- | -
|                                                                                 |  | Fiscal 2009 |         |   | Fiscal 2008 |   |         | Fiscal 2007 | 
|Net income (loss) from continuing operations                                     |  | $           | (19,733 | ) |             | $ | 4,337   |             |  | $ | 30,697  |  
|Interest expense, net from continuing operations                                 |  |             | 21,235  |   |             |   | 22,519  |             |  |   | 25,073  |  
|Provision (benefit) for income taxes from continuing operations                  |  |             | (14,861 | ) |             |   | 4,648   |             |  |   | 11,156  |  
|Depreciation and amortization from continuing operations                         |  |             | 20,635  |   |             |   | 20,492  |             |  |   | 19,098  |  
|                                                                                 |  |             |         |   |             |   |         |             |  |   |         |  
|EBITDA from continuing operations                                                |  | $           | 7,276   |   |             | $ | 51,996  |             |  | $ | 86,024  |  
|Interest expense, net from continuing operations                                 |  |             | (21,235 | ) |             |   | (22,519 | )           |  |   | (25,073 | )
|Provision (benefit) for income taxes from continuing operations                  |  |             | 14,861  |   |             |   | (4,648  | )           |  |   | (11,156 | )
|Amortization of deferred financing costs                                         |  |             | 2,435   |   |             |   | 2,604   |             |  |   | 2,669   |  
|Stock option compensation expense                                                |  |             | 482     |   |             |   | 552     |             |  |   | 577     |  
|Loss on disposal and impairment of fixed assets and other long-lived assets      |  |             | 15,045  |   |             |   | 1,665   |             |  |   | 770     |  
|Gain on short-term investments                                                   |  |             | (64     | ) |             |   | (426    | )           |  |   | (407    | )
|Deferred income taxes                                                            |  |             | (3,213  | ) |             |   | (22,916 | )           |  |   | 10,818  |  
|Amortization of deferred pension loss                                            |  |             | 1,695   |   |             |   |        |             |  |   |        |  
|Pension curtailment gain                                                         |  |             |        |   |             |   |        |             |  |   | (15,844 | )
|Gain on debt prepayment                                                          |  |             | (15,416 | ) |             |   | (303    | )           |  |   |        |  
|Changes in operating assets and liabilities from continuing operations           |  |             | (6,763  | ) |             |   | 19,477  |             |  |   | (1,882  | )
|                                                                                 |  |             |         |   |             |   |         |             |  |   |         |  
|Net cash provided by (used in) operating activities from continuing operations   |  |             | (4,897  | ) |             |   | 25,482  |             |  |   | 46,496  |  
|Net cash provided by (used in) operating activities from discontinued operations |  |             | 724     |   |             |   | 3,147   |             |  |   | (12,674 | )
|                                                                                 |  |             |         |   |             |   |         |             |  |   |         |  
|Net cash provided by (used in) operating activities                              |  | $           | (4,173  | ) |             | $ | 28,629  |             |  | $ | 33,822  |  
|                                                                                 |  |             |         |   |             |   |         |             |  |   |         |  

Because each of the different items of expense and/or income set forth below are not included in each period
presented, net income (loss) and EBITDA for fiscal 2009, 2008 and 2007 may not be comparable, and may not be indicative of future results.

In fiscal 2009,
net loss and EBITDA from continuing operations included:



| |  |  | $15,416 net gain on repayment of long-term debt;
| | - |  | ------------------------------------------------



| |  |  | $14,855 of non-cash charges of goodwill, intangibles, certain other long-lived assets;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | $3,899 of inventory write-off expenses;
| | - |  | ---------------------------------------



| |  |  | $3,693 of severance related expenses;
| | - |  | -------------------------------------



| |  |  | $1,789 of consulting fees associated with certain corporate strategic initiatives including acquisitions and information technology projects;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $300 of income associated with a vendor settlement;
| | - |  | ---------------------------------------------------



| |  |  | $820 of amortization and integration expenses related to our acquisitions;
| | - |  | --------------------------------------------------------------------------



| |  |  | $190 loss on disposal of fixed assets;
| | - |  | --------------------------------------



| |  |  | $1,000 of fees paid to Wasserstein and Highfields under the management agreement;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | $89 of expenses related to land rezoning;
| | - |  | -----------------------------------------



| |  |  | $237 of approved relocation and recruitment charges;
| | - |  | ----------------------------------------------------



| |  |  | $325 related to the write down of a cost basis investment; and
| | - |  | --------------------------------------------------------------



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| |  |  | $577 of expenses related to FIN 48 liabilities.
| | - |  | -----------------------------------------------



In fiscal 2008, net income and EBITDA from continuing operations included:



| |  |  | $5,279 of consulting fees associated with certain corporate strategic initiatives including acquisitions and information technology projects;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $1,665 loss on disposal and impairment of fixed assets and long-lived assets;
| | - |  | -----------------------------------------------------------------------------



| |  |  | $1,108 of severance and re-organization payroll and benefits;
| | - |  | -------------------------------------------------------------



| |  |  | $1,000 of fees paid to Wasserstein and Highfields under the management agreement;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | $599 of expenses for certain deferred costs relating to prior years;
| | - |  | --------------------------------------------------------------------



| |  |  | $442 expense for certain inventory adjustments related to our ERP conversion;
| | - |  | -----------------------------------------------------------------------------



| |  |  | $324 of expense related to inventory step-up purchase accounting amortization;
| | - |  | ------------------------------------------------------------------------------



| |  |  | $304 of costs associated with legal settlements;
| | - |  | ------------------------------------------------



| |  |  | $248 of employee executive recruiting charges;
| | - |  | ----------------------------------------------



| |  |  | $303 net gain on prepayment of long-term debt; and
| | - |  | --------------------------------------------------



| |  |  | $204 of income relating to indemnified FIN 48 liabilities.
| | - |  | ----------------------------------------------------------



In fiscal 2007, net income and EBITDA from continuing operations included:



| |  |  | $15,844 non-cash pension curtailment gain;
| | - |  | ------------------------------------------



| |  |  | $3,336 of consulting fees associated with the implementation of our ERP software project, other IT and corporate projects;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | $1,185 severance;
| | - |  | -----------------



| |  |  | $1,068 of fees paid to Wasserstein and Highfields under our management agreement;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | $770 loss on disposal of fixed assets;
| | - |  | --------------------------------------



| |  |  | $734 of employee executive recruiting charges;
| | - |  | ----------------------------------------------



| |  |  | $566 loss associated with a straight-line rent adjustment on our store leases;
| | - |  | ------------------------------------------------------------------------------



| |  |  | $1,592 favorable cost of goods sold adjustment due to the reconciliation of aged unmatched receipts identified in the ERP conversion process;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $527 of income recognized from legal and vendor settlements; and
| | - |  | ----------------------------------------------------------------



| |  |  | $264 income due to a settlement gain on our pension plans.
| | - |  | ----------------------------------------------------------



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



We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in interest rates and commodity prices, which could impact
our financial condition, results of operations and cash flows. We plan to manage our exposure to these and other market risks through regular operating and financing activities and if deemed necessary, the use of derivative financial instruments. If
we begin to use such derivative financial instruments, they will be used as risk management tools and not for speculative investment purposes. As of June 27, 2009, we have no derivative financial instruments in use.



INTEREST RATE RISK



Interest on our outstanding floating rate notes and interest on borrowings under our revolving credit facility accrue at variable rates
based on LIBOR and the federal funds overnight rate, among other things. Assuming we were to borrow the entire amount available under our revolving credit facility, together with our outstanding senior floating rate notes, a 1.0% change in the
interest rate on our variable rate debt would result in a $1,832 corresponding effect on our interest expense on an annual basis. The interest rates on our variable rate long-term debt will reflect the market rate of the senior floating rate notes
issued in February 2005, and therefore the carrying value of our variable rate long-term debt is expected to approximate fair value.



COMMODITY RISK



We have commodity risk as a result of some of the raw materials we utilize in our business, including paper for our catalog operations, corrugated packaging for our delivery needs, chocolate, butter fat, sugar and
cheese used to produce some of our products, and fruit that we do not grow ourselves. Although we do not enter into formal hedging arrangements to mitigate against commodity risk, we do ensure that we have multiple sources for these commodities.





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

Our financial
statements and supplementary data are included at the end of this Form 10-K beginning on page F-1. See the index appearing on the following pages of this Form 10-K.



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

None.



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

We are committed to maintaining disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and are subject to certain
limitations, including the exercise of judgment by individuals, the inability to identify unlikely future events, and the inability to eliminate misconduct completely.

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. The evaluation examined those disclosure controls and procedures as of June 27, 2009, the end of the period covered by this Form 10-K. Based upon the evaluation, our management, including our
Chief Executive Officer and our Chief Financial Officer, concluded that, as of June 27, 2009, our disclosure controls and procedures were effective to ensure that information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required disclosure.

In addition, our management, with the participation of the Chief Executive
Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13-a  15 (f)). Our internal control system is designed to provide
reasonable assurance to the Companys management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.

Our management assessed the effectiveness of the companys internal control over financial reporting as of June 27, 2009. 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, management concluded that the
companys internal control over financial reporting was effective as of June 27, 2009. During this process, we identified control improvements, none of which constitute a material weakness, either individually or in the aggregate, and
implemented a process to investigate and, as appropriate, remediate such matters. We are continuing to review, evaluate, document and test our internal controls and procedures and may identify areas where disclosure and additional corrective
measures are required. We also continue to look for methods to improve our overall system of controls.

This Form 10-K does not include an attestation
report of our registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and
Exchange Commission that permit us to provide only managements report in this Form 10-K.

During the year ended June 27, 2009, we took several
steps to improve the effectiveness of our internal controls. Specifically we:



| |  |  | strengthened our controls in the preparation and review of critical accounting estimates;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | strengthened our controls and procedures over inventory; and
| | - |  | ------------------------------------------------------------



| |  |  | continued to strengthen our IT general controls, particularly in the areas of change control, segregation of duties and physical/logical access to data.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

There were no changes in our internal controls during fiscal 2009 that materially affected, or are reasonably likely to materially
affect our internal control over financial reporting for the fiscal year ended June 27, 2009. The process and control improvements described above were not material.



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



Not applicable.



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PART III



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

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information with respect to the Companys directors and executive
officers, as of the date hereof.



|                       |  |     |  |                                                                          
|---------------------- |  | --- |  | -------------------------------------------------------------------------
|Name                   |  | Age |  | Position                                                                 
|                       |  |    
|William H. Williams    |  | 61  |  | President, Chief Executive Officer and Director                          
|                       |  |    
|Stephen V. OConnell   |  | 51  |  | Former Chief Financial Officer, Chief Administrative Officer and Director
|                       |  |    
|Edward F. Dunlap       |  | 53  |  | Chief Financial Officer                                                  
|                       |  |    
|Cathy J. Fultineer     |  | 52  |  | Executive Vice President, Brand Development and Product Innovation       
|                       |  |    
|Peter D. Kratz         |  | 55  |  | Executive Vice President, Operations and Wholesale Segment               
|                       |  |    
|Rudd C. Johnson        |  | 59  |  | Executive Vice President, Human Resources                                
|                       |  |    
|Donald L. Cato         |  | 61  |  | Senior Vice President and General Manager, Customer Operations           
|                       |  |    
|Joseph P. Foley        |  | 54  |  | Senior Vice President and General Manager, Stores                        
|                       |  |    
|Philip W. Young        |  | 53  |  | Senior Vice President and General Manager, Direct Marketing              
|                       |  |    
|Ellis B. Jones         |  | 55  |  | Director                                                                 
|                       |  |    
|George L. Majoros, Jr. |  | 48  |  | Director                                                                 
|                       |  |    
|Bruce Wasserstein      |  | 61  |  | Director                                                                 

Officers are elected annually by the board of directors and hold office until the next annual election of officers
or until their successors are elected and qualified. Wasserstein, together with current and former employees of Harry and David, currently owns approximately 66% of our common stock and Highfields currently owns approximately 34% of our common
stock. As a result, Wasserstein, alone or together with Highfields, will effectively be able to control, and Highfields, alone or together with Wasserstein, will be able to influence, the Companys affairs and policies, the election of our
directors and the appointment of the Companys management. A majority of the members of the board of directors are currently representatives of Wasserstein. We currently do not have any board committees.

William H. Williams returned as our Chief Executive Officer in June 2004. Mr. Williams was a President of YCI from November 2000 until June 2004 and Chief
Executive Officer of YCI from June 2002 until June 2004 and previously served as our Chief Executive Officer from 1988 until moving to YCI in 2000. Prior to joining us in 1988, Mr. Williams spent 18 years with Neiman Marcus during which he
worked in the mail-order, stores, merchandising and advertising divisions. Mr. Williams has served on the Oregon Economic Development Commission, the Oregon International Trade Commission and the Oregon Board of Higher Education. He has also
served on the boards of directors of several corporations and not-for-profit groups and currently serves on the board of LaCrosse Footwear, Inc. and Arroweye Solutions, Inc.

Stephen V. OConnell became our Chief Financial Officer and Chief Administrative Officer as of July 2004. Before joining us, he was a Managing Director of Wasserstein and was employed by Wasserstein and
its predecessor firm, Wasserstein Perella & Co., Inc., since 1997. Prior to joining Wasserstein, Mr. OConnell was employed for seven years with EXOR America, a private equity firm controlled by the Agnelli family, and for the
previous three years with Salomon Brothers in the Investment Banking Group. He previously served on boards of directors of All-Clad, Odwalla (board observer) and Collins and Aikman Corporation. As previously announced, Mr. OConnell
resigned his positions with the Company effective June 30, 2009.

Edward F. Dunlap joined Harry & David as Senior Vice President,
Chief Financial Officer on August 10, 2009. Prior to joining the Company, Mr. Dunlap served as Chief Financial Officer for Shaklee Corporation for three years, prior to which he held various executive positions with Wild Oats Markets, Inc.
from 2001 to 2005, most recently as Senior Vice President of Operations and prior to that, Chief Financial Officer.

Cathy J. Fultineer assumed her
new role as Executive Vice President of Brand Development and Product Innovation on January 26, 2009, after previously being promoted to Executive Vice President, Sales and Marketing, on March 1, 2006. Ms. Fultineer rejoined us as
Senior Vice President and General Manager of Stores in 2003. Prior to rejoining our company, Ms. Fultineer was at Brylane LP, where she was Executive Vice President of Missy Apparel Group, Chadwicks and Lerner Brands from November 2001 to
June 2003. She originally joined us in November 1996 as Vice President of Marketing and Merchandising and was promoted to Senior Vice



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President of Marketing and Merchandising in June 1998. In April 2000, Ms. Fultineer was promoted to Senior Vice
President and General Manager of Direct Marketing, a position she held until joining Brylane LP in November 2001. Prior to her experience at our company, Ms. Fultineer worked in merchandising for 15 years, including a five-year tenure with
Neiman Marcus as Vice President and Division Merchandise Manager for NM Direct, and as a Buyer and Group Buyer for four years at Gucci America Inc.



Peter D. Kratz was promoted to Executive Vice President, Operations, on March 1, 2006, and assumed the additional responsibility of Wholesale Segment on
January 26, 2009. Mr. Kratz joined our company in 1999 as Senior Vice President and General Manager, Product Supply. Prior to joining us, Mr. Kratz spent eight years with Sara Lee Bakery, where he left as Vice President of Frozen
Baked Goods Operations at the Chicago Headquarters. Prior to that, Mr. Kratz held positions at Procter & Gamble and Pepperidge Farm, Inc.



Rudd C. Johnson has been our Executive Vice President Human Resources since June 2004, having served previously as Executive Vice President, Human Resources for
YCI from January 2001 until June 2004, and Senior Vice President for us from November 1996 until moving to YCI in January 2001. Mr. Johnson originally joined our company in 1996 as Senior Vice President, Human Resources. Prior to joining us,
Mr. Johnson spent 14 years with Neiman Marcus, where he was Vice President, Human Resources.



Donald L. Cato has been our Senior Vice President and General Manager, Customer Operations since 2000, and also assumed direct management responsibilities for the Medford Call Center on January 26, 2009.
Mr. Cato joined the Company as Vice President, Stores Distribution in 1995. In 1997, he assumed the role of Vice President, Bear Creek Gardens. He was promoted to Senior Vice President, Distribution in 1998. Prior to joining the Company,
Mr. Cato accumulated 24 years of experience in various senior management positions with Dayton Hudson Corporation, Target Stores, Carter Hawley Hale and Younkers Department Stores.



Joseph P. Foley has served as our Senior Vice President and General Manager of Stores since January 2008. Mr. Foley joined our
company in 1995 as Vice President, Marketing Finance. Subsequently he held the positions of Vice President, New Business Initiatives; Senior Vice President, Customer Operations; Senior Vice President, Jackson & Perkins Wholesale. In May
2002, following the creation of YCI, Mr. Foley was named Senior Vice President, Operations for Shaklee Corporation. In 2004, he returned to Harry & David Operations as Senior Vice President, IT Systems Operations and was promoted to
CIO in July 2005. Prior to joining Harry & David, Mr. Foley held a variety of financial and store line operations positions with Carter Hawley Hale Department Stores and May D&F Stores.



Philip W. Young has been our Senior Vice President and General Manager, Direct
Marketing since joining the company in October 2007. Prior to joining Harry & David, Mr. Young was an independent consultant assisting start-up companies with strategic and financial planning. Previously, he spent 17 years with
Lands End in various roles of increasing responsibility, most recently as Vice President of International Business. Mr. Young began his career with Allied Stores (now Macys) where he spent over nine years in stores and
merchandising.



Ellis B. Jones has served as Chief Executive Officer of
Wasserstein & Co., LP since January 2001. Prior to becoming Chief Executive Officer of Wasserstein & Co., LP, Mr. Jones was a Managing Director of the investment banking firm Wasserstein Perella Inc. from February 1995 to
January 2001. Prior to joining Wasserstein Perella Inc., Mr. Jones was a Managing Director at Salomon Brothers Inc. in its Corporate Finance Department from March 1989 to February 1995. Prior to joining Salomon Brothers Inc., Mr. Jones
worked in the Investment Banking Department at The First Boston Corporation from September 1979 to March 1989. Mr. Jones has over 20 years of experience in the investment banking and mergers and acquisitions industry.



George L. Majoros, Jr. has been President and Chief Operating Officer of Wasserstein
since its inception in January 2001. Previously, Mr. Majoros was a Managing Director of Wasserstein Perella & Co., Inc. and Chief Operating Officer of its Merchant Banking Group from 1997 to 2001. Mr. Majoros joined Wasserstein
Perella & Co., Inc. in early 1993 after practicing law with Jones Day for approximately seven years. He also currently serves on the boards of directors of numerous private companies.



Bruce Wasserstein has served as Chairman and Chief Executive Officer of Lazard Group
and Lazard Ltd since May 2005. Mr. Wasserstein has served as a director of Lazard Group since January 2002 and as a director of Lazard Ltd since April 2005. Mr. Wasserstein served as the Head of Lazard and Chairman of the Executive
Committee of Lazard Group from January 2002 until May 2005. Prior to joining Lazard, Mr. Wasserstein was Executive Chairman at Dresdner Kleinwort Wasserstein from January 2001 to November 2001. Prior to joining Dresdner Kleinwort Wasserstein,
he served as CEO of Wasserstein Perella Group (an investment banking firm he co-founded) from February 1988 to January 2001, when Wasserstein Perella Group was sold to Dresdner Bank. Prior to founding Wasserstein Perella Group, Mr. Wasserstein
was the Co-Head of Investment Banking at The First Boston Corporation. Prior to joining First Boston, Mr. Wasserstein was an attorney at Cravath, Swaine & Moore. Mr. Wasserstein also currently serves as Chairman of
Wasserstein & Co., LP.



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CORPORATE GOVERNANCE

We have a code of ethics that applies to all employees, including our principal executive officer, principal financial officer and principal accounting officer. A copy of our code of ethics may be found on our website,
www.hndcorp.com, in the investor relations section under governance.



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

All monetary amounts presented in this
Item 11 are in actual dollars unless otherwise indicated.

COMPENSATION DISCUSSION AND ANALYSIS

The following Compensation Discussion and Analysis describes the material elements of compensation for the following individuals, collectively referred to as
the named executive officers:



| |  |  | William H. Williams, President and Chief Executive Officer
| | - |  | ----------------------------------------------------------



| |  |  | Stephen V. OConnell, Former Chief Financial Officer and Chief Administrative Officer
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Cathy J. Fultineer, Executive Vice President, Brand Development and Product Innovation
| | - |  | --------------------------------------------------------------------------------------



| |  |  | Peter D. Kratz, Executive Vice President, Operations and Wholesale
| | - |  | ------------------------------------------------------------------



| |  |  | Rudd C. Johnson, Executive Vice President, Human Resources
| | - |  | ----------------------------------------------------------

Our board of directors is responsible for oversight of the compensation plans for executives and other senior management, reviewing compensation levels and approving compensation policies. Our compensation policies are intended to attract,
motivate and reward highly qualified executives for the execution of specific long-term strategic management goals and the enhancement of stakeholder value.

Non-management members of the board of directors review the reasonableness of, and approve recommendations regarding, the compensation of our named executive officers and other senior management. Our executive officers make recommendations
to the board of directors regarding the compensation of all executive officers, other than the Chief Executive Officer, and the metrics appropriate for measuring officers performance. The compensation of the Chief Executive Officer and the
other named executive officers is reviewed and determined solely by the board of directors. Our executive officers and the board of directors are authorized to retain any consultants they believe are necessary or appropriate in making compensation
decisions. In fiscal 2009, however, the board of directors did not retain any compensation consultants.

In developing the executive officers
compensation for fiscal 2009, the board of directors primarily considered historical compensation levels within the company, and to a lesser extent prevailing rates for comparable positions in the marketplace.

The compensation of executive officers consists of the following components:



| |  |  | Base salary;
| | - |  | ------------



| |  |  | Annual cash incentive compensation;
| | - |  | -----------------------------------



| |  |  | Long-term equity incentive awards; and
| | - |  | --------------------------------------



| |  |  | Perquisites.
| | - |  | ------------

Base Salary. We pay base salary
to provide meaningful levels of cash compensation to executives while allowing us to manage our fixed costs. The salaries are reviewed annually and are based on the following: job scope and responsibilities; company, business unit and individual
performance; and competitive rates for similar positions as indicated by periodic review of salaries in the general marketplace. There were no pay increases during fiscal 2009, and as of April 1, 2009 through July 31, 2009, the amounts of
each named executives base salary was reduced as follows: Mr. Williams 30%, and Mr. OConnell, Mr. Kratz, Ms. Fultineer and Mr. Johnson 25%, referred to as temporary pay reduction.

Annual Cash Incentive Compensation. We believe that a significant portion of the annual cash compensation of our executive officers should be contingent upon a
comparison of our performance against board-approved, pre-established financial objectives and, to a lesser extent, on specific objectives for the individual officer. The specific financial objectives of our plan focus on EBITDA, as reported in our
annual report on Form 10-K, adjusted for certain events as discussed elsewhere in this document. We do not disclose actual targets because we believe such disclosure would cause us competitive harm. Our incentive compensation program is designed to
reward sales growth and profit performance. Each executive officer is given a target bonus equal to a fixed percentage of base



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salary with the target percentage increasing with increased job responsibility. The targets are reviewed periodically, and like base salaries, are based on
job scope and responsibilities. Actual payouts are based on company and individual performance. These targets are intended to be stretch goals but to also be achievable. Incentive compensation was earned during fiscal 2007; however,
goals were not attained during fiscal years 2008 or 2009 to warrant any incentive compensation.

In fiscal 2009, senior management, including the Chief
Executive Officer and other named executive officers, were required to meet pre-established financial performance thresholds to become eligible to receive a bonus. If the thresholds were met, then the bonus payout would be equal to 100% of the
target bonus. In fiscal 2009, the pre-established performance thresholds were not met and, as a result, the board of directors did not approve a payout for any of our officers, including the named executive officers.

Principal Executive Officer: Mr. Williams has a target bonus of 70% of his base salary.

Principal Financial Officer: Mr. Dunlap has a target bonus of 50% of his base salary.

Former Principal Financial Officer:
Mr. OConnell has a target bonus of 40% of his base salary.

Other Executive Officers: Ms. Fultineer and Messrs. Kratz, and Johnson have
target bonuses equal to 50% of their base salaries.

For fiscal 2010, named executive officers and other senior management will be eligible to earn their
target bonus if the company meets certain financial goals. Final details of the incentive compensation plan for fiscal 2010 are not yet complete.

Long-Term Equity Incentive Compensation. On February 18, 2005, we adopted our 2004 Stock Option Plan, which was subsequently amended on November 9, 2006. The plan provides for the grant of incentive stock options and
non-qualified stock options, exercisable for shares of our common stock. We do not grant long-term equity incentives each year, but view this aspect of compensation to be an equitable adjustment factor to be used periodically by our board of
directors. A total of 150,000 shares of our common stock are currently available for option grants under this plan. As of June 27, 2009, we had granted options to purchase 103,795 shares of our common stock under the plan to certain members of
our senior management team and one outside consultant.

The plan has been, and is currently, administered by our board of directors. Options may be
exercised only to the extent they have vested. In case of termination of employment or other service by reason of death, disability or normal or early retirement, or in the case of hardship or other special circumstances of an optionee holding
options that have not vested, the board of directors may, in its sole discretion, accelerate the time at which such option may be exercised.

401(k)
Plan. In order to promote retirement savings and their financial well-being, our employees, including management, are eligible to participate in our 401(k) Retirement Savings Plan, a defined contribution retirement plan that complies with
Section 401(k) of the Internal Revenue Code. Under the 401(k) plan, we provided matching contributions equal to 100% of the participants eligible contributions for the first 5% of the participants earnings, subject to statutory
limitations on the amount of the participants applicable earnings (for 2009, this limit is $245,000) for six months. On January 1, 2009, this provision was suspended for all employees. In fiscal 2009, each of the named executive officers
received a matching contribution from us of $5,750.

Perquisites and Personal Benefits.We provide executive benefits and perquisites as denoted
below to compete for executive talent and to promote the well-being and financial security of our named executive officers. A description of the executive benefits and perquisites, and the costs associated with providing them for the named executive
officers, is reflected in the All Other Compensation column of the 2009 Summary Compensation Table below. We do not view perquisites as a significant component of our overall compensation package, but do believe they can be useful in
conjunction with base salary to attract and retain individuals in a competitive environment.



| |  |  | Auto Allowance
| | - |  | --------------



| |  |  | Executive Life Insurance
| | - |  | ------------------------



| |  |  | Financial Planning
| | - |  | ------------------



| |  |  | Discount on Purchases as Board Members
| | - |  | --------------------------------------

On
April 1, 2009, the Auto Allowance Perquisite was rolled into the base salary of the named executive officers. On the same day it was announced that the Financial Planning Perquisite would also be discontinued for the 2009 and future Tax Years.
However, payments will still be made for planning expenses associated with tax years prior to 2009.

For details on amounts paid for perquisites and
personal benefits see All Other Compensation table under Executive Compensation.

Executive officers also participate in other employee benefit
plans available on a nondiscriminatory basis to other associates, including merchandise discounts, and group health, life and disability coverage.



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Pension Plans

The
following is a summary of the pension plan in which our management participates. The pension plan is a traditional final average pay pension plan that pays benefits on retirement based on an employees years of service and final average
earnings over a consecutive 60-month period. In addition, because of Internal Revenue Code limitations on the amount of pension benefits that can be paid to employees from qualified pension plans, our retirement program includes our Excess Pension
Plan, a nonqualified plan that allows executives to receive all of the promised benefits under the pension plan, notwithstanding the Internal Revenue Code limitations.

The following table shows the total monthly annuity benefit payable at normal retirement age from our Employees Pension Plan, which we call the Qualified Plan, and our Excess Pension Plan, which we call the
Nonqualified Plan. The monthly annuity benefit shown below represents the total benefits under both the Qualified Plan and the Nonqualified Plan. Under the Qualified Plan, plan compensation is limited by Internal Revenue Code
Section 401(a)(17). For calendar 2009, plan compensation is limited to $245,000.



|                       |           |                  |   |       |  |    |        |    |   |        |  |    |        |  |   |        |  |   |       
|---------------------- | --------- | ---------------- | - | ----- |  | -- | ------ | -- | - | ------ |  | -- | ------ |  | - | ------ |  | - | ------
|                       |           | Years of service
|Final average earnings |           | 5                |   | 10    |  | 15 |        | 20 |   | 30     |  | 40
|$                      | 200,000   |                  | $ | 1,585 |  | $  | 3,171  |    | $ | 4,757  |  | $  | 6,343  |  | $ | 9,514  |  | $ | 9,514 
|$                      | 350,000   |                  | $ | 2,836 |  | $  | 5,671  |    | $ | 8,507  |  | $  | 11,343 |  | $ | 17,014 |  | $ | 17,014
|$                      | 450,000   |                  | $ | 3,669 |  | $  | 7,338  |    | $ | 11,007 |  | $  | 14,676 |  | $ | 22,014 |  | $ | 22,014
|$                      | 550,000   |                  | $ | 4,502 |  | $  | 9,005  |    | $ | 13,507 |  | $  | 18,009 |  | $ | 27,014 |  | $ | 27,014
|$                      | 650,000   |                  | $ | 5,336 |  | $  | 10,671 |    | $ | 16,007 |  | $  | 21,343 |  | $ | 32,014 |  | $ | 32,014
|$                      | 750,000   |                  | $ | 6,169 |  | $  | 12,338 |    | $ | 18,507 |  | $  | 24,676 |  | $ | 37,014 |  | $ | 37,014
|$                      | 850,000   |                  | $ | 7,002 |  | $  | 14,005 |    | $ | 21,007 |  | $  | 28,009 |  | $ | 42,014 |  | $ | 42,014
|$                      | 950,000   |                  | $ | 7,836 |  | $  | 15,671 |    | $ | 23,507 |  | $  | 31,343 |  | $ | 47,014 |  | $ | 47,014
|$                      | 1,050,000 |                  | $ | 8,669 |  | $  | 17,338 |    | $ | 26,007 |  | $  | 34,676 |  | $ | 52,014 |  | $ | 52,014

The benefits in the pension plan table for all of our officers at the Senior Vice-President level and higher as of
December 31, 2001 are calculated under a formula of 1.6% of final average earnings, plus an additional 0.4% of final average earnings in excess of a 35-year average Social Security taxable wage base, in each case, multiplied by service limited
to 30 years. For purposes of the pension plan, earnings include earnings reported to pension plan participants on Form W-2 but do not include long-term incentive payments, retention bonuses, reimbursements or other expense allowances, cash and
non-cash fringe benefits, moving expenses, distributions of nonqualified deferred compensation, welfare benefits, or any amounts contributed to any tax qualified profit sharing plan or cafeteria plan. Under the qualified pension plan, compensation
was limited to $245,000 as required by Section 401(a)(17) of the Internal Revenue Code of 1986. Benefits in excess of the maximum benefits payable under the qualified pension plan or accrued as the result of compensation in excess of the
maximum amount allowed under the qualified pension plan are payable under the nonqualified pension plan. As of June 27, 2009, the years of credited service for Mr. Williams, Mr. OConnell, Mr. Kratz, Mr. Johnson and
Ms. Fultineer were 20, 4, 8, 11, and 5 years, respectively. The benefits listed in the pension plan table are the total benefits payable from the qualified pension plan and the nonqualified pension plan and are not subject to deduction for
Social Security or other offset amounts. See Note 9Benefit Programs in the notes to our consolidated financial statements included elsewhere in this Form 10-K for details regarding the assumptions used to quantify the accrued
benefits shown above.

Harry and David Employees Pension Plan

Our Employees Pension Plan provides the predecessor company employees, including management, who became our employees in connection with our acquisition of Harry & David Operations Corp., with the same
levels of benefit accruals that were available to the employees under the predecessor company Employees Pension Plan for 36 months following the date on which the 2004 Acquisition was completed (June 17, 2004). Subsequent to fiscal 2006, as
noted above, we announced the approval of a freeze of the benefits provided under this plan, effective June 30, 2007. Assets attributable to the transferred employees were transferred from the predecessor plan to our plan on August 16,
2004, with a true-up transfer of final amounts on February 7, 2005. Participants who were employed by us or the predecessor company prior to the time of the acquisition were fully vested in their pension benefits upon completion of the
transaction.

The pension plan is currently underfunded. Our required level of funding of this pension plan changes each year depending on the funded
status of the pension plan and the actuarial valuation report provided by our actuaries. We fund our plan in accordance with minimum funding requirements, as such, the timing of any future payments is subject to a number of factors and uncertainties
and could change.



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##### Table of Contents

Excess Pension Plan



Our Excess Pension Plan provides benefits to participants of our Employees Pension Plan, including management, to the extent benefits are limited by Sections 415
and 401(a)(17) of the Internal Revenue Code. Under this plan, accounts of the predecessor company employees who were transferred to us as of June 17, 2004 are paid in lump sum at the earlier of termination or attainment of age 65. As noted
above, subsequent to fiscal 2006 we froze the benefits provided under this plan, effective June 30, 2007. For more information about our pension plans, see the 2009 Pension Benefits Table below.



Severance Pay Plan



Our Severance Pay Plan for qualifying terminations of Executive Committee members provides severance equal to twelve months of salary
continuation plus a full year of the participants target bonus, if a bonus is paid that year. However, if the employee has less than three years of service at the time of qualifying termination, the employee shall instead receive six months of
base pay, plus a prorated portion of the bonus based on the aggregate amount of base salary if a bonus is paid out in that year. Severance benefits are payable in the event of an involuntary termination of employment for any reason other than death,
disability, or for cause, or in the event that an employee resigns following a relocation of the participants work location by more than 75 miles without the employees consent. During the severance period, if the former employee elects
and remains eligible for COBRA, we pay a portion of COBRA premiums for the former employee equal to our portion of the health premiums paid for active employees. The plan also provides an outplacement benefit. Outplacement services will be provided
to the employee through a company-approved professional outplacement service. Reasonable costs for such services will be paid by the Company not to exceed 10% of the employees annual base pay or $20,000, whichever occurs first for up to six
months following the employees qualifying termination. The Company will also pay for reasonable and properly documented travel expenses incurred by the employee, not to exceed $3,000, to obtain such services if an approved outplacement service
does not exist within a 75-mile radius of the employees residence. Severance payments shall be paid on the same schedule as the employees former schedule (weekly or bi-monthly) until the employee obtains another source of income or the
maximum severance benefits has been paid, whichever occurs first. In the event that the employee obtains a position or has income at a lower rate of compensation (excluding unemployment benefits), the Company will continue payments for the
difference. Cash and benefits continuation will begin immediately following the termination date, subject to the revocation period contained in the severance agreement. For more information, refer to the Potential Payments and Benefits upon
Termination of Employment disclosure below.



Liquidity Event Plan



On February 18, 2005, we established a liquidity event award plan for
each member of our senior management team who received stock options under the 2004 Stock Option Plan (see description above) as of February 18, 2005. Upon its inception, the aggregate amount of all awards to senior management was equal to
approximately $6,372,000 in future payments, or 7.5% of the portion of the proceeds from the sale of notes that was distributed on the closing date to our equity sponsors as a return of capital. Currently, reflecting forfeitures, the aggregate
amount of the award is approximately $6,034,100. The amount of each award, as a percentage of all awards, is proportional to the percentage of all of the options such member was awarded as of February 18, 2005. The right to receive 20% of the
award vested on June 17, 2005, an additional 20% of the award vested on June 17, 2006, and 5% vested quarterly thereafter, in each case, so long as the award recipient is an employee of Harry & David Holdings, Inc. or its
affiliates, on the vesting date. As of June 27, 2009, 100% of the award was vested. For more information about our liquidity event award plan and potential payments under the plan, see our Potential Payments and Benefits upon Termination
of Employment disclosure below.



Employment Agreements



We generally do not enter into employment agreements with our senior management. However,
we have entered into an employment agreement with Mr. Williams, our President and Chief Executive Officer.



William H. Williams. We entered into an employment agreement with Mr. Williams on June 17, 2004. The initial term of the employment agreement expired on
June 17, 2008. After the initial term, Mr. Williams employment agreement is renewable by mutual consent for successive one-year periods. On April 16, 2009, Mr. Williams employment agreement renewed on its terms
through June 17, 2010, except for the voluntary release of certain perquisites as previously discussed. Under the terms of his employment agreement, Mr. Williams is entitled to an initial base salary of $567,600, subject to review and
adjustment upward at least annually and a discretionary annual bonus (up to 140% of his base salary) as determined by the board. Mr. Williams is entitled to participate in our standard employee benefits plans, fringe benefits and expense
reimbursement plans that are generally available to our other senior executives and executive employees, as well as certain additional fringe benefits. In addition, as long as he remains Chief Executive Officer, Mr. Williams is entitled to
serve on our board of directors.



If Mr. Williams is terminated without
cause or resigns for good reason, he is entitled to a severance payment equal to 100% of his then applicable base salary for a period of 12 months, plus 100% of his target bonus, plus the dollar value of any vacation time accrued but unused during
the calendar year in which he is terminated. To the extent permissible under the specific plan terms, he will also be



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##### Table of Contents

entitled to continue to participate in all of our welfare plans during the time he receives severance. If Mr. Williams voluntarily resigns at any time,
or if we terminate Mr. Williams with cause, he is entitled to receive only any unpaid base salary accrued for services rendered through the date of termination, plus the dollar value of vacation time accrued and unused during the calendar year
in which he resigns or is terminated. If Mr. Williams employment is terminated due to death or disability, he or his estate will be entitled to receive any unpaid base salary accrued for services rendered through the end of the next
calendar month succeeding his termination, plus the dollar value of vacation time accrued and unused during the calendar year in which his employment is terminated.



If any payment under Mr. Williamss employment agreement would trigger an excise tax as a result of the payment being considered
contingent on a change in ownership or control of us, any such payments will be reduced to the extent necessary to ensure that the payment will not be subject to the tax as an excess parachute payment, or, if it would result in a greater net payment
to Mr. Williams, he will be paid the full amount subject to the excise tax.



Under the terms of the agreement, Mr. Williams has agreed to certain restrictions relating to competition, confidentiality and solicitation of our customers or employees.



BOARD OF DIRECTORS REPORT



The board of directors has reviewed and discussed the foregoing Compensation Discussion and Analysis with Harry and Davids management, and based on its review and
discussions, the board of directors has recommended that the Compensation Discussion and Analysis be included in Harry and Davids annual report on Form 10-K for the fiscal year ended June 27, 2009.

William H. Williams

Ellis B. Jones

George L. Majoros, Jr.

Bruce Wasserstein



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##### Table of Contents

EXECUTIVE COMPENSATION

2009 SUMMARY COMPENSATION TABLE

The following table discloses the compensation paid to our named executive officers
for fiscal 2009, 2008 and 2007.



|                                                  |  |                |  |           |  |                    |  |                                            |  |                             |  |          
|------------------------------------------------- |  | -------------- |  | --------- |  | ------------------ |  | ------------------------------------------ |  | --------------------------- |  | ---------
|Name and Principal Position                       |  | FiscalYear (1) |  | Salary($) |  | OptionAwards($)(2) |  | Non-EquityIncentive PlanCompensation($)(3) |  | All OtherCompensation($)(4) |  | Total($) 
|William H. WilliamsPresident and CEO              |  | 2009           |  | 553,802   |  | 162,378            |  |                                           |  | 125,659                     |  | 841,839  
|                                                  |  | 2008           |  | 595,980   |  | 162,378            |  |                                           |  | 114,505                     |  | 872,863  
|                                                  |  | 2007           |  | 577,060   |  | 162,378            |  | 760,095                                    |  | 71,604                      |  | 1,571,137
|Stephen V. OConnellFormer CFO and CAO            |  | 2009           |  | 471,000   |  | 138,022            |  |                                           |  | 39,347                      |  | 648,369  
|                                                  |  | 2008           |  | 500,000   |  | 138,022            |  |                                           |  | 37,087                      |  | 675,109  
|                                                  |  | 2007           |  | 508,333   |  | 138,022            |  | 350,000                                    |  | 36,503                      |  | 1,032,858
|Cathy J. FultineerExecutive VP, Sales & Marketing |  | 2009           |  | 381,938   |  | 27,075             |  |                                           |  | 25,193                      |  | 434,206  
|                                                  |  | 2008           |  | 405,000   |  | 27,075             |  |                                           |  | 48,345                      |  | 480,420  
|                                                  |  | 2007           |  | 350,750   |  | 27,075             |  | 345,000                                    |  | 36,655                      |  | 759,480  
|Peter D. KratzExecutive VP, Operations            |  | 2009           |  | 344,438   |  | 17,103             |  |                                           |  | 48,375                      |  | 409,916  
|                                                  |  | 2008           |  | 365,000   |  | 17,103             |  |                                           |  | 58,909                      |  | 441,012  
|                                                  |  | 2007           |  | 340,584   |  | 17,103             |  | 313,125                                    |  | 39,381                      |  | 710,193  
|Rudd C. JohnsonExecutive VP, Human Resources      |  | 2009           |  | 306,938   |  | 22,764             |  |                                           |  | 73,744                      |  | 403,446  
|                                                  |  | 2008           |  | 325,000   |  | 22,764             |  |                                           |  | 78,824                      |  | 426,588  
|                                                  |  | 2007           |  | 315,167   |  | 22,764             |  | 310,000                                    |  | 55,959                      |  | 703,890  



|(1) | For purposes of this table, fiscal 2009, 2008 and 2007 refers to the twelve months ended June 27, 2009, June 28, 2008 and June 30, 2007, which consisted of 52, 52 and
53 weeks, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Amounts reflect the dollar amounts of compensation cost for equity-based compensation recognized for financial statement reporting purposes for fiscal 2009, 2008 and 2007 in
accordance with SFAS 123R.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Non-Equity Incentive Plan Compensation amounts represent performance bonuses and are reported for the fiscal year in which they were earned, although they may have been
paid in the following fiscal year.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | All Other Compensation
|--- | ----------------------

The following represents the breakout of
All Other Compensation totals listed above for each named executive officer for fiscal 2009:



|                     |  |            |  |               |  |                        |  |                         |  |                           |  |                |  |       |     |  |       |        
|-------------------- |  | ---------- |  | ------------- |  | ---------------------- |  | ----------------------- |  | ------------------------- |  | -------------- |  | ----- | --- |  | ----- | -------
|Executive name       |  | Fiscalyear |  | Autoallowance |  | Executivelifeinsurance |  | Groupterm lifeinsurance |  | Financialplanningservices |  | 401(k)matching |  | Other |     |  | Total
|William H. Williams  |  | 2009       |  | 10,800        |  | 96,764                 |  | 7,524                   |  | 2,930                     |  | 5,750          |  | 1,891 | (1) |  | $     | 125,659
|Stephen V. OConnell |  | 2009       |  | 9,000         |  | 12,394                 |  | 2,622                   |  | 6,898                     |  | 5,750          |  | 2,683 | (1) |  | $     | 39,347 
|Cathy J. Fultineer   |  | 2009       |  | 9,000         |  | 3,098                  |  | 2,622                   |  | 4,723                     |  | 5,750          |  |      |     |  | $     | 25,193 
|Peter D. Kratz       |  | 2009       |  | 9,000         |  | 26,169                 |  | 3,762                   |  | 3,694                     |  | 5,750          |  |      |     |  | $     | 48,375 
|Rudd C. Johnson      |  | 2009       |  | 9,000         |  | 44,471                 |  | 4,773                   |  | 9,750                     |  | 5,750          |  |      |     |  | $     | 73,744 



|(1) | Amount represents additional discount on purchases as board members.
|--- | --------------------------------------------------------------------



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2009 GRANTS OF PLAN-BASED AWARDS TABLE



|                     |              |                                                                 |              |                                                           |            |                                                         |              |                                                               |           |                                           |            |                                              |  |           |  |   |  |   |  |   |  |  
|-------------------- | ------------ | --------------------------------------------------------------- | ------------ | --------------------------------------------------------- | ---------- | ------------------------------------------------------- | ------------ | ------------------------------------------------------------- | --------- | ----------------------------------------- | ---------- | -------------------------------------------- |  | --------- |  | - |  | - |  | - |  | -
|Name                 |              | Estimated Possible PayoutsUnder Non-Equity IncentivePlan Awards |              | Estimated Future PayoutsUnder Equity IncentivePlan Awards |            | All OtherStockAwards:Numberof Sharesof Stockor Units(#) |              | All OtherOptionAwards:Number ofSecuritiesUnderlyingOptions(#) |           | Exerciseor BasePrice ofOptionAwards($/Sh) |            | GrantDateFairValue ofStockandOptionAwards($) |  | GrantDate
|                     | Threshold($) |                                                                 | Target($)(1) |                                                           | Maximum($) |                                                         | Threshold($) |                                                               | Target($) |                                           | Maximum($) |                                              |  |           |  |   |  |   |  |   | 
|William H. Williams  |              |                                                                |              | 387,661                                                   |            |                                                        |              |                                                              |           |                                          |            |                                             |  |          |  |  |  |  |  |  |  | 
|Stephen V. OConnell |              |                                                                |              | 188,400                                                   |            |                                                        |              |                                                              |           |                                          |            |                                             |  |          |  |  |  |  |  |  |  | 
|Cathy J. Fultineer   |              |                                                                |              | 190,969                                                   |            |                                                        |              |                                                              |           |                                          |            |                                             |  |          |  |  |  |  |  |  |  | 
|Peter D. Kratz       |              |                                                                |              | 172,219                                                   |            |                                                        |              |                                                              |           |                                          |            |                                             |  |          |  |  |  |  |  |  |  | 
|Rudd C. Johnson      |              |                                                                |              | 153,496                                                   |            |                                                        |              |                                                              |           |                                          |            |                                             |  |          |  |  |  |  |  |  |  | 



|(1) | Represents target awards under our annual cash incentive compensation plan, as further described in our Compensation Discussion and Analysis.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

For more information about our 2004 Stock Option Plan and prior grants made under this plan, see Compensation Discussion and Analysis above (there were no
grants in fiscal 2008 or 2009 for these named executives). Certain of our named executive officers are parties to employment agreements with us. For more information about these agreements, see Compensation Discussion and Analysis 
Employment Agreements above.

OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR END TABLE



|                     |  |                                                               |  |                                                                 |  |                                                                                         |  |                        |  |                     
|-------------------- |  | ------------------------------------------------------------- |  | --------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | ---------------------- |  | --------------------
|                     |  | Option Awards                                                
|Name                 |  | Number ofSecuritiesUnderlyingUnexercisedOptions(#)Exercisable |  | Number ofSecuritiesUnderlyingUnexercisedOptions(#)Unexercisable |  | Equity IncentivePlan Awards:Number ofSecuritiesUnderlyingUnexercisedUnearned Options(#) |  | OptionExercisePrice($) |  | OptionExpirationDate
|William H. Williams  |  | 14,866                                                        |  |                                                                |  |                                                                                        |  | 82.60                  |  | 6/17/2014           
|Stephen V. OConnell |  | 12,635                                                        |  |                                                                |  |                                                                                        |  | 82.60                  |  | 6/17/2014           
|Cathy J. Fultineer   |  | 2,084                                                         |  |                                                                |  |                                                                                         |  | 82.60                  |  | 6/17/2014           
|                     |  | 1,164                                                         |  | 776                                                             |  |                                                                                        |  | 190.00                 |  | 3/8/2017            
|Peter D. Kratz       |  | 558                                                           |  |                                                                |  |                                                                                         |  | 82.60                  |  | 6/17/2014           
|                     |  | 999                                                           |  | 666                                                             |  |                                                                                        |  | 190.00                 |  | 3/8/2017            
|Rudd C. Johnson      |  | 2,084                                                         |  |                                                                |  |                                                                                        |  | 82.60                  |  | 6/17/2014           

Options granted in fiscal 2005 vest and become exercisable 20% on each of June 17, 2005, June 17,
2006, and 5% quarterly thereafter through June 17, 2009. Options granted in fiscal 2007 vest and become exercisable 20% on each of June 17, 2007, June 17, 2008, and 5% quarterly thereafter through June 17, 2011. Vesting of
all unexercised options will accelerate upon a termination of employment (without cause) within one year following a change of control (as defined in the relevant option agreements) of us, except for Messrs. Williams and OConnell, whose
options would have accelerated immediately upon change of control. Shares issuable upon exercise of the options may be either treasury shares or newly issued shares. Options granted under this plan expire 10 years after the date of grant.



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##### Table of Contents

2009 OPTION EXERCISES TABLE

None.

2009 PENSION BENEFITS TABLE



|                     |  |                            |  |                                   |  |                                        |  |                                  
|-------------------- |  | -------------------------- |  | --------------------------------- |  | -------------------------------------- |  | ---------------------------------
|Name                 |  | Plan Name                  |  | Number ofYearsCreditedService (#) |  | Present Value ofAccumulatedBenefit ($) |  | PaymentsDuring LastFiscal Year($)
|William H. Williams  |  | Qualified Plan Excess Plan |  | 2020                              |  | 2,265,0002,894,000                     |  |                                 
|Stephen V. OConnell |  | Qualified Plan Excess Plan |  | 40                                |  | 46,0000                                |  |                                 
|Cathy J. Fultineer   |  | Qualified Plan Excess Plan |  | 55                                |  | 60,00066,000                           |  |                                 
|Peter D. Kratz       |  | Qualified Plan Excess Plan |  | 88                                |  | 281,000185,000                         |  |                                 
|Rudd C. Johnson      |  | Qualified Plan Excess Plan |  | 1111                              |  | 665,000506,000                         |  |                                 

For more information about our pension plans, see Compensation Discussion and Analysis  Pension
Plans and related subheadings in our Compensation Discussion and Analysis. Mr. OConnell did not participate in the Excess Plan.

DEFERRED COMPENSATION

All of our compensation plans that are subject to Section 409A of the Internal Revenue Code are intended to
comply with such law. Should a plan be determined not to comply, however, we are not responsible for any additional tax or interest imposed on any employee.

POTENTIAL PAYMENTS AND BENEFITS UPON TERMINATION OF EMPLOYMENT

Liquidity Event Plan

Under our liquidity event award plan as described above in Compensation Discussion and Analysis, our named executive officers are entitled to certain
payments. Under the plan, for Messrs. Williams and OConnell, a change of control is triggered upon the happening of:



| |  |  | Wasserstein and Highfields collectively owning less than a majority of the total voting power of our voting stock and not having the power to elect or appoint a
majority of the members of our board of directors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the sale or disposition of all or substantially all of our assets to someone other than Wasserstein and Highfields; or
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | our stockholders approving a plan of liquidation.
| | - |  | -------------------------------------------------

For all other members of management, a change of control means:



| |  |  | the acquisition by an individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the combined voting power of our voting stock after giving effect to such acquisition, unless such individual, entity or group is us, any affiliate of Wasserstein or Highfields, any
member of management or his or her affiliates, any of our employee benefit plans or any combination of the foregoing;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | members of our current board of directors ceasing for any reason to constitute at least a majority of the board unless the election, or nomination for election by
our stockholders is approved by a vote of at least a majority of the directors then serving (excluding any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or
threatened solicitation of proxies or consents);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we are merged or consolidated or reorganized into or with, or we sell or otherwise transfer all or substantially all of our assets to another corporation or other
legal entity, and, as a result of any such transaction, less than a majority of the combined voting power of the voting securities of such entity immediately after any such transaction is held in the aggregate by the holders of our voting stock
immediately prior to such transaction; or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the board or our stockholders approve our complete or substantial liquidation or dissolution.
| | - |  | ---------------------------------------------------------------------------------------------



45



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Under their respective liquidity event award agreements, the awards payable to management are as follows: $2,056,740
payable to Mr. Williams, $1,751,120 payable to Mr. OConnell, $289,100 payable to each of Mr. Johnson and Ms. Fultineer, and $174,038 to Mr. Kratz.

Award recipients will not be entitled to receive any vested portion of their awards unless: (1) a change of control (as so defined) occurs; (2) the aggregate net sales proceeds in such change of control plus
certain other distributions received by our equity sponsors exceeds a certain level; (3) we have available cash or, if applicable, non-cash consideration equal to the aggregate of all awards; and (4) certain other conditions are met.
Distributions in respect of the awards will be payable in cash or, in some circumstances, the non-cash consideration received in the change of control either at the time of the change of control or, in some circumstances, at a later specified date.

If any payment under a liquidity award agreement would trigger an excise tax as a result of the payment being considered contingent on a change in
ownership or control of us, any such payments, at the request of the executive, will be reduced to the extent necessary to ensure that the payment will not be subject to the tax as an excess parachute payment, or, if it would result in a greater net
payment to the participant, the participant will be paid the full amount subject to the excise tax.

Other Potential Payments

The following table presents information regarding payments that would be made to our named executive officers at, following or in connection with any termination or
event (as described in the table) assuming the termination or event occurred on June 26, 2009.



|                                                       |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|------------------------------------------------------ |  | ------------ | --------- | ------------- | - | ------------- |  | --------- | ------- | ----------- | - | ------- |  | - | ---------
|Event                                                  |  | W.H.Williams |           | S.V.OConnell |   | C.J.Fultineer |  | P.D.Kratz |         | R.C.Johnson
|Voluntary Termination by Named Executive or Retirement |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Base Salary                                            |  | $            | 0         |               | $ | 0             |  | $         | 0       |             | $ | 0       |  | $ | 0        
|Pension Payments(1)                                    |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Qualified Plan                                         |  |              | 2,289,000 |               |   | 46,000        |  |           | 65,000  |             |   | 313,000 |  |   | 724,000  
|Excess Plan                                            |  |              | 3,036,000 |               |   | N/A           |  |           | 73,000  |             |   | 204,000 |  |   | 548,000  
|Vacation(3)                                            |  |              | 44,995    |               |   | 9,600         |  |           | 85,204  |             |   | 22,596  |  |   | 46,111   
|                                                       |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Total                                                  |  | $            | 5,369,995 |               | $ | 55,600        |  | $         | 223,204 |             | $ | 539,596 |  | $ | 1,318,111
|Termination for Cause by Us(2)(3)                      |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Base Salary                                            |  |              | 0         |               |   | 0             |  |           | 0       |             |   | 0       |  |   | 0        
|                                                       |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Total                                                  |  | $            | 0         |               | $ | 0             |  | $         | 0       |             | $ | 0       |  | $ | 0        
|Termination by Us Without Cause(2)(3)                  |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Base Salary                                            |  | $            | 595,121   |               | $ | 501,333       |  | $         | 408,313 |             | $ | 369,146 |  | $ | 329,979  
|Other Severance Benefits                               |  |              | 34,263    |               |   | 35,915        |  |           | 35,915  |             |   | 34,263  |  |   | 34,263   
|                                                       |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Total                                                  |  | $            | 629,384   |               | $ | 537,248       |  | $         | 444,228 |             | $ | 403,409 |  | $ | 364,242  
|Disability(2)(3)                                       |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Base Salary                                            |  | $            | 200,000   |               | $ | 200,000       |  | $         | 200,000 |             | $ | 200,000 |  | $ | 200,000  
|                                                       |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Total                                                  |  | $            | 200,000   |               | $ | 200,000       |  | $         | 200,000 |             | $ | 200,000 |  | $ | 200,000  
|Death(2)(3)                                            |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Executive Life Insurance                               |  | $            | 1,068,928 |               | $ | 1,000,000     |  | $         | 810,000 |             | $ | 730,000 |  | $ | 650,000  
|                                                       |  |              |           |               |   |               |  |           |         |             |   |         |  |   |          
|Total                                                  |  | $            | 1,068,928 |               | $ | 1,000,000     |  | $         | 810,000 |             | $ | 730,000 |  | $ | 650,000  

Base salary amounts have been calculated anticipating that the temporary pay suspension, effective April 1,
2009, be removed on August 1, 2009.

Other severance benefits include COBRA for 12 months and outplacement assistance. If bonuses had been earned and
employment requirements met, these potential payments would have increased by the target bonuses for each executive as previously described.

Disability
payments are in accordance with our long term disability program available to all executives. The plan provides for payment to an individual of 50% of their average pay (including bonuses), with a maximum benefit of $200,000 per year.

Death benefits are equal to two times the executives annual salary and the premiums are paid by us.



46



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##### Table of Contents

|(1) | The Qualified Plan is currently restricted from paying lump sums because of the Pension Protection Act (PPA) regulations regarding funding levels. Estimated Lump Sums shown here are
currently not available as a payment option. However, the election of the employee to receive monthly annuity payments could begin on termination date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Pension benefits are also payable under these circumstances.
|--- | ------------------------------------------------------------



|(3) | Vacation benefits are also payable under these circumstances. Vacation value calculated based on total balance of hours employee had accrued at June 26, 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

DIRECTOR COMPENSATION

The members of our board of directors do not receive any compensation for their services.

COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION

We currently do not have a compensation committee. Executive compensation is determined by our board of directors, including our
President and Chief Executive Officer and our Chief Financial Officer. No compensation committee interlock existed during the year ended June 27, 2009. Currently, none of our executive officers have a relationship that would constitute an
interlocking relationship with executive officers or directors of another entity.



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

PRINCIPAL STOCKHOLDERS

The following table and accompanying footnotes show information regarding the beneficial
ownership of our common stock as of August 31, 2009 by (i) each person who is known by us to own beneficially more than 5% of our common stock; (ii) each of our directors and named executive officers; and (iii) all current
directors and the named executive officers, as a group.

We have determined beneficial ownership in accordance with the rules of the SEC. We believe that
each stockholder named in the table has sole voting and dispositive power for the shares shown as beneficially owned by them.



|                                                                                                 |  |                                             |  |                                           |  
|------------------------------------------------------------------------------------------------ |  | ------------------------------------------- |  | ----------------------------------------- | -
|                                                                                                 |  | Shares of Common StockBeneficially Owned(1) |  | Percent of Common StockBeneficially Owned |  
|5% Stockholders:                                                                                 |  |                                             |  |                                           |  
|Wasserstein(2) Attn: George L. Majoros 1301 Avenue of the Americas 44th Floor New York, NY 10019 |  | 650,000                                     |  | 60.9                                      | %
|Highfields(3) Attn: Craig Peskin 200 Clarendon Street 51st Floor Boston, MA 02117                |  | 350,000                                     |  | 32.8                                      | %
|Executive Officers and Directors:                                                                |  |                                             |  |                                           |  
|William H. Williams(4)                                                                           |  | 31,870                                      |  | 3.0                                       | %
|Stephen V. OConnell(5)                                                                          |  | 26,000                                      |  | 2.4                                       | %
|Cathy J. Fultineer(6)                                                                            |  | 6,164                                       |  | 0.6                                       | %
|Peter D. Kratz(7)                                                                                |  | 5,046                                       |  | 0.5                                       | %
|Rudd C. Johnson(8)                                                                               |  | 6,211                                       |  | 0.6                                       | %
|Ellis B. Jones(2)                                                                                |  | 650,000                                     |  | 61.4                                      | %
|George L. Majoros, Jr.(2)                                                                        |  | 650,000                                     |  | 61.4                                      | %
|Bruce Wasserstein(2)                                                                             |  | 650,000                                     |  | 61.4                                      | %
|All named executive officers and directors as a group(2),(4),(5),(6),(7),(8)                     |  | 725,291                                     |  | 67.9                                      | %



Percentages above are approximate and may not sum to total due to rounding.



|(1) | Unless otherwise indicated, the address for each stockholder is c/o Harry & David Holdings, Inc. 2500 South Pacific Highway, Medford, Oregon 97501.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



47



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##### Table of Contents

|(2) | Includes funds sponsored by Wasserstein, their affiliates and related entities. The 650,000 beneficially owned shares represent 30,266 shares of common stock beneficially owned by
USEP II Co-Investment Partners, LLC, 475,231 shares of common stock beneficially owned by U.S. Equity Partners II (U.S. Parallel), L.P., 19,072 shares of common stock beneficially owned by U.S. Equity Partners II, LP, 12,409 shares of common stock
beneficially owned by Bear Creek Equity Partners, LLC, 75,580 shares of common stock beneficially owned by U.S. Equity Partners II (Offshore), LP and 37,442 shares of common stock beneficially owned by Wasserstein Partners, LP. To the extent Messrs.
Jones and Majoros are designated to beneficially own the shares as a result of their positions as Chief Executive Officer and President and Chief Operating Officer, respectively, of Wasserstein & Co., LP, Messrs. Jones and Majoros, Jr.
disclaim beneficial ownership of the shares (other than, in the case of Mr. Majoros, Jr., his pecuniary interest in 1,816 shares). Mr. Wasserstein may be deemed to have beneficial ownership of the shares owned by the Wasserstein entities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | However, Mr. Wasserstein disclaims beneficial ownership of these shares except for his pecuniary interest in 95,987 shares. Wasserstein Partners, LP has dispositive power over
the shares held by Bear Creek Equity Partners, LLC and USEP II Co-Investment Partners, LLC.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes funds sponsored by Highfields and their affiliates. Represents 39,176 shares of common stock beneficially owned by Highfields Capital I LP, 92,476 shares of common stock
beneficially owned by Highfields Capital II LP and 218,348 shares of common stock beneficially owned by Highfields Capital Ltd. Messrs. Jonathon S. Jacobson and Richard L. Grubman hold investment and voting power over the shares held by Highfields.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Mr. Williams was granted options to purchase 27,027 shares of our common stock under a Non-Qualified Stock Option Agreement. As of June 27, 2009, Mr. Williams is a
beneficial holder of 31,870 shares, of which 12,161 represents stock option exercises through June 27, 2009, 14,866 represents options that are exercisable and includes 4,843 shares indirectly held by Mr. Williams.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Mr. OConnell was granted options to purchase 22,973 shares of our common stock under a Non-Qualified Stock Option Agreement. As of June 27, 2009,
Mr. OConnell is a beneficial holder of 26,000 shares, of which 10,338 represents stock option exercises through June 27, 2009, 12,635 represents options that are exercisable and includes 3,027 shares held indirectly through
Mr. OConnells participation in the Wasserstein Equity Partners Fund.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Ms. Fultineer was granted options to purchase 5,729 shares of our common stock under a Non-Qualified Stock Option Agreement. As of June 27, 2009, Ms. Fultineer is a
beneficial holder of 6,261 shares, of which 1,705 represents stock option exercises through June 27, 2009, 3,345 represents options that are exercisable and also includes 1,211 shares held indirectly through Ms. Fultineers
participation in Bear Creek Equity Partners Funds.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Mr. Kratz was granted options to purchase 3,896 shares of our common stock under a Non-Qualified Stock Option Agreement. As of June 27, 2009, Mr. Kratz is a
beneficial holder of 5,129 shares, of which 1,673 represents stock option exercises through June 27, 2009, 1,640 represents options that are exercisable and also includes 1,816 shares held indirectly through Mr. Kratz participation
in Bear Creek Equity Partners Funds.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Mr. Johnson was granted options to purchase 3,789 shares of our common stock under a Non-Qualified Stock Option Agreement. As of June 27, 2009, Mr. Johnson is a
beneficial holder of 6,211 shares, of which 1,705 represents stock option exercises through June 27, 2009, 2,084 represents options that are exercisable and also includes 2,422 shares held indirectly through Mr. Johnsons
participation in Bear Creek Equity Partners Funds.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EQUITY COMPENSATION PLAN INFORMATION SUMMARY

The table below sets forth information regarding our Equity Compensation Plans as of June 27, 2009:



|                                                           |  |                                                                                             |  |                                                                             |        |                                                                                                                                          |       
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ------ | ---------------------------------------------------------------------------------------------------------------------------------------- | ------
|Plan Category                                              |  | Number of securities tobe issued upon exerciseof outstanding options,warrants and
rights(a) |  | Weighted-averageexercise price ofoutstanding options,warrants and rights(b) |        | Number of securitiesremaining available forfuture issuance underequity compensationplans
(excludingsecurities reflected incolumn (a))(c)
|Equity Compensation Plans approved by security holders     |  | 59,568                                                                                      |  | $                                                                           | 113.92 |                                                                                                                                          | 57,136
|Equity Compensation Plans not approved by security holders |  |                                                                                            |  |                                                                             |       |                                                                                                                                          |      
|                                                           |  |                                                                                             |  |                                                                             |        |                                                                                                                                          |       
|Total                                                      |  | 59,568                                                                                      |  | $                                                                           | 113.92 |                                                                                                                                          | 57,136



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##### Table of Contents

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

MANAGEMENT AGREEMENT

In connection with the 2004 Acquisition, the Company entered into an agreement with Wasserstein, on behalf of
Wasserstein and Highfields, to pay Wasserstein and Highfields an aggregate fee of up to $1,000 annually plus expenses for financial management, consulting and advisory services. To the extent the fee is not paid in any year, it will be accrued.
Under our management agreement, the Company has also agreed to engage Wasserstein as an advisor to the Company in connection with any material financing transaction, asset acquisitions or dispositions or any direct or indirect change of control of
the Company. Upon consummation of any such transaction, the Company will pay Wasserstein a customary transaction fee for such advisory services.

OTHER
TRANSACTIONS

From time to time in the ordinary course of business, we may enter into transactions with entities in which one or both of our equity
sponsors have an interest. Any such transaction would be subject to compliance with the covenants contained in the indenture governing the Senior Notes and our revolving credit facility. We anticipate that any such transaction would be on arms
length terms. In addition, we have entered into an employment agreement with one of our executive officers as described in Item 11Executive CompensationEmployment Agreements. We may also from time to time indemnify
executive officers and directors for actions taken in their capacities as such.

DIRECTOR INDEPENDENCE

Currently, because we are a privately-held company, we are not subject to the reporting requirements of Section 13(a) or Section 15(a) of the Exchange Act, and
our equity securities are not listed on a national securities exchange, we are not required, and we do not have any independent directors.



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

PRINCIPAL ACCOUNTANT
FEES AND SERVICES

The aggregate fees for professional services rendered by Ernst & Young LLP for us for fiscal 2009 and 2008 are shown in the
table below (in actual dollars):



|                   |  |             |         |             |   |          
|------------------ |  | ----------- | ------- | ----------- | - | ---------
|                   |  | Fiscal 2009 |         | Fiscal 2008
|Audit fees         |  | $           | 863,289 |             | $ | 1,242,700
|Audit-related fees |  |             | 118,320 |             |   | 269,002  
|Tax fees           |  |             | 2,419   |             |   | 5,000    
|All other fees     |  |             |        |             |   |         
|                   |  |             |         |             |   |          
|Total              |  | $           | 984,028 |             | $ | 1,516,702
|                   |  |             |         |             |   |          

The nature of each category of fees is described below:

Audit fees consist of fees for professional services for the annual audit of our consolidated financial statements and review of our quarterly reports on
Form 10-Q and accounting consultation related to the audit.

Audit-related fees consist of fees for professional services related to our
acquisitions and divestitures. For fiscal 2009 and 2008, audit-related fees were primarily comprised of professional services associated with our acquired businesses.

Tax fees consist primarily of fees for tax advice.

All other fees are fees for any products or
services not included above.

The Board of Directors, acting as the Audit Committee, approves all audit, audit-related services, tax services and other
services provided by Ernst & Young LLP. Any services provided by Ernst & Young LLP that are not specifically included within the scope of the audit must be pre-approved by the audit committee in advance of any engagement. The Board
of Directors has determined that the services Ernst & Young LLP provided do not impair its independence from us.



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##### Table of Contents

PART IV



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



|                                                            |  | 
|----------------------------------------------------------- |  | 
|(a) Report of Independent Registered Public Accounting Firm |  | 
|                                                            | 
|Consolidated Balance Sheets                                 |  | 
|                                                            | 
|Consolidated Statements of Operations                       |  | 
|                                                            | 
|Consolidated Statements of Stockholders Equity (Deficit)   |  | 
|                                                            | 
|Consolidated Statements of Cash Flows                       |  | 
|                                                            | 
|Notes to Consolidated Financial Statements                  |  | 

(b) Exhibits Index



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|2.1**      |  | Stock Purchase Agreement, dated as of April 1, 2004, among Pear Acquisition, Inc. (now known as Harry & David Holdings, Inc.), Yamanouchi Consumer, Inc., Yamanouchi Pharmaceutical Co.,
Ltd. and Yamanouchi U.S. Holding Inc. Relating to the Purchase and Sale of 100% of the Common Stock of Bear Creek Corporation (now known as Harry & David Operations Corp.) (Filed as Exhibit 2.1 to Harry & David Holdings, Inc.s
Registration Statement on Form S-1 (File No. 333-127173) and incorporated herein by reference)                 
|            | 
|2.2        |  | Letter, dated June 17, 2004, amending the Stock Purchase Agreement among Pear Acquisition, Inc. (now known as Harry & David Holdings, Inc.), Yamanouchi Consumer, Inc., Yamanouchi
Pharmaceutical Co., Ltd. and Yamanouchi U.S. Holding Inc. Relating to the Purchase and Sale of 100% of the Common Stock of Bear Creek Corporation (now known as Harry & David Operations Corp.) (Filed as Exhibit 2.2 to Harry & David Holdings,
Inc.s Registration Statement on Form S-1 (File No. 333-127173) and incorporated herein by reference)   
|            | 
|2.3        |  | Letter, dated October 11, 2004, amending the Stock Purchase Agreement among Pear Acquisition, Inc. (now known as Harry & David Holdings, Inc.), Yamanouchi Consumer, Inc., Yamanouchi
Pharmaceutical Co., Ltd. and Yamanouchi U.S. Holding Inc. Relating to the Purchase and Sale of 100% of the Common Stock of Bear Creek Corporation (now known as Harry & David Operations Corp.) (Filed as Exhibit 2.3 to Harry & David Holdings,
Inc.s Registration Statement on Form S-1 (File No. 333-127173) and incorporated herein by reference)
|            | 
|2.4        |  | Purchase Agreement, dated as of March 30, 2007, among Harry & David Operations Corp., Bear Creek Direct Marketing, Inc., Jackson & Perkins Operations, Inc., J&P Acquisition Inc.
and Donald Hachenberger and Glenda Hachenberger (Filed as Exhibit 2.1 to Harry & David Holdings, Inc.s Quarterly Report on Form 10-Q filed on May 15, 2007 and incorporated herein by reference)                                                                                                                                                         
|            | 
|2.5        |  | Asset Purchase Agreement, dated as of March 30, 2007 between Bear Creek Operations, Inc. and J&P Acquisition Inc. (Filed as Exhibit 2.3 to Harry & David Holdings, Inc.s
Quarterly Report on Form 10-Q filed on May 15, 2007 and incorporated herein by reference)                                                                                                                                                                                                                                                                         
|            | 
|2.6        |  | Purchase Agreement, dated as of April 10, 2007 between Bear Creek Operations, Inc. and J&P Acquisition Inc. (Filed as Exhibit 2.2 to Harry & David Holdings, Inc.s Quarterly
Report on Form 10-Q filed on May 15, 2007 and incorporated herein by reference)                                                                                                                                                                                                                                                                               
|            | 
|2.7        |  | First Amendment to Asset Purchase Agreement, dated as of April 17, 2007, among Jackson & Perkins Operations, Inc., Wasco Real Properties I, LLC and Wasco Real Properties II, LLC (Filed
as Exhibit 2.4 to Harry & David Holdings, Inc.s Quarterly Report on Form 10-Q filed on May 15, 2007 and incorporated herein by reference)                                                                                                                                                                                                         
|            | 
|3.1        |  | Harry & David Holdings, Inc. Amended and Restated Certificate of Incorporation (Filed as Exhibit 3.3 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No.
333-128870) and incorporated herein by reference)                                                                                                                                                                                                                                                                                                     
|            | 
|3.2        |  | Harry & David Holdings, Inc. Certificate of Amendment to Amended and Restated Certificate of Incorporation (Filed as Exhibit 3.4 to Harry & David Operations Corp.s Registration
Statement on Form S-4 (File No. 333-128870) and incorporated herein by reference)                                                                                                                                                                                                                                                                         
|            | 
|3.3        |  | Harry & David Holdings, Inc. Certificate of Amendment to Amended and Restated Certificate of Incorporation (Filed as Exhibit 3.5 to Harry & David Operations Corp.s Registration
Statement on Form S-4 (File No. 333-128870) and incorporated herein by reference)                                                                                                                                                                                                                                                                         



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|3.4        |  | Bear Creek Orchards, Inc. Certificate of Incorporation (Filed as Exhibit 3.8 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and
incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|3.5        |  | Harry and David Articles of Incorporation (Filed as Exhibit 3.9 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and incorporated herein by
reference)                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|3.6        |  | Harry & David Holdings, Inc. Bylaws (Filed as Exhibit 3.15 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and incorporated herein by
reference)                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|3.7        |  | Bear Creek Orchards, Inc. Bylaws (Filed as Exhibit 3.18 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and incorporated herein by
reference)                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|3.8        |  | Harry and David Bylaws (Filed as Exhibit 3.19 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and incorporated herein by
reference)                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|4.1        |  | Indenture among Bear Creek Corporation (now known as Harry & David Operations Corp.) and each of the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee, dated as
of February 25, 2005 (Filed as Exhibit 4.2 to Harry & David Holdings, Inc.s Registration Statement on Form S-1 (File No. (333-127173) and incorporated herein by reference)                                                                                                                                                                                                                                               
|            | 
|4.2        |  | Form of Notes (included in Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|4.3        |  | Form of Guarantee (included in Exhibit 4.1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|4.4        |  | First Supplemental Indenture (relating to the Indenture dated as of February 25, 2005) dated as of November 30, 2007, by and among Harry and David, as Successor, each of the other
Guarantors thereto, and Wells Fargo Bank, National Association, as Trustee (Filed as Exhibit 10.1 to Harry & David Holdings, Inc.s Form 10-Q (File No. 333-127173) dated February 2, 2008 and incorporated herein by
reference)                                                                                                                                                                                                      
|            | 
|10.1       |  | Employment Agreement, dated as of June 17, 2004, by and between Bear Creek Corporation (now known as Harry & David Operations Corp.) and William H. Williams (Filed as Exhibit 10.3 to
Harry & David Holdings, Inc.s Registration Statement on Form S-1 (File No. 333-127173) and incorporated herein by reference)                                                                                                                                                                                                                                                                                                      
|            | 
|10.3       |  | 2004 Stock Option Plan (Filed as Exhibit 10.6 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and incorporated herein by
reference)                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|10.4       |  | Form of Liquidity Event Award Agreement (Filed as Exhibit 10.7 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and incorporated herein by
reference)                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|10.5       |  | Liquidity Event Award Agreement for William H. Williams (Filed as Exhibit 10.8 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and
incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|10.6       |  | Liquidity Event Award Agreement for Stephen V. OConnell (Filed as Exhibit 10.9 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and
incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|10.7       |  | Form of Incentive Stock Option Agreement (Filed as Exhibit 10.10 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and incorporated herein by
reference)                                                                                                                                                                                                                                                                                                                                                                                                                       
|            | 
|10.8       |  | Form of Non-Qualified Stock Option Agreement (Filed as Exhibit 10.11 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and incorporated herein
by reference)                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.9       |  | Non-Qualified Stock Option Agreement for William H. Williams (Filed as Exhibit 10.12 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and
incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.10      |  | Non-Qualified Stock Option Agreement for Stephen V. OConnell (Filed as Exhibit 10.13 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870)
and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                  
|            | 
|10.11      |  | Form of Severance Pay Plan (Filed as Exhibit 10.14 to Harry & David Operations Corp.s Registration Statement on Form S-4 (File No. 333-128870) and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|10.12      |  | Credit Agreement among Harry & David Operations Corp., as Borrower, Harry & David Holdings, Inc. and certain subsidiaries of Holdings, as Guarantors, certain lenders party thereto, UBS
Securities LLC, as Lead Arranger, UBS Loan Finance LLC, as a lender and as Swingline Lender, UBS AG, Stamford Branch, as Issuing Bank, as the Administrative Collateral Agent and as Administrative Agent for the lenders and GMAC Commercial Finance
LLC, as Collateral Agent (Filed as Exhibit 10.1 to Harry & David Holdings, Inc.s Form 8-K (File No. 333-128870) dated March 20, 2006 and incorporated herein by reference)



51



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 
|10.13      |  | Harry & David Operations Corp.s Excess Pension Plan (Filed as Exhibit 10.1 to Harry & David Corp.s Form 8-K (File No. 333-128870) dated August 1, 2006 and incorporated
herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|10.14      |  | Amended and Restated 2004 Stock Option Plan (Filed as Exhibit 10.1 to Harry & David Holdings, Inc.s Quarterly Report on Form 10-Q filed on November 14, 2006 and incorporated
herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|10.15      |  | First Amendment to Credit Agreement, dated as of June 21, 2007, by and among Harry & David Operations Corp., as Borrower, Harry & David Holdings, Inc. and certain subsidiaries of
Holdings, as Guarantors, certain lenders party thereto, UBS Securities LLC, as Lead Arranger, UBS Loan Finance LLC, as a lender and as Swingline Lender, UBS AG, Stamford Branch, as Issuing Bank, as the Administrative Collateral Agent and as
Administrative Agent for the lenders and GMAC Commercial Finance LLC, as Collateral Agent (Filed as Exhibit 10.15 to Harry & David Holdings Form 10-K filed on September 14, 2007 and incorporated herein by reference)                                                         
|            | 
|10.16      |  | Assumption Agreement dated as of November 30, 2007 by Harry and David, pursuant to the Credit Agreement among Harry & David Operations Corp., as Borrower, Harry & David Holdings,
Inc. and certain subsidiaries of Holdings, as Guarantors, certain lenders party thereto, UBS Securities LLC, as Lead Arranger, UBS Loan Finance LLC, as a lender and as Swingline Lender, UBS AG, Stamford Branch, as Issuing Bank, as the Administrative
Collateral Agent and as Administrative Agent for the lenders and GMAC Commercial Finance LLC, as Collateral Agent (Filed as Exhibit 10.2 to Harry & David Holdings, Inc.s Form 10-Q (File No. 333-127173) dated February 2, 2008 and
incorporated herein by reference)
|            | 
|10.17      |  | Consent and Second Amendment to Credit Agreement, dated as of August 8, 2008, by and among Harry and David (as successor to Harry & David Operations Corp.), as Borrower, Harry &
David Holdings, Inc. and certain subsidiaries of Holdings, as Guarantors, certain lender party thereto, UBS AG, Stamford Branch, as Administrative Collateral Agent and as Administrative Agent for the Lenders, and GMAC Commercial Finance LLC, as
Collateral Agent.                                                                                                                                                                                                                                                            
|            | 
|10.18      |  | Employment offer letter, dated as of August 10, 2009, by and between Harry & David Holdings, Inc. and Edward F. Dunlap and incorporated by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|21.1       |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|31.1        |  | Certification of the Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|31.2        |  | Certification of Principal Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|32.1        |  | Certification of the President and Chief Executive Officer and the Chief Financial Officer required by rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §
1350.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



|** | The Stock Purchase Agreement submitted as Exhibit 2.1 contains a list briefly identifying the contents of all omitted disclosure schedules. The Company undertakes to furnish
supplementally a copy of any omitted disclosure schedules to the Securities and Exchange Commission upon request.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Previously filed
|- | ----------------



|(c) | The following Financial Statement Schedules of Harry & David Holdings, Inc. are included in Item 8, Financial Statements and Supplementary Data  Notes to
Consolidated Financial Statements. Schedules not referenced are inapplicable or not required.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Valuation
and Qualifying Accounts

Consolidating Financial Statements required by Rule 3-10 of Regulation S-X



52



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##### Table of Contents

SIGNATURES

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

HARRY & DAVID HOLDINGS, INC.



|                                                  |  |                                                           |  |                   
|------------------------------------------------- |  | --------------------------------------------------------- |  | ------------------
|Signature                                         |  | Title                                                     |  | Date              
|                                                  |  |                                                          
|/s/ William H. Williams William H. Williams       |  | President and Chief Executive Officer and
Director        |  | September 17, 2009
|                                                  |  |                                                          
|/s/ Edward F. Dunlap Edward F. Dunlap             |  | Chief Financial Officer (Principal Financial Officer)     |  | September 17, 2009
|                                                  |  |                                                          
|/s/ Bernard Colpitts Bernard Colpitts             |  | Vice President, Controller (Principal Accounting
Officer) |  | September 17, 2009
|                                                  |  |                                                          
|/s/ Ellis B. Jones Ellis
B. Jones                 |  | Director                                                  |  | September 17, 2009
|                                                  |  |                                                          
|/s/ George L. Majoros, Jr. George L. Majoros, Jr. |  | Director                                                  |  | September 17, 2009
|                                                  |  |                                                          
|/s/ Bruce Wasserstein Bruce Wasserstein           |  | Director                                                  |  | September 17, 2009



---

##### Table of Contents

HARRY & DAVID HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                          |  |    
|--------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm   |  | F-2
|                                                          | 
|Audited Consolidated Financial Statements                 |  |    
|                                                          | 
|Consolidated Balance Sheets                               |  | F-3
|                                                          | 
|Consolidated Statements of Operations                     |  | F-4
|                                                          | 
|Consolidated Statements of Stockholders Equity (Deficit) |  | F-5
|                                                          | 
|Consolidated Statements of Cash Flows                     |  | F-6
|                                                          | 
|Notes to Consolidated Financial Statements                |  | F-7



F-1



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Harry & David Holdings,
Inc.

We have audited the accompanying consolidated balance sheets of Harry & David Holdings, Inc. and subsidiaries (the Company) as of
June 27, 2009 and June 28, 2008, and the related consolidated statements of operations, stockholders equity (deficit), and cash flows for each of the three fiscal years in the period ended June 27, 2009. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements 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. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes 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. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of the Company at June 27, 2009 and June 28, 2008, and the consolidated results of their operations and their cash flows for each of the three fiscal years in
the period ended June 27, 2009, in conformity with U.S. generally accepted accounting principles.

As discussed in Notes 4 and 10 to the consolidated
financial statements, effective July 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48 related to accounting for uncertainty in income taxes and Emerging Issues Task Force Issue No. 06-2 related
to accounting for sabbatical leave and, effective June 30, 2007, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 158 related to defined benefit pension and other postretirement
plans.



/s/ ERNST & YOUNG LLP


Portland, Oregon

September 17, 2009



F-2



---

##### Table of Contents

Harry & David Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands,
except share and per share data)



|                                                                                                                                                                   |  |              |         |   |              |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                                   |  | June 27,2009 |         |   | June 28,2008 |  
|Assets                                                                                                                                                             |  |              |         |   |              |   |         |  
|Current assets                                                                                                                                                     |  |              |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                                                          |  | $            | 15,395  |   |              | $ | 40,792  |  
|Short-term investments                                                                                                                                             |  |              |        |   |              |   | 15,033  |  
|Trade accounts receivable, less allowance for doubtful accounts of $507 at June 27, 2009, and $39 at June 28, 2008                                                 |  |              | 1,466   |   |              |   | 2,084   |  
|Other receivables                                                                                                                                                  |  |              | 2,062   |   |              |   | 2,843   |  
|Inventories                                                                                                                                                        |  |              | 44,738  |   |              |   | 54,463  |  
|Deferred catalog expenses                                                                                                                                          |  |              | 2,657   |   |              |   | 6,258   |  
|Deferred income taxes                                                                                                                                              |  |              | 5,230   |   |              |   | 3,230   |  
|Other current assets                                                                                                                                               |  |              | 4,862   |   |              |   | 7,491   |  
|                                                                                                                                                                   |  |              |         |   |              |   |         |  
|Total current assets                                                                                                                                               |  |              | 76,410  |   |              |   | 132,194 |  
|Fixed assets, net                                                                                                                                                  |  |              | 145,477 |   |              |   | 162,214 |  
|Goodwill                                                                                                                                                           |  |              | 12,236  |   |              |   | 3,690   |  
|Intangibles, net                                                                                                                                                   |  |              | 33,057  |   |              |   | 45,677  |  
|Deferred financing costs, net                                                                                                                                      |  |              | 5,975   |   |              |   | 9,266   |  
|Deferred income taxes                                                                                                                                              |  |              | 1,423   |   |              |   |        |  
|Other assets                                                                                                                                                       |  |              | 2,114   |   |              |   | 3,596   |  
|                                                                                                                                                                   |  |              |         |   |              |   |         |  
|Total assets                                                                                                                                                       |  | $            | 276,692 |   |              | $ | 356,637 |  
|                                                                                                                                                                   |  |              |         |   |              |   |         |  
|Liabilities and stockholders equity (deficit)                                                                                                                     |  |              |         |   |              |   |         |  
|Current liabilities                                                                                                                                                |  |              |         |   |              |   |         |  
|Accounts payable                                                                                                                                                   |  | $            | 11,171  |   |              | $ | 18,981  |  
|Accrued payroll and benefits                                                                                                                                       |  |              | 14,105  |   |              |   | 14,052  |  
|Income taxes payable                                                                                                                                               |  |              | 13,643  |   |              |   | 23,610  |  
|Deferred revenue                                                                                                                                                   |  |              | 16,317  |   |              |   | 17,072  |  
|Accrued interest                                                                                                                                                   |  |              | 4,485   |   |              |   | 5,523   |  
|Other accrued liabilities                                                                                                                                          |  |              | 2,980   |   |              |   | 4,527   |  
|Current portion of capital lease obligations                                                                                                                       |  |              | 147     |   |              |   | 647     |  
|                                                                                                                                                                   |  |              |         |   |              |   |         |  
|Total current liabilities                                                                                                                                          |  |              | 62,848  |   |              |   | 84,412  |  
|Long-term debt and capital lease obligations                                                                                                                       |  |              | 198,671 |   |              |   | 235,599 |  
|Accrued pension liability                                                                                                                                          |  |              | 27,364  |   |              |   | 17,494  |  
|Deferred income taxes                                                                                                                                              |  |              |        |   |              |   | 4,074   |  
|Other long-term liabilities                                                                                                                                        |  |              | 9,591   |   |              |   | 10,906  |  
|                                                                                                                                                                   |  |              |         |   |              |   |         |  
|Total liabilities                                                                                                                                                  |  |              | 298,474 |   |              |   | 352,485 |  
|                                                                                                                                                                   |  |              |         |   |              |   |         |  
|Commitments and contingencies (Note 14)                                                                                                                            |  |              |         |   |              |   |         |  
|Stockholders equity (deficit)                                                                                                                                     |  |              |         |   |              |   |         |  
|Common stock, $0.01 par value, 1,500,000 shares authorized; 1,033,295 and 1,033,295 shares issued and outstanding at June 27, 2009 and
June 28, 2008, respectively |  |              | 10      |   |              |   | 10      |  
|Additional paid-in capital                                                                                                                                         |  |              | 6,673   |   |              |   | 6,191   |  
|Accumulated other comprehensive loss, net of tax                                                                                                                   |  |              | (9,795  | ) |              |   | (3,558  | )
|Retained earnings (accumulated deficit)                                                                                                                            |  |              | (18,670 | ) |              |   | 1,509   |  
|                                                                                                                                                                   |  |              |         |   |              |   |         |  
|Total stockholders equity (deficit)                                                                                                                               |  |              | (21,782 | ) |              |   | 4,152   |  
|                                                                                                                                                                   |  |              |         |   |              |   |         |  
|Total liabilities and stockholders equity (deficit)                                                                                                               |  | $            | 276,692 |   |              | $ | 356,637 |  
|                                                                                                                                                                   |  |              |         |   |              |   |         |  

See accompanying Notes to Consolidated Financial Statements.



F-3



---

##### Table of Contents

Harry & David Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations

(in
thousands, except share and per share data)



|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|--------------------------------------------------------------- |  | ---------------------- | --------- | - | ---------------------- | - | --------- | ---------------------- |  | - | --------- | -
|                                                                |  | Year endedJune 27,2009 |           |   | Year endedJune 28,2008 |   |           | Year endedJune 30,2007 | 
|Net sales                                                       |  | $                      | 489,596   |   |                        | $ | 545,064   |                        |  | $ | 561,017   |  
|Cost of goods sold                                              |  |                        | 287,167   |   |                        |   | 295,894   |                        |  |   | 295,211   |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Gross profit                                                    |  |                        | 202,429   |   |                        |   | 249,170   |                        |  |   | 265,806   |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Operating expenses:                                             |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Selling, general and administrative                             |  |                        | 229,335   |   |                        |   | 217,008   |                        |  |   | 214,004   |  
|Selling, general and administrative  related party             |  |                        | 1,000     |   |                        |   | 1,000     |                        |  |   | 1,068     |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|                                                                |  |                        | 230,335   |   |                        |   | 218,008   |                        |  |   | 215,072   |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Operating income (loss)                                         |  |                        | (27,906   | ) |                        |   | 31,162    |                        |  |   | 50,734    |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Other (income) expense:                                         |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Interest income                                                 |  |                        | (241      | ) |                        |   | (2,708    | )                      |  |   | (3,126    | )
|Interest expense                                                |  |                        | 21,476    |   |                        |   | 25,227    |                        |  |   | 28,199    |  
|Pension curtailment gain                                        |  |                        |          |   |                        |   |          |                        |  |   | (15,844   | )
|Gain on debt prepayment                                         |  |                        | (15,416   | ) |                        |   | (303      | )                      |  |   |          |  
|Other (income) expense, net                                     |  |                        | 869       |   |                        |   | (39       | )                      |  |   | (348      | )
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|                                                                |  |                        | 6,688     |   |                        |   | 22,177    |                        |  |   | 8,881     |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Income (loss) from continuing operations before income taxes    |  |                        | (34,594   | ) |                        |   | 8,985     |                        |  |   | 41,853    |  
|Provision (benefit) for income taxes                            |  |                        | (14,861   | ) |                        |   | 4,648     |                        |  |   | 11,156    |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Net income (loss) from continuing operations                    |  |                        | (19,733   | ) |                        |   | 4,337     |                        |  |   | 30,697    |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Discontinued operations:                                        |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Gain (loss) on sale of Jackson & Perkins                        |  |                        | (1,414    | ) |                        |   | 282       |                        |  |   | 6,713     |  
|Operating income (loss) on discontinued operations              |  |                        | 632       |   |                        |   | 8         |                        |  |   | (4,282    | )
|Provision (benefit) for income taxes on discontinued operations |  |                        | (336      | ) |                        |   | 19        |                        |  |   | 1,127     |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Net income (loss) from discontinued operations                  |  |                        | (446      | ) |                        |   | 271       |                        |  |   | 1,304     |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Net income (loss)                                               |  | $                      | (20,179   | ) |                        | $ | 4,608     |                        |  | $ | 32,001    |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Basic net income (loss) per share:                              |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Continuing operations                                           |  |                        | (19.10    | ) |                        |   | 4.20      |                        |  |   | 29.90     |  
|Discontinued operations                                         |  |                        | (0.43     | ) |                        |   | 0.26      |                        |  |   | 1.27      |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Total basic net income (loss) per share                         |  | $                      | (19.53    | ) |                        | $ | 4.46      |                        |  | $ | 31.17     |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Diluted net income (loss) per share:                            |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Continuing operations                                           |  |                        | (19.10    | ) |                        |   | 4.16      |                        |  |   | 29.90     |  
|Discontinued operations                                         |  |                        | (0.43     | ) |                        |   | 0.26      |                        |  |   | 1.27      |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Total diluted net income (loss) per share                       |  | $                      | (19.53    | ) |                        | $ | 4.42      |                        |  | $ | 31.17     |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Weighted-average shares used in per share calculations:         |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Basic                                                           |  |                        | 1,033,295 |   |                        |   | 1,032,577 |                        |  |   | 1,026,604 |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  
|Diluted                                                         |  |                        | 1,033,295 |   |                        |   | 1,043,471 |                        |  |   | 1,026,604 |  
|                                                                |  |                        |           |   |                        |   |           |                        |  |   |           |  

See accompanying Notes to Consolidated Financial Statements.



F-4



---

##### Table of Contents

Harry & David Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders Equity (Deficit)

(in thousands, except share data)



|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------ |  | ------------------------- | -- | ------------------------------------ | - | ----- | ----------------------------------- | - | ------- | ----- |  | - | ------ | - |  | - | ------- | -
|                                                               |  | Common stock |  | Additionalpaid-in capital |    | Retainedearnings(accumulateddeficit) |   |       | Accumulatedothercomprehensiveincome |   |         | Total | 
|                                                               |  | Shares       |  | Value                     |    |                                      |   |      
|Balance at June 24, 2006                                       |  | 1,019,929    |  | $                         | 10 |                                      | $ | 3,954 |                                     | $ | (34,414 | )     |  | $ |       |   |  | $ | (30,450 | )
|Net income                                                     |  |             |  |                           |   |                                      |   |      |                                     |   | 32,001  |       |  |   |       |   |  |   | 32,001  |  
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|Comprehensive income, net of tax                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   | 32,001  |  
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|Adjustment to initially apply SFAS No. 158, net of tax of $661 |  |             |  |                           |   |                                      |   |      |                                     |   |        |       |  |   | 1,119  |   |  |   | 1,119   |  
|Exercise of common stock options                               |  | 12,312       |  |                           |   |                                      |   | 1,017 |                                     |   |        |       |  |   |       |   |  |   | 1,017   |  
|Stock option compensation                                      |  |             |  |                           |   |                                      |   | 577   |                                     |   |        |       |  |   |       |   |  |   | 577     |  
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|Balance at June 30, 2007                                       |  | 1,032,241    |  | $                         | 10 |                                      | $ | 5,548 |                                     | $ | (2,413  | )     |  | $ | 1,119  |   |  | $ | 4,264   |  
|Net income                                                     |  |             |  |                           |   |                                      |   |      |                                     |   | 4,608   |       |  |   |       |   |  |   | 4,608   |  
|Net actuarial pension losses, net of tax of $2,763             |  |             |  |                           |   |                                      |   |      |                                     |   |         |       |  |   | (4,677 | ) |  |   | (4,677  | )
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|Comprehensive loss, net of tax                                 |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   | (69     | )
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|Adjustment to initially apply EITF 06-02, net of tax of $164   |  |             |  |                           |   |                                      |   |      |                                     |   | (256    | )     |  |   |       |   |  |   | (256    | )
|Adjustment to initially apply FIN 48                           |  |             |  |                           |   |                                      |   |      |                                     |   | (430    | )     |  |   |       |   |  |   | (430    | )
|Exercise of common stock options                               |  | 1,054        |  |                           |   |                                      |   | 91    |                                     |   |        |       |  |   |       |   |  |   | 91      |  
|Stock option compensation                                      |  |             |  |                           |   |                                      |   | 552   |                                     |   |        |       |  |   |       |   |  |   | 552     |  
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|Balance at June 28, 2008                                       |  | 1,033,295    |  | $                         | 10 |                                      | $ | 6,191 |                                     | $ | 1,509   |       |  | $ | (3,558 | ) |  | $ | 4,152   |  
|Net loss                                                       |  |             |  |                           |   |                                      |   |      |                                     |   | (20,179 | )     |  |   |       |   |  |   | (20,179 | )
|Net additional actuarial pension losses, net of tax of $4,361  |  |             |  |                           |   |                                      |   |      |                                     |   |        |       |  |   | (7,298 | ) |  |   | (7,298  | )
|Amortization of deferred pension loss, net of tax of $634      |  |             |  |                           |   |                                      |   |      |                                     |   |        |       |  |   | 1,061  |   |  |   | 1,061   |  
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|Comprehensive loss, net of tax                                 |  |             |  |                           |   |                                      |   |      |                                     |   |        |       |  |   |       |   |  |   | (26,416 | )
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|Stock option compensation                                      |  |             |  |                           |   |                                      |   | 482   |                                     |   |        |       |  |   |       |   |  |   | 482     |  
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  
|Balance at June 27, 2009                                       |  | 1,033,295    |  | $                         | 10 |                                      | $ | 6,673 |                                     | $ | (18,670 | )     |  | $ | (9,795 | ) |  | $ | (21,782 | )
|                                                               |  |              |  |                           |    |                                      |   |       |                                     |   |         |       |  |   |        |   |  |   |         |  

See accompanying Notes to Consolidated Financial Statements.



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##### Table of Contents

Harry & David Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in
thousands)



|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | -------- | - | ---------------------- | - | ------- | ---------------------- |  | - | -------- | -
|                                                                                                                                              |  | Year endedJune 27,2009 |          |   | Year endedJune 28,2008 |   |         | Year endedJune 30,2007 | 
|Operating activities                                                                                                                          |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Net income (loss)                                                                                                                             |  | $                      | (20,179  | ) |                        | $ | 4,608   |                        |  | $ | 32,001   |  
|Less: Net income (loss) from discontinued operations                                                                                          |  |                        | (446     | ) |                        |   | 271     |                        |  |   | 1,304    |  
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Net income (loss) from continuing operations                                                                                                  |  |                        | (19,733  | ) |                        |   | 4,337   |                        |  |   | 30,697   |  
|Adjustments to reconcile net income (loss) from continuing operations to net cashprovided by operating activities from continuing
operations: |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Depreciation and amortization of fixed assets                                                                                                 |  |                        | 19,179   |   |                        |   | 18,370  |                        |  |   | 17,122   |  
|Amortization of intangible assets                                                                                                             |  |                        | 1,456    |   |                        |   | 2,122   |                        |  |   | 1,976    |  
|Amortization of deferred financing costs                                                                                                      |  |                        | 2,435    |   |                        |   | 2,604   |                        |  |   | 2,669    |  
|Stock option compensation expense                                                                                                             |  |                        | 482      |   |                        |   | 552     |                        |  |   | 577      |  
|Loss on disposal and impairment of fixed assets and other long-lived assets                                                                   |  |                        | 15,045   |   |                        |   | 1,665   |                        |  |   | 770      |  
|Amortization of deferred pension loss                                                                                                         |  |                        | 1,695    |   |                        |   |        |                        |  |   |         |  
|Gain on short-term investments                                                                                                                |  |                        | (64      | ) |                        |   | (426    | )                      |  |   | (407     | )
|Deferred income taxes                                                                                                                         |  |                        | (3,213   | ) |                        |   | (22,916 | )                      |  |   | 10,818   |  
|Gain on debt prepayment                                                                                                                       |  |                        | (15,416  | ) |                        |   | (303    | )                      |  |   |         |  
|Pension curtailment gain                                                                                                                      |  |                        |         |   |                        |   |        |                        |  |   | (15,844  | )
|Changes in operating assets and liabilities:                                                                                                  |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Trade accounts receivable and other receivables                                                                                               |  |                        | (277     | ) |                        |   | 733     |                        |  |   | 367      |  
|Inventories                                                                                                                                   |  |                        | 10,369   |   |                        |   | 9,621   |                        |  |   | (6,378   | )
|Deferred catalog expenses and other assets                                                                                                    |  |                        | 7,870    |   |                        |   | (284    | )                      |  |   | (997     | )
|Accounts payable                                                                                                                              |  |                        | (7,966   | ) |                        |   | (4,884  | )                      |  |   | 3,903    |  
|Accrued liabilities                                                                                                                           |  |                        | (4,248   | ) |                        |   | (4,112  | )                      |  |   | 10,398   |  
|Income taxes                                                                                                                                  |  |                        | (9,967   | ) |                        |   | 24,272  |                        |  |   | (218     | )
|Accrued pension liability                                                                                                                     |  |                        | (1,789   | ) |                        |   | (5,450  | )                      |  |   | (2,716   | )
|Deferred revenue                                                                                                                              |  |                        | (755     | ) |                        |   | (419    | )                      |  |   | (6,241   | )
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Net cash provided by (used in) operating activities from continuing operations                                                                |  |                        | (4,897   | ) |                        |   | 25,482  |                        |  |   | 46,496   |  
|Net cash provided by (used in) operating activities from discontinued operations                                                              |  |                        | 724      |   |                        |   | 3,147   |                        |  |   | (12,674  | )
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Net cash provided by (used in) operating activities                                                                                           |  |                        | (4,173   | ) |                        |   | 28,629  |                        |  |   | 33,822   |  
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Investing activities                                                                                                                          |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Acquisition of fixed assets                                                                                                                   |  |                        | (6,678   | ) |                        |   | (17,855 | )                      |  |   | (21,459  | )
|Acquisition of businesses                                                                                                                     |  |                        | (8,509   | ) |                        |   | (22,784 | )                      |  |   |         |  
|Proceeds from the sale of fixed assets                                                                                                        |  |                        | 22       |   |                        |   | 32      |                        |  |   | 17       |  
|Purchases of available-for-sale securities                                                                                                    |  |                        |         |   |                        |   | (10,000 | )                      |  |   |         |  
|Purchases of held-to-maturity securities                                                                                                      |  |                        |         |   |                        |   | (4,964  | )                      |  |   | (51,838  | )
|Proceeds from the sale of or income on available-for-sale securities                                                                          |  |                        | 10,097   |   |                        |   | 195     |                        |  |   |         |  
|Proceeds from the sale of held-to-maturity securities                                                                                         |  |                        | 5,000    |   |                        |   | 24,978  |                        |  |   | 27,429   |  
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Net cash used in investing activities from continuing operations                                                                              |  |                        | (68      | ) |                        |   | (30,398 | )                      |  |   | (45,851  | )
|Net cash provided by investing activities from discontinued operations                                                                        |  |                        |         |   |                        |   | 4,161   |                        |  |   | 42,860   |  
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Net cash used in investing activities                                                                                                         |  |                        | (68      | ) |                        |   | (26,237 | )                      |  |   | (2,991   | )
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Financing activities                                                                                                                          |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Borrowings of revolving debt                                                                                                                  |  |                        | 113,000  |   |                        |   | 63,000  |                        |  |   | 108,500  |  
|Repayments of revolving debt                                                                                                                  |  |                        | (113,000 | ) |                        |   | (63,000 | )                      |  |   | (108,500 | )
|Repayments of long-term debt                                                                                                                  |  |                        | (20,366  | ) |                        |   | (9,405  | )                      |  |   |         |  
|Repayments of capital lease obligations                                                                                                       |  |                        | (790     | ) |                        |   | (1,684  | )                      |  |   | (1,077   | )
|Payments for deferred financing costs                                                                                                         |  |                        |         |   |                        |   | (10     | )                      |  |   |         |  
|Proceeds from exercise of stock options                                                                                                       |  |                        |         |   |                        |   | 91      |                        |  |   | 1,017    |  
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Net cash used in financing activities from continuing operations                                                                              |  |                        | (21,156  | ) |                        |   | (11,008 | )                      |  |   | (60      | )
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Increase (decrease) in cash and cash equivalents                                                                                              |  |                        | (25,397  | ) |                        |   | (8,616  | )                      |  |   | 30,771   |  
|Cash and cash equivalents, beginning of period                                                                                                |  |                        | 40,792   |   |                        |   | 49,408  |                        |  |   | 18,637   |  
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  
|Cash and cash equivalents, end of period                                                                                                      |  | $                      | 15,395   |   |                        | $ | 40,792  |                        |  | $ | 49,408   |  
|                                                                                                                                              |  |                        |          |   |                        |   |         |                        |  |   |          |  

See accompanying Notes to Consolidated Financial Statements.



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##### Table of Contents

Harry & David Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollars in thousands)

NOTE 1BUSINESS

Harry & David Holdings, Inc. and subsidiaries (the Company) is a vertically integrated multi-channel specialty retailer and producer of branded premium gift-quality fruit, food products and gifts
marketed under the Harry and David®, Wolfermans®, and Cushmans® brands. The Company
markets its products through catalogs distributed through the mail, the Internet, business-to-business, and consumer telemarketing, Harry and David Stores, Cushmans seasonal stores, and wholesale distribution to other retailers.

Sales of the Companys products are subject to a variety of agricultural risks, fuel and energy price fluctuations, delivery rate increases, and extreme weather
conditions, and are subject to regulation and inspection by various governmental agencies. Historically, the Companys business has been subject to substantial seasonal variations in demand. A significant portion of the Companys net sales
and net earnings are realized during the holiday selling season from October through December, and levels of net sales and net earnings are significantly lower during the period from January to September. Accordingly, operating results will vary
based on the timing of holidays and the ripening of seasonal fruits, which, if delayed, can cause delays in product shipments.

NOTE 2OWNERSHIP
AND CAPITAL STRUCTURE

On June 17, 2004, the Company purchased all of the outstanding shares of common stock of Harry & David Operations
Corp. (formerly Bear Creek Corporation) from Yamanouchi Consumer Inc. (YCI) (referred to herein as the 2004 Acquisition). In conjunction with the 2004 Acquisition, the Company issued 1,000,000 shares of $.01 par value stock
to Wasserstein & Company, LP (Wasserstein) and affiliates of funds sponsored by Highfields Capital Management LP (Highfields). As of June 27, 2009, affiliates of Wasserstein, together with current and former
members of management, own a 66% controlling interest in the Company, and Highfields owns 34%.

NOTE 3SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The accompanying audited consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (U.S. GAAP) for financial information and with the instructions to Form 10-K.

The results of
operations of the divested Jackson & Perkins businesses, the revenues and expenses associated with the transitional services the Company had provided to the buyer, as well as the gain on sale of the Jackson & Perkins business are
separately accounted for on the consolidated statement of operations as discontinued operations. See Note 6Discontinued Operations.

Certain reclassifications have been made to the prior year to conform to the current year presentation. The Company has reclassified amounts related to its outstanding gift cards and gift certificates to Deferred Revenue from
Accrued Liabilities in the consolidated balance sheets with corresponding reclassifications on the consolidated statements of cash flows. In addition to prior period reclassifications, as described in Note 5Acquisitions
the Company recorded a reclassification from Intangibles, net to Goodwill related to a purchase price allocation adjustment associated with its Wolfermans acquisition.

All dollar amounts presented in the accompanying consolidated financial statements and theses notes are in thousands except per share data.

Fiscal year

The Companys fiscal year ends the last Saturday in
June, based on a 52/53-week year. The fiscal years ended June 27, 2009 and June 28, 2008 contained 52 weeks, while the fiscal year ended June 30, 2007 contained 53 weeks.



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Use of estimates

The
preparation of financial statements in conformity with U.S. GAAP 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. The estimates and assumptions are evaluated on an ongoing basis and are based on historical experiences and various other factors that are believed
to be reasonable under the circumstances. Actual results could differ from those estimates.

Financial instruments

Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards SFAS No. 107, Disclosures about Fair Value of Financial
Instruments,requires disclosure of the fair value of certain financial instruments. The Companys financial instruments consist principally of short-term investments, cash and cash equivalents, accounts receivable, accounts payable,
certain accrued liabilities, capital lease obligations and the Senior Floating Rate Notes due March 1, 2012 and Senior Fixed Rate Notes due March 1, 2013 (collectively, the Senior Notes). The estimated carrying value of these instruments
(other than the Senior Notes) approximates fair value due to their short-term maturities. The fair values below are based on quoted market prices.

The
following table provides the carrying value and fair value of the Companys Senior Notes:



|                           |  |               |         |               |   |            |  |            |         |  |   |        
|-------------------------- |  | ------------- | ------- | ------------- | - | ---------- |  | ---------- | ------- |  | - | -------
|                           |  | June 27, 2009 |         | June 28, 2008
|                           |  | Book value    |         | Fair value    |   | Book value |  | Fair value
|Senior Floating Rate Notes |  | $             | 58,170  |               | $ | 17,596     |  | $          | 68,000  |  | $ | 59,840 
|Senior Fixed Rate Notes    |  | $             | 140,192 |               | $ | 55,025     |  | $          | 167,000 |  | $ | 146,960
|                           |  |               |         |               |   |            |  |            |         |  |   |        
|Total Long-term debt       |  | $             | 198,362 |               | $ | 72,621     |  | $          | 235,000 |  | $ | 206,800
|                           |  |               |         |               |   |            |  |            |         |  |   |        

Cash and cash equivalents

Cash and cash equivalents are carried at cost, which approximates market value. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash
equivalents include third-party credit card receivables because such amounts generally convert to cash within three days with little or no default risk, as well as investments in commercial paper with a purchased maturity of 90 days or less.
Third-party credit card receivables totaled $1,067 and $1,035 as of June 27, 2009 and June 28, 2008, respectively. Cash and cash equivalents consist primarily of deposits at federally insured financial institutions. Deposits with these
banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.

Short-term investments

Investments are classified as held-to-maturity, trading, or available-for-sale at the time of
purchase based on, among other factors, the Companys short-term liquidity requirements. The cost of the securities is based on the specific identification method. Held-to-maturity securities are stated at amortized cost as it is the intent of
the Company to hold these securities until maturity. Available-for-sale securities are recorded at fair value and are classified as current assets due to the Companys intent to hold these investments for less than one year. As of June 27,
2009, the Company held no short-term investments. As of June 28, 2008, $4,995 and $10,038 of investments were classified as held-to-maturity and available-for-sale, respectively, and the carrying values approximated their fair values.

Accounts receivable

Accounts receivable consists
primarily of amounts due from customers. The Company sells its products to individuals and companies located primarily in the United States. Products sold to companies are generally on open credit terms consistent with the Companys evaluation
of customer creditworthiness. The Company generally does not require collateral. No customer accounted for more than 10% of consolidated net sales.

The
Company conducts ongoing credit evaluations and maintains an allowance for doubtful accounts to address the risk of bad debts. The Company analyzes historical bad debts, customer creditworthiness, and current economic trends when evaluating the
adequacy of the allowance for doubtful accounts. The allowance is calculated on a historical percentage of accounts in default as a percentage of sales as well as any accounts specifically identified to be at risk. The Company generally writes off
non-corporate accounts more than 120 days past due. Past-due corporate accounts are written off when management deems that collectability is remote.



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Inventories

Inventories in the Direct Marketing, Wholesale, and Other segments are valued at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Inventories in the Stores segment are valued at the lower
of cost, (which approximates actual cost on a first-in, first-out basis) or market using the retail inventory method. The total amount of inventory valued using the retail inventory method at June 27, 2009 and June 28, 2008 was $13,898 and
$15,569 and, respectively. The Company estimates a provision for damaged, obsolete, excess, and slow-moving inventory based on specific identification and inventory aging reports. The Company provides for excess and obsolete inventories in the
period when excess and obsolescence are determined to have occurred.

The Company capitalizes into inventory both direct and indirect production costs.
Indirect production costs include indirect labor and overhead costs related to growing, manufacturing and assembly. Costs of unharvested crops are included in inventory and include direct labor and other expenses related to unharvested fruit,
including the amortization of orchard development costs. Fruit crop inventories are accounted for on a crop year that spans from November to October.

Deferred catalog expenses and advertising expenses

Deferred catalog expenses are incurred in connection with the direct response marketing
of certain products. Catalog costs consist of creative design, photography, separations, paper, print, distribution, postage, and list costs for all direct response catalogs. Such costs are capitalized as deferred catalog expenses and are amortized
over their expected periods of future benefit based on the estimated sales curve of each catalog promotion. Catalog expenses are generally amortized over 3 to 4 months. However, for sales that extend up to 12 months, such as multiple club shipments,
catalog expense is generally amortized up to a 12-month period.

Deferred catalog expenses are evaluated for realizability at each reporting period by
comparing the carrying amount associated with each catalog to the estimated remaining future net revenues associated with that promotion. Estimated future revenues are based on various factors such as the total number of catalogs and pages
circulated, the probability and likely magnitude of consumer response, and the assortment of merchandise offered. If the carrying amount is in excess of estimated future net revenues, the excess is expensed in the reporting period. Non-direct
response advertising is expensed as incurred.

Total advertising expenses from continuing operations, which are primarily comprised of catalog expenses,
totaled $67,047, $65,097 and $60,932 for fiscal 2009, 2008 and 2007, respectively. Advertising expenses from discontinued operations totaled $7,501 for fiscal 2007. There were no advertising expenses from discontinued operations in fiscal 2009 or
2008.

Fixed assets

Fixed assets are stated at cost.
Orchard development costs, consisting of direct labor and material, supervision, and other items, are capitalized as part of capital projects-in-process until the orchard produces fruit in commercial quantities. Upon attaining commercial levels of
production, these costs are transferred to land improvements.

Depreciation and amortization are computed using the straight-line method, with estimated
useful lives of the related assets as follows:



|                                                |  |                                                                                      
|----------------------------------------------- |  | -------------------------------------------------------------------------------------
|Land improvements and orchard development costs |  | 1035 years                                                                          
|                                                | 
|Buildings and improvements                      |  | 1040 years                                                                          
|                                                | 
|Machinery and equipment                         |  | 310 years                                                                           
|                                                | 
|Purchased and internally developed software     |  | 38 years                                                                            
|                                                | 
|Leasehold improvements                          |  | Shorter of estimated useful life or lease term (generally 5-10 years; up to 20 years)

Repair and maintenance costs are expensed in the year in which they are incurred.

Interest costs related to assets under construction and software projects are capitalized during the construction or development period. Interest costs capitalized
during fiscal 2009, 2008, and 2007 totaled $19, $528, and $253, respectively. At June 27, 2009, the estimated cost to complete capital projects-in-process was approximately $1,800.



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##### Table of Contents

Internally developed software costs are capitalized in accordance with American Institute of Certified Public Accountants
(AICPA) Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.

In accordance
with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates its long-lived assets for impairment. Recoverability of assets is measured by a comparison of the carrying amount of an asset to
undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value, which
is calculated on a discounted cash flow basis.

Intangible assets

Intangible assets primarily consist of trade names, trademarks, a proprietary recipe, customer mailing and rental lists and favorable lease agreements. The trade names, trademarks and the recipe have indefinite lives.
The customer lists have a remaining estimated useful life of four years. The favorable lease agreements have estimated useful lives, which equal the remaining lives of the underlying leases, ranging from one to three years. Goodwill and intangible
assets with indefinite lives are tested for impairment annually using the guidance and criteria described in SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). The impairment testing compares carrying values
to fair values, and generally, if the carrying value of these assets is in excess of fair value, which is calculated on a discounted cash flow basis, an impairment loss would be recognized. The customer mailing lists and rental lists are amortized
using a weighted-average method over the remaining estimated useful lives and favorable lease agreements are amortized using the straight-line method.

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the
Companys acquisition of Wolfermans and Cushmans (see Note 5-Acquisition). Under SFAS No. 142, goodwill is evaluated for potential impairment on an annual basis or whenever events or circumstances indicate that an
impairment may have occurred. SFAS No. 142 requires that goodwill be tested for impairment using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the estimated fair value of the
reporting unit containing goodwill with the related carrying amount. If the estimated fair value of the reporting unit exceeds its carrying amount, the reporting units goodwill is not considered to be impaired and the second step of the
impairment test is unnecessary. If the reporting units carrying amount exceeds its estimated fair value, the second step test must be performed to measure the amount of the goodwill impairment loss, if any. If the carrying amount of the
reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

As
required by SFAS No. 142, the Company identified the Wolfermans direct marketing division, within the Companys Direct Marketing segment, as the reporting unit to which all goodwill was allocated and, therefore, the level at which
goodwill is tested for potential impairment. The Company identified Cushmans goodwill as allocated between the Companys Direct Marketing division and the Companys Wholesale division, and tested for potential impairment at that
level. The allocation of goodwill was based on the assignment of operating responsibilities and the reporting of financial results of the acquired business.

Deferred financing costs

Debt financing costs are deferred and amortized to interest expense using the straight-line method over the term
of the related debt instrument. The straight-line method approximates the effective interest method. See Note 8Borrowing Arrangements.

Deferred rent

For leases that contain fixed escalations of the minimum annual lease payment during the original term of the lease and other
lease incentives, the Company recognizes rental expense on a straight-line basis over the lease term and records the difference between rent expense and the amount that is payable as deferred rent. Current deferred rent liabilities totaling $157 and
$173 were included in other current liabilities and non-current deferred rent liabilities totaling $2,406 and $1,858 were included in other long-term liabilities in the accompanying consolidated balance sheets as of June 27, 2009 and
June 28, 2008, respectively.

Asset retirement obligations

The Company has accrued for future asset retirement obligations resulting from the Companys contractual obligation to restore a store location to its original condition upon lease termination. The accrual is estimated based on
historical costs incurred to restore a location to its original condition after a store closure. Asset retirement obligation liabilities totaling $934 and $948 were included in other liabilities in the accompanying consolidated balance sheets as of
June 27, 2009 and June 28, 2008, respectively.



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##### Table of Contents

Revenue recognition

In accordance with Staff Accounting Bulletin No.104, Revenue Recognition, the Company recognizes revenue from product sales when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

For
the Companys direct marketing revenue and a portion of wholesale revenue, product sales and shipping revenues, net of promotional discounts, rebates, and return allowances, are recorded upon shipment as the Companys or its
customers standard terms and conditions provide for transfer of title upon delivery to the carrier. For certain wholesale customers, revenue is recognized upon receipt by the customer, at which time title passes to the customer in accordance
with the terms of the sale. The Company records a reserve for estimated product returns and allowances in each reporting period. If returns were to increase or decrease, changes to the reserves could be required. Sales taxes are presented on a net
basis. Finance charges on credit sales totaled $89, $145 and $196 for fiscal 2009, 2008 and 2007, respectively, and are included in selling, general and administrative expenses from continuing operations in the consolidated statement of operations.

Deferred revenue represents amounts received from customers for merchandise to be shipped in subsequent periods. The Company defers incremental direct
costs of order processing related to those orders for which revenue is deferred. Deferred order processing costs of $391 and $425 were included in other current assets in the accompanying consolidated balance sheets at June 27, 2009 and
June 28, 2008, respectively.

Revenues from sales of gift cards and gift certificates are deferred until redeemed. The Companys gift cards and
certificates do not lose value over time and do not expire. Unredeemed gift cards or certificates that are subject to escheatment ultimately revert to the appropriate state and are not recorded as income. Unredeemed gift cards or certificates not
subject to escheatment are recognized in income after being outstanding for ten years at which time we consider the possibility of redemption to be remote. Income from unredeemed gift cards and gift certificates of $163, $160 and $332 was recognized
in fiscal 2009, 2008 and 2007, respectively, and is included in net sales in the consolidated statement of operations.

Classification of costs and
expenses

Cost of goods sold includes cost of goods, occupancy expenses for manufacturing and distribution facilities, warehouse and fulfillment costs
and product delivery costs. Cost of goods consists of raw materials, manufacturing costs, costs of externally purchased merchandise, freight, and other inventory-related costs. Occupancy expenses are primarily comprised of depreciation, rent and
utilities. Warehouse and fulfillment costs primarily consist of labor, storage and equipment.

Selling, general and administrative expenses consist of
costs for occupancy associated with our stores and corporate facility, advertising, credit, call center, depreciation and amortization for store leasehold improvements and fixtures, corporate facilities, IT equipment and software, and corporate
administrative functions. Occupancy expenses associated with the stores and corporate facility primarily include rent, common area maintenance and utilities. Corporate administrative function costs primarily include the costs for executive
administration, legal, human resources, finance, insurance and information technology.

Other income and other expenses not otherwise classified generally
consist of legal settlements and other non-operating income or expenses that are not of a meaningful nature for separate classification.

Research and
development

Costs incurred in research and development were primarily for developing new rose varieties and were expensed as incurred in the
Jackson & Perkins segment and therefore are included in discontinued operations. A total of $1,114 of these costs were incurred in fiscal 2007. There were no such costs incurred in fiscal 2009 or 2008.

Income taxes

The Company accounts for income taxes under the
liability method pursuant to SFAS No. 109, Accounting for Income Taxes. Under this method, deferred income tax liabilities and assets are based on the difference between the financial statements and tax basis of assets and liabilities
multiplied by the expected tax rate in the year the differences are expected to reverse. Deferred income tax expense or benefit results from the change in the net deferred tax asset or liability between periods.

The Company records a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. The Company has considered
carryback and carryforward periods, historical and forecasted income, the apportioned earnings in the jurisdictions in which the Company and its subsidiaries operate, and tax planning strategies in estimating a valuation allowance against the
Companys deferred tax assets. If the Company determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized, an adjustment to the deferred tax assets is charged to earnings in the period in
which such a



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determination is made. Conversely, if the Company determines that it is more likely than not that the deferred tax assets
will be realized, the applicable portion of the previously estimated valuation allowance would be reversed.



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The amount of income taxes the Company pays is subject to periodic audits by federal and state tax authorities and these
audits may result in proposed deficiency assessments. In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN
48) which clarifies the accounting for uncertainty in income taxes in an enterprises financial statements in accordance with SFAS No. 109.FIN 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company adopted FIN 48 as of July 1, 2007. See Note 10Income Taxes.

Stock-based compensation

Stock options granted to employees are accounted for under SFAS No. 123R,Share-Based Payment. The fair value of stock-based awards to employees is calculated
by us using the Black-Scholes option valuation model, which requires that we make certain subjective assumptions. These assumptions include future stock price volatility and the expected life of the stock option, which affect the calculated fair
values. For the majority of the granted options, forfeitures are assumed to equal 10% of the total grant amount of the options. The expected term of options granted utilized is either the final vesting date or a period derived from the time between
the date of final vesting and the expiration of the option, depending on the vesting provisions of the underlying grant. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
The calculated compensation expense is recognized on a straight-line basis over each vesting period. See Note 11Stock Option Plan.

Pension Plans

Effective June 30, 2007, the Company adopted SFAS No. 158 Employers Accounting for Defined Benefit Pension
and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R). The Companys pension benefit costs and liabilities are developed from actuarial valuations. Inherent in these valuations are assumptions
the Company determines after consultation with its actuaries, including discount rates and expected returns on plan assets. In determining the expected rates and returns, the Company is required to consider current market conditions, including
changes in interest rates.

Material changes in the Companys pension and post-retirement benefit costs may occur in the future, resulting from
changes in assumptions or other management decisions. For further discussion, see Note 9Benefit Programs.

Earnings (loss) per share

Basic earnings (loss) per share is calculated using the weighted-average common shares outstanding for the period. Diluted earnings per share is
calculated using the weighted-average common shares outstanding for the period including the dilutive effect of stock awards as determined under the treasury stock method. See Note 12Earnings (Loss) Per Share.

NOTE 4RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

The
Company adopted SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Retirement Plans, effective June 30, 2007 through a cumulative adjustment to accumulated other comprehensive income of $1,119, net of
tax, The Company adopted Emerging Issues Task Force Issue No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to Financial Accounting Standards Board Statement No. 43, Accounting for Compensated
Absences as of July 1, 2007 through a cumulative adjustment to retained earnings totaling $256, net of tax.

During June 2009, the Financial
Accounting Standards Board (FASB) issued FAS No. 168, FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162(SFAS 168), which establishes the FASB Accounting Standards Codification as the single official source of authoritative US GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force, and related literature. SFAS 168 will become effective as of the beginning of the first annual reporting period that begins after November 15, 2009 and for interim periods within
that period. The Company expects that the adoption of SFAS 168 will not have an impact on its results of operations or financial position.

In May
2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The adoption of this statement did not
have a material effect on the Companys consolidated statements. The Company evaluated subsequent events after the balance sheet date of June 27, 2009 through September 17, 2009, the date the financial statements were issued.

In April 2009, the FASB issued FASB Staff Position (FSP) No. 107-1 (FSP FAS 107-1) and APB 28-1 (APB 28-1), which amends FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments, and APB Opinion No. 28, Interim Financial Reporting, to require disclosures about the fair value of financial instruments for interim reporting
periods. FSP FAS 107-1 and APB 28-1 will be effective for interim reporting periods ending after June 15, 2009. The adoption of this staff position is not expected to have a material impact on the Companys financial position or results of
operations.

In April 2009, the FASB issued FASB Staff Position No. 115-2 (FSP FAS 115-2) and FASB Staff Position No. 124-2
(FSP FAS 124-2), which amends the other-than-temporary impairment guidance for debt and equity securities. FSP FAS 115-2 and FSP FAS 124-2 shall be effective for interim and annual reporting periods ending after June 15, 2009. The
adoption of this staff position did not have a material effect on the consolidated financial statements.



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In April 2009, the FASB issued FSP FAS 141R-1, Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies, which amends and clarifies SFAS No. 141 (Revised) to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business combination. This FSP shall be effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is during or after fiscal 2010. After the
effective date, the Company will apply the requirements of SFAS No. 141R-1 to any future business combinations.

In December 2008, the FASB issued
Staff Position No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets, which provides additional guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement
plan. This interpretation is effective for financial statements issued for fiscal years ending after December 15, 2009. The Company will adopt this interpretation in fiscal 2010. The Company is currently evaluating the impact of
adopting FSP 132(R)-1 on the consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for non-governmental entities. SFAS 162 was effective November 15, 2008. The Companys adoption of SFAS 162 did not have a material
effect on its consolidated financial statements.

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible
Assets (FSP 142-3) which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company will adopt FSP 142-3 in fiscal year 2010. Early adoption is prohibited. The guidance for
determining the useful life of a recognized intangible asset in FSP 142-3 is to be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements in FSP 142-3 are to be applied prospectively to all
intangible assets recognized as of, and subsequent to, the effective date. The Company is currently evaluating the impact the adoption of FSP 142-3 may have, if any, on the Companys consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R (revised 2007), Business Combinations, which replaces SFAS No. 141. SFAS No. 141R establishes
principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The statement also
establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or
after the effective date of December 15, 2008. The Company will apply the requirements of SFAS No. 141R to any future business combinations.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 expands the use of fair value accounting but does
not affect existing standards, which requires assets or liabilities to be carried at fair value. This statement gives entities the option to record certain financial assets and liabilities at fair value with the changes in fair value recorded in
earnings. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has not elected the option to record certain financial assets and liabilities at fair value and, therefore,
the adoption of this pronouncement did not have a material impact on the Companys consolidated financial statements.

In September 2006, the FASB
issued SFAS No. 157, Fair Value Measurements, which establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather
it eliminates inconsistencies in the guidance found in various prior accounting pronouncements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and to allow additional time to resolve certain issues, the FASB
delayed the effective date for one year for certain types of nonfinancial assets and nonfinancial liabilities, via the issuance of FSP No. FAS 157-2, Effective Date of FASB Statement No. 157. In October 2008, the FASB issued FSP SFAS
157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS No. 157 in an inactive market and illustrates how an entity would determine fair value when the
market for a financial asset is not active. In April 2009, the FASB also issued FSP No. 157-4, which provides additional guidance in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of activity for the asset
or liability has significantly decreased. This FSP does not change the requirements in paragraphs 2427 of Statement 157, which provide guidance on the use of Level 1 inputs. FSP FAS 157-4 shall be effective for interim and annual reporting
periods ending after June 15, 2009.

The Companys adoption of this statement, except for nonfinancial assets and nonfinancial liabilities, did
not have a material impact on its consolidated financial statements. The Company currently holds cash and cash equivalents that are subject to its current SFAS No. 157 adoption and are measured using Level 1 inputs. The Company is continuing
its evaluation of the impact of adopting the provisions of SFAS No. 157 for nonfinancial assets and liabilities, primarily as it relates to the measurement of fair value used when evaluating goodwill, other intangible assets and certain other
long-lived assets for impairment and valuing asset retirement obligations.



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SFAS No. 157 defines fair value and establishes a three-level hierarchy for measuring fair value of certain
financial instruments based on the source of information used to determine fair value. SFAS No. 157 also expands disclosures about fair value measurements. The hierarchy of fair value measurements is described below.

Level 1  Quoted prices in active markets for identical assets or liabilities.

Level 2  Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3  Unobservable inputs that are
supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

NOTE 5ACQUISITIONS

Cushmans

On August 8, 2008, the Company
completed the acquisition of certain assets of Cushman Fruit Company, Inc. (the Cushmans Acquisition), a privately held, multi-channel direct marketer of specialty foods, primarily Florida citrus, for a net purchase price of
$8,509, including $450 of acquisition related costs.

The Company paid for the Cushmans Acquisition with available cash. The Companys revolving
credit agreement was amended to permit the acquisition and to address other administrative matters. Unless otherwise defined or noted, references in this Form 10-K to Cushmans refers to the brand or business, as owned and operated
by the Company, subsequent to the acquisition on August 8, 2008. The operating results of Cushmans are included in the Companys results of operations only for periods subsequent to the acquisition date.

The preliminary allocation of the purchase price is based on managements estimates and assumptions, and other information compiled by management utilizing
established valuation techniques appropriate for the retail industry. The purchase price will be finalized upon ultimate payment of severance and costs associated with the exit of existing locations as discussed below, incremental professional fees,
as well as the Companys final determination of fair value of the acquired fixed assets and intangibles. The following table presents the preliminary allocation of the purchase price of the acquisition, including professional fees and other
related acquisition costs, to the net assets acquired based on their fair values (in thousands):



|                      |  |   |       |  
|--------------------- |  | - | ----- | -
|Current assets        |  | $ | 853   |  
|Fixed assets          |  |   | 195   |  
|Intangible assets     |  |   | 2,600 |  
|Goodwill              |  |   | 5,418 |  
|                      |  |   |       |  
|Total assets acquired |  |   | 9,066 |  
|Current liabilities   |  |   | (557  | )
|                      |  |   |       |  
|Net assets acquired   |  | $ | 8,509 |  
|                      |  |   |       |  

The acquired intangible assets are comprised of Cushmans® and related trademarks
totaling $1,489 and customer lists of $1,111. The trademarks have indefinite lives, while the customer lists will be amortized on a weighted basis over a four year period. Of the $5,418 goodwill acquired, $4,009 is allocated to the Direct Marketing
segment and $1,409 is allocated to the Wholesale segment. All intangibles are expected to be fully deductible for tax purposes. While goodwill represents the excess purchase price over the fair value of net assets acquired, the Company anticipates
the acquisition will leverage its existing infrastructure and generate operating and marketing synergies and productivity improvements for its consolidated businesses.

In accordance with EITF Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, the Company recorded a liability of $147 for severance costs related to
managements plan for a reduction in force associated with the closure of the existing Cushmans locations. Managements plan for reduction in force and closure was developed concurrently with the acquisition and requires the
transition of certain functions to the Companys existing personnel and locations. The Company expects all exit activities to be complete within twelve months of the acquisition. As of June 27, 2009, the Company had $107 severance and
closure costs remaining unpaid included in Accrued payroll and benefits in the condensed consolidated balance sheets.

The following unaudited
pro forma consolidated results of operations have been prepared as if the Cushmans Acquisition had occurred at the beginning of the respective periods below (in thousands, except per share data):



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|                                                             |  |                        |         |   |                        |   |        
|------------------------------------------------------------ |  | ---------------------- | ------- | - | ---------------------- | - | -------
|                                                             |  | Fiscal 2009(unaudited) |         |   | Fiscal 2008(unaudited)
|Net sales                                                    |  | $                      | 489,625 |   |                        | $ | 564,582
|Gross profit                                                 |  |                        | 202,406 |   |                        |   | 256,205
|Operating income (loss)                                      |  |                        | (28,111 | ) |                        |   | 31,860 
|Income (loss) from continuing operations before income taxes |  |                        | (34,813 | ) |                        |   | 9,444  
|Net income (loss)                                            |  |                        | (20,304 | ) |                        |   | 4,830  
|Basic net income (loss) per share                            |  | $                      | (19.65  | ) |                        | $ | 4.68   
|Diluted net income (loss) per share                          |  | $                      | (19.65  | ) |                        | $ | 4.63   

Prior to the acquisition, Cushmans utilized a calendar month-end for its fiscal periods. No adjustments have
been made to conform the activity to the Companys historical fiscal calendar.

The unaudited pro forma consolidated results of operations do not
purport to be indicative of results that may be obtained in the future and do not include any cost savings related to synergies expected to be obtained as the Cushmans business is integrated into the Companys operations. The unaudited
pro forma consolidated results of operations include adjustments to net income or loss to give effect to amortization of intangibles acquired, depreciation and related adjustments to fixed assets based on the fair value assigned to those assets and
income taxes.

Wolfermans

On
January 15, 2008, the Company completed the acquisition of Wolfermans, a direct-marketing company specializing in English muffins and other breakfast products sold primarily under the Wolfermans® brand, from Williams Foods, Inc., for a net purchase price of $22,784. The Company paid for the acquisition of Wolfermans with available cash.

The results of operations of Wolfermans are included in the consolidated statements of operations for the period subsequent to the acquisition date.

The preliminary allocation of the purchase price was based on managements estimates and assumptions, and other information compiled by management
utilizing established valuation techniques appropriate for the retail industry. During the second fiscal quarter of 2009 the Company recorded a reclassification of $3,814 from customer lists to goodwill as a result of managements review of the
independent third party valuation firms final report and data underlying the related purchase price allocation assumptions. The Company considers the impact of the correction to be immaterial to its result of operations and cash flows in the
current and previously reported periods. The purchase price allocation below is considered final and includes professional fees and other related acquisition costs, allocated to the net assets acquired based on their fair values (in thousands):



|                      |  |   |        |  
|--------------------- |  | - | ------ | -
|Current assets        |  | $ | 2,525  |  
|Fixed assets          |  |   | 134    |  
|Intangible assets     |  |   | 15,036 |  
|Goodwill              |  |   | 7,504  |  
|                      |  |   |        |  
|Total assets acquired |  |   | 25,199 |  
|Current liabilities   |  |   | (2,415 | )
|                      |  |   |        |  
|Net assets acquired   |  | $ | 22,784 |  
|                      |  |   |        |  

The following unaudited pro forma consolidated results of operations have been prepared as if the Wolfermans
acquisition had occurred at the beginning of the respective periods below (in thousands, except per share data):



|                                                      |  |                        |         |                        |   |        
|----------------------------------------------------- |  | ---------------------- | ------- | ---------------------- | - | -------
|                                                      |  | Fiscal 2008(unaudited) |         | Fiscal 2007(unaudited)
|Net sales                                             |  | $                      | 565,200 |                        | $ | 583,057
|Gross profit                                          |  |                        | 260,174 |                        |   | 276,324
|Operating income                                      |  |                        | 31,507  |                        |   | 49,578 
|Income from continuing operations before income taxes |  |                        | 9,332   |                        |   | 8,878  
|Net income                                            |  |                        | 4,828   |                        |   | 31,155 
|Basic net income per share                            |  | $                      | 4.68    |                        | $ | 30.35  
|Diluted net income per share                          |  | $                      | 4.63    |                        | $ | 30.35  



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Prior to the acquisition, Wolfermans utilized a calendar year for their fiscal year. No adjustments have been made
to conform the activity to the Companys historical fiscal calendar.

The unaudited pro forma consolidated results of operations do not purport to be
indicative of results that may be obtained in the future and do not include any cost savings related to synergies expected to be obtained as the Wolfermans business is integrated into the Companys operations. The unaudited pro forma
consolidated results of operations include adjustments to net income to give effect to amortization of intangibles acquired, depreciation and related adjustments to fixed assets based on the fair value assigned to those assets and income taxes.

NOTE 6DISCONTINUED OPERATIONS

During the fourth
quarter of fiscal 2007, the Company completed the sale of its Jackson & Perkins businesses to J&P Acquisition Inc. In a separate transaction, the Company sold its land and the associated buildings of its Wasco facility, which was
primarily utilized to support rose growing operations of Jackson & Perkins. Cash proceeds on these sales, net of transaction fees, were $47,206.

We provided transitional services to the buyer of the Jackson & Perkins businesses through June 2009. The final payment on the note due from J&P Acquisition Inc. was due as of mid June 2009. The amount due was $1,000. As of
June 27, 2009, the note was not paid. It has been fully reserved, and a legal claim to collect the remaining balance was initiated. In addition, the remaining product credit related to the sale was $497 and was also fully reserved as of
June 27, 2009.

The financial results included in discontinued operations in the consolidated statement of operations were as follows:



|                                                                |  |      |        |   |      |   |       |  |   |       
|--------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- |  | - | ------
|                                                                |  | 2009 |        |   | 2008 |   | 2007 
|Net sales                                                       |  | $    | 278    |   |      | $ | 5,127 |  | $ | 64,947
|Gain (loss) on sale of discontinued operations                  |  |      | (1,414 | ) |      |   | 282   |  |   | 6,713 
|Provision (benefit) for income taxes on discontinued operations |  |      | (336   | ) |      |   | 19    |  |   | 1,127 
|Net income (loss) from discontinued operations                  |  |      | (446   | ) |      |   | 271   |  |   | 1,304 

Net sales from discontinued operations of approximately $57,300 for part of fiscal 2007 represented sales activity
that occurred prior to the completion of the sale of the Jackson & Perkins business on April 10, 2007. Net sales from discontinued operations in fiscal 2009 and 2008 and for a portion of fiscal 2007 subsequent to the date of sale, were
primarily comprised of revenues associated with the transitional services agreement and residual farm crop sales.



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NOTE 7BALANCE SHEET INFORMATION

Inventories

Inventories consist of the following:



|                                                   |  |              |        |              |   |       
|-------------------------------------------------- |  | ------------ | ------ | ------------ | - | ------
|                                                   |  | June 27,2009 |        | June 28,2008
|Finished goods                                     |  | $            | 18,056 |              | $ | 19,492
|Materials, packaging supplies, and work-in process |  |              | 20,734 |              |   | 28,222
|Growing crops                                      |  |              | 5,948  |              |   | 6,749 
|                                                   |  |              |        |              |   |       
|Total                                              |  | $            | 44,738 |              | $ | 54,463
|                                                   |  |              |        |              |   |       

Fixed Assets

Fixed assets consist of the following:



|                                                |  |              |         |   |              |   |         |  
|----------------------------------------------- |  | ------------ | ------- | - | ------------ | - | ------- | -
|                                                |  | June 27,2009 |         |   | June 28,2008 |  
|Land                                            |  | $            | 19,607  |   |              | $ | 19,607  |  
|Land improvements and orchard development costs |  |              | 30,692  |   |              |   | 30,485  |  
|Buildings and improvements                      |  |              | 58,517  |   |              |   | 55,699  |  
|Machinery and equipment                         |  |              | 68,176  |   |              |   | 64,470  |  
|Leasehold improvements                          |  |              | 10,611  |   |              |   | 12,940  |  
|Purchased and internally developed software     |  |              | 36,693  |   |              |   | 34,732  |  
|Capital projects-in-progress                    |  |              | 1,521   |   |              |   | 5,987   |  
|                                                |  |              |         |   |              |   |         |  
|                                                |  |              | 225,817 |   |              |   | 223,920 |  
|Accumulated depreciation and amortization       |  |              | (80,340 | ) |              |   | (61,706 | )
|                                                |  |              |         |   |              |   |         |  
|Total                                           |  | $            | 145,477 |   |              | $ | 162,214 |  
|                                                |  |              |         |   |              |   |         |  

As of June 27, 2009 and June 28, 2008, purchased and internally developed software including software
licenses acquired for $895 and $1,863, respectively, were financed through capital lease agreements. See Note 8Borrowing Arrangements for terms and conditions of the Companys capital lease obligations. Accumulated
amortization of purchased and internally developed software costs was $18,972 and $13,607 as of June 27, 2009 and June 28, 2008, respectively. Amortization of software costs from continuing operations, which include software assets
financed by capital leases, were $5,365, $4,146, and $3,813 for fiscal 2009, 2008 and 2007, respectively.

During fiscal 2009, the Company determined that
30 underperforming stores were impaired and recorded a non-cash charge for the impairment of certain fixed assets and other long-lived assets in the amount of $3,600, of which $3,471 was related to fixed assets and $129 to fair value lease
intangibles. During fiscal 2008 the Company determined that 14 underperforming stores were impaired and recorded a non-cash charge for the impairment of certain fixed assets and other long-lived assets in the amount of $1,190. In addition, an
impairment loss of $375 related to certain information technology software was recognized in the Other segment in the fourth quarter of fiscal 2007; $120 of this amount was recorded in discontinued operations. Impairment charges for continuing
operations are included in selling, general and administrative expenses in the consolidated statement of operations and in the loss on disposal and impairment of long-lived assets in the consolidated statement of cash flows for fiscal 2009 and 2008.

During the fourth quarter of fiscal 2009, the Company abandoned certain capital projects. The related amounts written off resulted in a $748 non-cash
charge, or $0.72 per share on a pre-tax basis, recorded in selling, general and administrative expense in the consolidated statement of operations.

Goodwill and Intangible Assets

Goodwill and intangible assets with indefinite lives are tested for impairment annually using the guidance
and criteria described in SFAS No. 142, Goodwill and Other Intangible Assets. The impairment testing compares carrying values to fair values, and generally, if the carrying value of these assets is in excess of fair value, an impairment
loss would be recognized. Based on the results of the Companys annual impairment testing performed in the last quarter of the fiscal year, the Company has impaired $302 of the value of the Cushmans trade name, the Companys goodwill
and other intangibles were not impaired as a result of their respective annual impairment tests in the fourth quarter of fiscal 2009.

Beginning in the
second quarter of fiscal 2009, the retail industry declined at a rate that exceeded the Companys forecasted expectations and negatively impacted the Companys operating results for the second quarter and the future outlook on the
industry.



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##### Table of Contents

Management believed the decline in the overall industry, the resulting decline in the Companys operating results
from plan, and downward revisions to financial forecasts to be factors that require the Company to perform an interim impairment test in accordance with SFAS No. 142. As a result, in connection with the preparation of its second quarter
financial statements, the Company performed an interim impairment test on its goodwill, indefinite lived and other intangible balances.

The estimated fair
value of each of the reporting units included the impact of trends in the business and industry noted in fiscal 2009, primarily the decline in sales caused by the adverse economic climate. Based on the impairment testing in the second quarter, the
Company concluded that the fair values of the Wolfermans goodwill, recipe and trade name were less than their related book values. Also, analysis of individual store division performance resulted in the impairment of favorable lease
agreements. As a result, the Company recorded an impairment charge of $10,205 ($686 related to goodwill and $9,519 related to the recipe and trade name) within selling, general and administrative expenses of our Direct Marketing segment within the
consolidated statement of operations. The impairment charge related to goodwill was revised during the fourth quarter and the related amount was corrected to reflect the charge of $686. See Note-17 Quarterly Information for further
information on the correction and prior periods affected. No impairment charges were recorded in prior fiscal year comparable periods.

Amortization
expense was $1,456, $2,122 and $1,976 for fiscal 2009, 2008 and 2007, respectively, and is included within selling, general and administrative expenses in the accompanying consolidated statements of operations.

Goodwill and intangible assets as of June 27, 2009 include those assets acquired in the Companys 2004 Acquisition, and the acquisitions of the
Wolfermans and Cushmans businesses. See Note-5 Acquisition for further information. The following is a summary of intangible assets:



|                                           |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |        |   |  |   |       
|------------------------------------------ |  | ------------------- | ------ | ----------------------- | - | ------- | ----------------- |  | ------------------- | ------ | ----------------------- | - | ------ | ----------------- | - | ------ | - |  | - | ------
|                                           |  | June 27, 2009       |        | June 28, 2008          
|                                           |  | GrossCarryingAmount |        | AccumulatedAmortization |   |         | NetCarryingAmount |  | GrossCarryingAmount |        | AccumulatedAmortization |   |        | NetCarryingAmount
|Trade names, trademarks and recipe         |  | $                   | 32,139 |                         | $ |        |                   |  | $                   | 32,139 |                         | $ | 40,471 |                   | $ |       |   |  | $ | 40,471
|Goodwill                                   |  |                     | 12,236 |                         |   |        |                   |  |                     | 12,236 |                         |   | 3,690  |                   |   |       |   |  |   | 3,690 
|Direct marketing customer and rental lists |  |                     | 9,249  |                         |   | (8,467  | )                 |  |                     | 782    |                         |   | 11,952 |                   |   | (7,158 | ) |  |   | 4,794 
|Favorable lease agreements                 |  |                     | 1,676  |                         |   | (1,540  | )                 |  |                     | 136    |                         |   | 1,805  |                   |   | (1,393 | ) |  |   | 412   
|                                           |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |        |   |  |   |       
|                                           |  | $                   | 55,300 |                         | $ | (10,007 | )                 |  | $                   | 45,293 |                         | $ | 57,918 |                   | $ | (8,551 | ) |  | $ | 49,367
|                                           |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |        |   |  |   |       

The following table represents activity for goodwill and other intangibles for the fiscal year ended June 27,
2009 and June 28, 2008.



|                                |  |          |        |   |                             |   |        |                           |  |   |        |   |  |   |         |  
|------------------------------- |  | -------- | ------ | - | --------------------------- | - | ------ | ------------------------- |  | - | ------ | - |  | - | ------- | -
|                                |  | Goodwill |        |   | Indefinite-LivedIntangibles |   |        | Definite-LivedIntangibles |  |   | Total  |  
|Net balance as of June 30, 2007 |  | $        |       |   |                             | $ | 26,921 |                           |  | $ | 2,168  |   |  | $ | 29,089  |  
|Additions                       |  |          | 3,690  |   |                             |   | 13,550 |                           |  |   | 5,300  |   |  |   | 22,540  |  
|Impairment charges              |  |          |       |   |                             |   |       |                           |  |   | (140   | ) |  |   | (140    | )
|Amortization expense            |  |          |       |   |                             |   |       |                           |  |   | (2,122 | ) |  |   | (2,122  | )
|                                |  |          |        |   |                             |   |        |                           |  |   |        |   |  |   |         |  
|Net balance as of June 28, 2008 |  | $        | 3,690  |   |                             | $ | 40,471 |                           |  | $ | 5,206  |   |  | $ | 49,367  |  
|Additions                       |  |          | 5,418  |   |                             |   | 1,489  |                           |  |   | 1,111  |   |  |   | 8,018   |  
|Reclassification                |  |          | 3,814  |   |                             |   |       |                           |  |   | (3,814 | ) |  |   |        |  
|Impairment charges              |  |          | (686   | ) |                             |   | (9,821 | )                         |  |   | (129   | ) |  |   | (10,636 | )
|Amortization expense            |  |          |       |   |                             |   |       |                           |  |   | (1,456 | ) |  |   | (1,456  | )
|                                |  |          |        |   |                             |   |        |                           |  |   |        |   |  |   |         |  
|Net balance as of June 27, 2009 |  | $        | 12,236 |   |                             | $ | 32,139 |                           |  | $ | 918    |   |  | $ | 45,293  |  
|                                |  |          |        |   |                             |   |        |                           |  |   |        |   |  |   |         |  



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##### Table of Contents

The estimated amortization expense for each of the next four fiscal years and thereafter is as follows:



|              |  |                                          |     |                          |   |                          |  |   |    
|------------- |  | ---------------------------------------- | --- | ------------------------ | - | ------------------------ |  | - | ---
|Fiscal Period |  | Direct MarketingCustomer andRental Lists |     | FavorableLeaseAgreements |   | TotalAmortizationExpense
|2010          |  | $                                        | 601 |                          | $ | 76                       |  | $ | 677
|2011          |  |                                          | 142 |                          |   | 39                       |  |   | 181
|2012          |  |                                          | 37  |                          |   | 21                       |  |   | 58 
|2013          |  |                                          | 2   |                          |   |                         |  |   | 2  
|              |  |                                          |     |                          |   |                          |  |   |    
|Total         |  | $                                        | 782 |                          | $ | 136                      |  | $ | 918
|              |  |                                          |     |                          |   |                          |  |   |    

Impairment Estimates and Assumptions

The impairment charges related to our indefinite-lived intangible assets, our goodwill and long-lived assets associated with stores were calculated using managements estimates of future forecasted cash flows to
be generated from the respective assets and a discount rate inherent within the Companys cost of capital. The nature of these analyses requires significant judgment by management about future operating results, including revenues, margins,
operating expenses and applicable discount rate. If the Company had used different assumptions and estimates regarding the future operating results or discount rate, the impairment charges might have been materially different. However, management
believes that the assumptions and estimates were reasonable and represented the most likely future operating results based upon the then current information available.

NOTE 8BORROWING ARRANGEMENTS

Revolving Credit Facilities

The Companys current revolving credit agreement (the Credit Agreement) has a borrowing capacity of $125,000, secured by substantially all of the assets
of the Company. The Credit Agreement has a maturity date of March 20, 2011. Borrowings under the Credit Agreement may be used for the Companys general corporate purposes, including capital expenditures, subject to certain limitations.
Interest on the borrowings is payable at a base rate or a Eurocurrency rate, plus an applicable margin and fees.

In connection with this facility and
related amendments, the Company has remaining deferred financing costs of $2,172 and $3,416 on its consolidated balance sheets as of June 27, 2009 and June 28, 2008, respectively.

As previously discussed, on August 8, 2008, the Company completed the acquisition of substantially all of the assets of Cushman Fruit Company, Inc. The
Companys Credit Agreement was amended to permit the acquisition and to address other administrative matters on August 8, 2008. The Company did not incur any debt issuance fees related to this amendment.

The above amendment and any previous amendments to the Credit Agreement were with the same primary creditor for purposes of applying the guidance set forth in EITF
98-14, Debtors Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements.

As of June 27, 2009, the Company had $0
borrowings and $1,061 in outstanding letters of credit under the revolving credit facility. The maximum available borrowing under the Credit Agreement is determined in accordance with an asset-based debt limitation formula. Total available borrowing
capacity at June 27, 2009 was $919. The Company is required to pay a commitment fee equal to 0.375% per annum on the daily average unused line of credit. The commitments fees are payable on the last day of each calendar year quarter and
the associated expense is included within interest expense in the Consolidated Statement of Operations.



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The revolving credit facility contains customary affirmative and negative covenants for senior secured credit facilities
of this type, including, but not limited to, limitations on the incurrence of indebtedness, capital expenditures, asset dispositions, acquisitions, investments, dividends and other restricted payments, liens and transactions with affiliates. These
covenants significantly limit the Companys ability to obtain funds from its subsidiaries in the form of loans, dividends or other advances other than dividends paid to the Company by Harry and David for the purpose of paying (i) income
taxes when and as due, (ii) management fees payable to Wasserstein under the management agreement, or (iii) operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including legal and
accounting expenses and similar expenses and customary fees to non-officer directors in an amount not to exceed $350 in any fiscal year). At June 27, 2009, the Company was in compliance with these covenants.

Long-Term Debt

As of June 27, 2009 the Companys
wholly-owned subsidiary, Harry and David, had outstanding $58,170 in Senior Floating Rate Notes due March 1, 2012 and $140,192 of Senior Fixed Rate Notes due March 1, 2013 (collectively, the Senior Notes). These amounts are net
of the repurchases by the Company on the open-market in fiscal 2008 and in fiscal 2009. For further details on the repurchases, see Long-Term Debt Prepayment below.

The floating rate Senior Notes accrue interest at a rate per annum equal to LIBOR plus 5%, calculated and paid quarterly. The interest rate was 5.67% and 7.68% at June 27, 2009 and June 28, 2008,
respectively. The fixed rate Senior Notes accrue interest at an annual fixed rate of 9.0%, with semiannual interest payments due on the first day of March and December.

The deferred financing fees incurred in connection with the note offering and related exchange have been recorded as deferred financing costs within long-term assets. These costs are amortized over the remaining life
of the associated Senior Notes and as of June 27, 2009 and June 28, 2008, $3,803 and $5,850, respectively, remained on the balance sheet for all associated fees related to the Senior Notes. As noted below under Long-Term Debt
Prepayment, the Senior Notes deferred financing costs are subject to write-off on a pro-rata basis due to early repurchase or repayment of the Senior Notes.

The Senior Notes represent the senior unsecured obligations of Harry and David, and are guaranteed on a senior unsecured basis by Harry & David Holdings, Inc. and all of the Companys current subsidiaries. Refer to
Note 19Condensed Consolidating Financial Statements for additional information related to the Companys internal re-organization in November of fiscal 2008. The indenture governing the Senior Notes contains various restrictive
covenants including, but not limited to, limitations on the incurrence of indebtedness, asset dispositions, acquisitions, investments, dividends and other restricted payments, liens and transactions with affiliates. These covenants significantly
limit the Companys ability to obtain funds from its subsidiaries in the form of loans, dividends or other advances other than (i) dividends or loans in limited circumstances if its fixed charge coverage ratio reaches specified levels or
(ii) dividends paid to the Company by Harry and David for the purpose of paying (A) management fees not to exceed $1,000 per year (excluding out of pocket expenses, (B) consolidated income taxes when and as due, and (C) up to
$2,000 (since the date of the indenture) relating to expenses associated with an initial public offering. With respect to dividends other than as described in the preceding sentence, even if the fixed charge coverage ratio threshold has been met,
Harry and David may only pay the Company dividends up to a specified amount based upon, among other things, consolidated net income and any cash proceeds received by Harry and David from the sale of equity securities or contributions to equity. The
Company was in compliance with all of the covenants contained in the indenture under the Senior Notes at June 27, 2009.

Long-Term Debt Prepayment

During the year ended June 27, 2009, the Company purchased $36,638 aggregate principal amount of its fixed and floating rate Senior Notes in
open-market purchases for $20,366. The debt prepayment resulted in a net gain of $15,416, comprised of a $16,272 discount on the repayment of outstanding principal, partially offset by the write-off of $856 of unamortized deferred financing costs.

During the year ended June 28, 2008, the Company purchased $9,405 of its fixed and floating rate Senior Notes in open market purchases. This debt
prepayment resulted in a net gain of $303, comprised of a $595 discount on the repayment of $10,000 of outstanding principal of the Senior Notes, partially offset by the write-off of $284 of unamortized deferred financing costs and third-party
expenses of $8 in connection therewith.



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##### Table of Contents

Amortization of Deferred Financing Costs

Total amortization expenses of all deferred financing costs were $2,435, $2,604 and $2,669 for fiscal 2009, 2008 and 2007, respectively, and are included within interest expense in the accompanying consolidated
statements of operations.

Capital Lease Obligations

In the fourth quarter of fiscal 2008, the Company acquired a software license for $895, financed by a capital lease agreement. The interest rate on the agreement is 5.99% due in three annual installments of principal and interest. The
current and long-term portions of the remaining obligation in the consolidated balance sheet as of June 27, 2009, were $147 and $309, respectively. In fiscal 2007, the Company acquired a software license for $968, also financed by a capital
lease agreement. The obligation was due in three annual installments of principal and interest with an interest rate of 10.36%. The obligation was fully paid off in June fiscal 2009, and there was no amount outstanding as of June 27, 2009.

NOTE 9BENEFIT PROGRAMS

Pension Plans

The Company has a defined benefit pension plan that covers substantially all employees that were on an active basis as of June 25, 2006. Benefits
under the plan are generally based on the employees compensation level and years of service. Benefits fully vest after five years of qualifying service. The required level of funding of this plan changes each year depending on the funding
status of the plan and the annual actuarial valuation report provided by our actuaries.

Additionally, the Company has a non-qualified unfunded excess
benefit plan. Under this plan, certain key employees are entitled to receive additional pension benefits from the Company. These benefits mainly consist of the difference between the benefits they would have received under the qualified pension plan
in the absence of the limitations imposed on benefits by the Internal Revenue Code and the amount they will actually receive subject to such limitations.

The Companys qualified pension plan was partially frozen effective as of June 25, 2006, whereby no new participants would qualify to enter into the plan. A full freeze of the plan became effective June 30, 2007, whereby
pension benefits were no longer accrued for participants. Under the provisions of SFAS No. 88, Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits(SFAS No. 88),these benefit changes resulted in the recognition of a non-cash net curtailment gain of $13,959 in fiscal 2007. In addition, the Company froze its non-qualified pension plan effective June 30, 2007, and recognized an additional non-cash net
curtailment gain of $1,885 in fiscal 2007. After July 1, 2007, the Company has a continuing obligation to fund these plans and will continue to recognize net periodic pension cost under SFAS 87, Employers Accounting for Pensions
(SFAS No. 87).

The Company contributed $2,676 to its pension plans in fiscal 2009 and expects to contribute approximately $1,909 its
pension plans in fiscal 2010 to fulfill its minimum funding obligations.



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##### Table of Contents

The following tables set forth combined information regarding the Companys qualified and non-qualified plans as of
June 27, 2009, June 28, 2008 and June 30, 2007. The measurement dates used in accumulating such information were June 27, 2009, June 28, 2008 and June 30, 2007, respectively.



|                                               |  |              |        |   |              |   |         |  
|---------------------------------------------- |  | ------------ | ------ | - | ------------ | - | ------- | -
|Change in projected benefit obligation         |  | June 27,2009 |        |   | June 28,2008 |  
|Benefit obligation, beginning of period        |  | $            | 44,389 |   |              | $ | 50,098  |  
|Service cost                                   |  |              |       |   |              |   |        |  
|Interest cost                                  |  |              | 2,889  |   |              |   | 2,873   |  
|Plan amendments                                |  |              | (809   | ) |              |   |        |  
|Curtailment gain                               |  |              |       |   |              |   |        |  
|Actuarial gain/loss                            |  |              | 1,779  |   |              |   | 1,917   |  
|Benefits paid                                  |  |              | (4,125 | ) |              |   | (10,499 | )
|                                               |  |              |        |   |              |   |         |  
|Benefit obligation, end of period              |  | $            | 44,123 |   |              | $ | 44,389  |  
|                                               |  |              |        |   |              |   |         |  
|                                               |  |             
|Change in plan assets                          |  | June 27,2009 |        |   | June 28,2008 |  
|Fair value of plan assets, beginning of period |  | $            | 26,895 |   |              | $ | 34,371  |  
|Actual return on plan assets                   |  |              | (8,687 | ) |              |   | (2,894  | )
|Company contributions                          |  |              | 2,676  |   |              |   | 5,917   |  
|Benefits paid                                  |  |              | (4,125 | ) |              |   | (10,499 | )
|                                               |  |              |        |   |              |   |         |  
|Fair value of plan assets, end of period       |  | $            | 16,759 |   |              | $ | 26,895  |  
|                                               |  |              |        |   |              |   |         |  

As of June 27, 2009 and June 28, 2008, the funded status of the Companys plans was a deficit of
$27,634 and $17,494, respectively, and the amounts are classified as noncurrent liabilities on the consolidated balance sheet.



|                                                                                                                           |  |      |           |   |      |   |           |      |  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|Components of pension expense                                                                                              |  | 2009 |           |   | 2008 |   |           | 2007 | 
|Service cost                                                                                                               |  | $    |          |   |      | $ |          |      |  | $ | 4,384     |  
|Interest cost                                                                                                              |  |      | 2,889     |   |      |   | 2,873     |      |  |   | 2,886     |  
|Expected return on assets                                                                                                  |  |      | (1,987    | ) |      |   | (2,779    | )    |  |   | (2,890    | )
|Prior service cost amortization                                                                                            |  |      | (25       | ) |      |   |          |      |  |   |          |  
|Amortization of actuarial loss                                                                                             |  |      | 524       |   |      |   |          |      |  |   |          |  
|                                                                                                                           |  |      |           |   |      |   |           |      |  |   |           |  
|Net period pension expense                                                                                                 |  | $    | 1,401     |   |      | $ | 94        |      |  | $ | 4,380     |  
|Curtailment gain                                                                                                           |  |      |          |   |      |   |          |      |  |   | (15,844   | )
|Settlement (gain) loss                                                                                                     |  |      | 1,196     |   |      |   | 150       |      |  |   | (264      | )
|                                                                                                                           |  |      |           |   |      |   |           |      |  |   |           |  
|Net period pension expense with curtailment and settlement                                                                 |  | $    | 2,597     |   |      | $ | 244       |      |  | $ | (11,728   | )
|                                                                                                                           |  |      |           |   |      |   |           |      |  |   |           |  
|                                                                                                                           |  |      |          
|Weighted-average assumptions used in computing the net periodic pension cost and projected benefit obligation at year-end: |  | 2009 |           |   | 2008 |   |           | 2007 | 
|Discount rate for determining net periodic pension cost                                                                    |  |      | 6.90      | % |      |   | 6.30      | %    |  |   | 6.30      | %
|Discount rate for determining benefit obligations at year-end                                                              |  |      | 6.10      | % |      |   | 6.90      | %    |  |   | 6.30      | %
|Rate of compensation increase for determining expense                                                                      |  |      | N/A       |   |      |   | N/A       |      |  |   | N/A       |  
|Rate of compensation increase for determining benefit obligations at year-end                                              |  |      | N/A       |   |      |   | N/A       |      |  |   | N/A       |  
|Expected rate of return on plan assets for determining net periodic pension cost                                           |  |      | 8.50      | % |      |   | 8.50      | %    |  |   | 8.50      | %
|Expected rate of return on plan assets at year-end                                                                         |  |      | 5.50      | % |      |   | 8.50      | %    |  |   | 8.50      | %
|Measurement date for determining assets and benefit obligations at year-end                                                |  |      | 6/30/2009 |   |      |   | 6/30/2008 |      |  |   | 6/30/2007 |  

Expected benefit payments related to the Companys pension plans for each of the next five fiscal years, and
in the aggregate for the next five fiscal years thereafter as of June 27, 2009 are estimated as follows:



|        |  |                          |       
|------- |  | ------------------------ | ------
|        |  | Expected benefitpayments
|2010    |  |                          | 1,029 
|2011    |  |                          | 3,632 
|2012    |  |                          | 1,987 
|2013    |  |                          | 3,947 
|2014    |  |                          | 3,424 
|2015-19 |  |                          | 20,347
|        |  |                          |       
|Total   |  | $                        | 34,366
|        |  |                          |       



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##### Table of Contents

The Companys asset allocation strategy is designed to balance the objectives of achieving the asset return
assumption consistently over the long-term while minimizing the volatility of the plans funded status and the Companys pension expense. Asset classes with differing expected rates of return, return volatility and correlations are
utilized to control risk and provide diversification. For fiscal 2009, the assets of the Companys benefit plans were invested in 57% equity securities, 39% debt securities, and 4% real estate investments. For fiscal 2008, investments were 68%
equity securities, 20% debt securities and 12% in real estate investments.

As of June 27, 2009, the pretax amount in accumulated other comprehensive
income of $15,624 that has not yet been recognized as components of net periodic benefit cost is entirely comprised of unrecognized net gain or loss and approximately $1,251 is expected to be recognized in fiscal 2010.

The Company recorded non-cash settlement charges of $1,196 and $150 during fiscal 2009 and 2008, respectively, related to lump sum distributions from our benefit pension
plans. Statement No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits (SFAS 88), requires the use of settlement accounting if, for a
given year, the cost of all settlements exceeds, or is expected to exceed, the sum of the service cost and interest cost components of net periodic pension expense for the plan. Under settlement accounting, unrecognized plan gains or losses must be
recognized immediately in proportion to the percentage reduction of the plans projected benefit obligation. As a result of the unfavorable performance of its pension plan assets and changes in actuarial assumptions, the Company recognized an
additional unfunded liability and recorded an adjustment to other comprehensive income (loss) of $7,298, net of taxes of $4,361 in fiscal 2009. In fiscal 2008, the year-to-date adjustment was $4,677, net of taxes of $2,763. These adjustments were
recorded under the guidance in Statement No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS No. 158).

The Companys funding policy is generally designed to make the minimum annual contribution required by the Employee Retirement Income Security Act of
1974. Current projections indicate cash contributions to fund the qualified benefit plan and the excess benefit plan by fiscal year from 2010 through 2014 will be as follows:



|      |  |                       |       
|----- |  | --------------------- | ------
|      |  | Expectedcontributions
|2010  |  | $                     | 1,909 
|2011  |  |                       | 9,520 
|2012  |  |                       | 4,693 
|2013  |  |                       | 6,436 
|2014  |  |                       | 5,514 
|      |  |                       |       
|Total |  | $                     | 28,072
|      |  |                       |       

Post-retirement medical plan

The Company sponsors a post-retirement medical plan, which currently covers three eligible participants and will be covering three additional participants once they become eligible. The Company funds benefits as they
occur. At June 27, 2009 and June 28, 2008, the Company has accrued $100 and $123, respectively, as its estimated liability under this plan. There are no plan assets at either date. Expenses from continuing operations related to the plan
totaled $22, $14 and $23, respectively, in fiscal 2009, 2008 and 2007.

401(k) plan

Salaried and hourly employees, including management, become eligible to participate in the Companys 401(k) plan upon completing a minimum of 1,000 hours of service during the 12-month period subsequent to hire
date. Effective January 1, 2008, the Company began providing matching contributions equal to 100% of the participants contributions for the first 5% of the participants earnings, subject to statutory limitations on the amount of the
participants earnings that may be taken into account. Prior to that date, matching contributions were equal to 100% of the participants contributions for the first 3% of the participants earnings, and 50% of the participants
contributions for the next 2% of the participants earnings, subject to statutory limitations on the amount of the participants earnings that may be taken into account. The Company has temporarily suspended its matching program in fiscal
2009.



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##### Table of Contents

The Companys contributions to the 401(k) plan were $1,591, $3,017 and $2,615 in fiscal 2009, 2008 and 2007,
respectively.

Incentive compensation plan

The
Companys bonus plan covers eligible salaried employees and also applies to hourly employees on a discretionary basis. Benefits under this plan are generally based on various performance standards and are payable currently. For fiscal 2009,
2008 and 2007, total expense was $0, $0 and $11,100, respectively.

Deferred compensation plans

All of our compensation plans that are subject to Section 409A of the Internal Revenue Code are intended to comply with such law. Should a plan be determined not to
comply, however, we are not responsible for any additional tax or interest imposed on any employee.

Self-insured liabilities

The Company is primarily self-insured for employee health benefits. Estimated costs of these self-insurance programs are accrued at the undiscounted value of actuarially
determined projected settlements for known and anticipated claims incurred. These liabilities, totaling $2,758 and $2,624 at June 27, 2009 and June 28, 2008, respectively, are classified within accrued payroll and benefits.

NOTE 10INCOME TAXES

The components of the Companys total
provision (benefit) for income taxes are as follows:



|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | - | ----------- | - | ------- | ----------- |  | - | ------ | -
|                                                                                                                           |  | Fiscal 2009 |         |   | Fiscal 2008 |   |         | Fiscal 2007 | 
|Continuing operations                                                                                                      |  | $           | (14,861 | ) |             | $ | 4,648   |             |  | $ | 11,156 |  
|Discontinued operations                                                                                                    |  | $           | (336    | ) |             | $ | 19      |             |  | $ | 1,127  |  
|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  
|Total provision (benefit) for income taxes                                                                                 |  | $           | (15,197 | ) |             | $ | 4,667   |             |  | $ | 12,283 |  
|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  
|                                                                                                                          
|For continuing operations, the components of the Companys provision (benefit) for income
taxes are as follows:            | 
|Income (loss) from continuing operations before income taxes                                                               |  | $           | (34,594 | ) |             | $ | 8,985   |             |  | $ | 41,853 |  
|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  
|Current:                                                                                                                   |  |             |         |   |             |   |         |             |  |   |        |  
|Federal                                                                                                                    |  |             | (7,534  | ) |             |   | 22,734  |             |  |   |       |  
|State                                                                                                                      |  |             | (4,114  | ) |             |   | 4,830   |             |  |   | 338    |  
|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  
|                                                                                                                           |  |             | (11,648 | ) |             |   | 27,564  |             |  |   | 338    |  
|Deferred:                                                                                                                  |  |             |         |   |             |   |         |             |  |   |        |  
|Federal                                                                                                                    |  |             | (5,617  | ) |             |   | (19,821 | )           |  |   | 11,588 |  
|State                                                                                                                      |  |             | 2,404   |   |             |   | (3,095  | )           |  |   | (770   | )
|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  
|                                                                                                                           |  |             | (3,213  | ) |             |   | (22,916 | )           |  |   | 10,818 |  
|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  
|Provision (benefit) for income taxes from continuing operations                                                            |  | $           | (14,861 | ) |             | $ | 4,648   |             |  | $ | 11,156 |  
|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  
|                                                                                                                          
|The Companys effective tax rate for continuing operations differed from the federal statutory income tax rate as follows: | 
|                                                                                                                           |  |             |        
|                                                                                                                           |  | Fiscal 2009 |         |   | Fiscal 2008 |   |         | Fiscal 2007 | 
|Federal statutory rate                                                                                                     |  |             | 35.0    | % |             |   | 35.0    | %           |  |   | 35.0   | %
|State tax rate, net of federal tax effect                                                                                  |  |             | 5.0     |   |             |   | 11.6    |             |  |   | 1.3    |  
|Cumulative effect of state tax rate change                                                                                 |  |             |        |   |             |   | 9.6     |             |  |   |       |  
|Adjustments to cumulative deferred differences                                                                             |  |             |        |   |             |   |        |             |  |   |       |  
|Valuation allowance                                                                                                        |  |             |        |   |             |   | (8.9    | )           |  |   | (7.9   | )
|Tax reserves under FIN 48                                                                                                  |  |             | 1.0     |   |             |   | 9.8     |             |  |   |       |  
|Charitable deductions                                                                                                      |  |             | 0.5     |   |             |   | (4.2    | )           |  |   |       |  
|Tax Credits                                                                                                                |  |             | 1.1     |   |             |   | (2.3    | )           |  |   |       |  
|Other                                                                                                                      |  |             | 0.4     |   |             |   | 1.1     |             |  |   | (1.7   | )
|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  
|Effective tax rate                                                                                                         |  |             | 43.0    | % |             |   | 51.7    | %           |  |   | 26.7   | %
|                                                                                                                           |  |             |         |   |             |   |         |             |  |   |        |  



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In fiscal 2009, the effective tax rate for continuing operations was higher than the federal statutory rate, primarily
due to a decrease in tax reserves under FIN 48 of $341, state tax benefit of $1,734, the recognition of General Business Credits of $388, and the Domestic Production Activities Deduction of $220. In fiscal 2008, the effective tax rate for
continuing operations was higher than the statutory rate primarily due to a mid-year structural reorganization that resulted in a higher state tax expense and cumulative adjustment to deferred tax items of $686 due to changes in the state tax rate,
an increase in tax reserves under FIN 48 of $881, offset by the reversal of the remaining valuation allowance of $795. In fiscal 2007, the effective tax rate for continuing operations was lower than the statutory rate primarily due to a reversal of
the valuation of $3,309. In fiscal 2009, $3,727 of income tax was allocated to other comprehensive income reflecting the tax effect of pension liability adjustments.

Significant components of the Companys deferred tax assets and liabilities for federal and state income taxes consist of the following:



|                                            |  |              |         |   |              |   |         |  
|------------------------------------------- |  | ------------ | ------- | - | ------------ | - | ------- | -
|                                            |  | June 27,2009 |         |   | June 28,2008 |  
|Deferred tax assets:                        |  |              |         |   |              |   |         |  
|Reserve for future liabilities              |  | $            | (3,154  | ) |              | $ | (4,066  | )
|Pension                                     |  |              | (9,069  | ) |              |   | (6,166  | )
|Inventories                                 |  |              | (1,032  | ) |              |   | (1,126  | )
|Net operating loss carryforwards            |  |              | (1,178  | ) |              |   | (2,248  | )
|State deferred asset                        |  |              | (388    | ) |              |   |        |  
|Tax credits                                 |  |              | (280    | ) |              |   | (523    | )
|Other                                       |  |              | (6,051  | ) |              |   | (4,849  | )
|                                            |  |              |         |   |              |   |         |  
|Total deferred tax assets                   |  |              | (21,152 | ) |              |   | (18,978 | )
|                                            |  |             
|Deferred tax liabilities:                   |  |              |         |   |              |   |         |  
|Fixed assets                                |  |              | 12,685  |   |              |   | 16,311  |  
|Catalog costs                               |  |              | 983     |   |              |   | 2,307   |  
|State deferred liability                    |  |              |        |   |              |   | 236     |  
|Other                                       |  |              | 831     |   |              |   | 968     |  
|                                            |  |              |         |   |              |   |         |  
|Total deferred tax liabilities              |  |              | 14,499  |   |              |   | 19,822  |  
|                                            |  |              |         |   |              |   |         |  
|Total net deferred tax (assets) liabilities |  | $            | (6,653  | ) |              | $ | 844     |  
|                                            |  |              |         |   |              |   |         |  

At June 27, 2009, the Company has deferred tax assets of approximately $1,178 relating to various state net
operating loss carryforwards, which expire under current statute between 2009 and 2028.

The Company routinely reviews the future realization of tax assets
based on projected future reversal of taxable temporary differences, available tax planning strategies and projected future taxable income. The Company underwent a structural reorganization in November 2007 which will allow efficient use of the
existing state net operating losses. As of June 27, 2009, the Company believes that no valuation allowance is required to reduce the related deferred tax assets to an amount that is more likely than not to be realized.



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##### Table of Contents

The Company adopted the provision of FIN 48 on July 1, 2007. A reconciliation of the beginning and ending gross
amount of the unrecognized tax benefits is as follows:



|                                                   |  |   |        |  
|-------------------------------------------------- |  | - | ------ | -
|Gross unrecognized tax benefits at June 29, 2008   |  | $ | 4,412  |  
|Settlement with taxing authorities during the year |  |   | (2,177 | )
|Lapse of statute of limitations during the year    |  |   | (531   | )
|                                                   |  |   |        |  
|Gross unrecognized tax benefits at June 27, 2009   |  | $ | 1,704  |  
|                                                   |  |   |        |  

As of June 27, 2009, the gross amount of unrecognized tax benefits is $1,704, excluding penalty and interest,
while a net amount of $3,861, including penalty and interest, is recorded in other long-term liabilities. Of these amounts, if recognized, $1,706 would favorably impact the effective tax rate.

The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. Interest and penalties, net of tax, of $24, or $0.02 per
share, were recognized for the fiscal year-end. The Company had accrued interest and penalties, net of tax, of approximately $1,578 and $1,519 at June 27, 2009 and June 28, 2008, respectively. The Company believes that it is reasonably
possible that the total amount of unrecognized tax benefits will decrease in the next twelve months due to the expiration of certain statutes of limitation.

The Company defines the federal jurisdiction as well as various multi-state jurisdictions as major jurisdictions (within the meaning of FIN 48). As of June 27, 2009, the Company is not subject to federal and state
examinations for years prior to 2005. Tax years subsequent to June 17, 2004 remain open to examination by these major jurisdictions.

NOTE 11STOCK OPTION PLAN

The Company has a Non-Qualified Stock Option Plan (the Plan) which provides for the grant of incentive stock
options and non-qualified stock options, exercisable for shares of the Companys common stock. A total of 150,000 shares of the Companys common stock are available for option grants under the Plan. The Plan provides for forfeited options
to be automatically returned to the authorized number of shares available for issuance under the Plan.

The Plan is administered by the Companys
board of directors or a committee of such board. Options may be exercised only to the extent they have vested. Options granted generally vest and become exercisable 20% on June 17 for each of the first two years after the grant date then vest
5% quarterly over the remaining option term. Upon vesting, all options are exercisable provided that the holder of such options is an employee of the Company on the vesting date unless otherwise stipulated in individual option agreements. Vesting of
all options will accelerate upon a termination of employment without cause within a year following a change of control of the Company or as otherwise defined in the relevant option agreements. Shares issuable upon exercise of the options may be
either treasury shares or newly issued shares. Options granted under the Plan expire ten years after the grant date. In case of termination of employment or other service by reason of death, disability, or normal or early retirement, or in the case
of hardship or other special circumstances of an optionee holding options that have not vested, the administrator of the Plan may, in its sole discretion, accelerate the time at which such option may be exercised. The option agreement for any grant
may provide for a share repurchase right or right of first refusal in favor of the Company upon the occurrence of certain specified events. Any repurchase of such shares is to be made by the Company at the fair value at the time of the repurchase.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. Expected volatilities are based on
an average historical volatility of the publicly traded stock of a representative set of comparable companies. The expected term of options granted utilized is either the final vesting date or a period derived from the time between the date of final
vesting and the expiration of the option, depending on the vesting provisions of the underlying grant. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
For the majority of the grants an assumption of a ten percent pre-vesting forfeiture rate is utilized when arriving at the amount of stock compensation expense recognized. The assumptions used for fiscal 2008 and 2007 awards granted are noted in the
following table (there were no awards granted in fiscal 2009):



|                    |  |      |           |   |      |   |           |  
|------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                    |  | 2008 |           |   | 2007 |  
|Expected volatility |  |      | 41.0      | % |      |   | 38.8      | %
|Expected dividends  |  | $    | 0         |   |      | $ | 0         |  
|Expected term       |  |      | 6.1 years |   |      |   | 4.5 years |  
|Risk-free rate      |  |      | 3.93      | % |      |   | 4.52      | %



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A summary of option activity under the Plan for fiscal 2009 is presented below:



|                             |  |              |   |  |                               |        |                                          |          
|---------------------------- |  | ------------ | - |  | ----------------------------- | ------ | ---------------------------------------- | ---------
|Options                      |  | Optionshares |   |  | Weighted-averageexerciseprice |        | Weighted-averageremainingcontractualterm
|Outstanding at June 28, 2008 |  | 62,530       |   |  | $                             | 115.63 |                                          | 7.2 years
|Granted                      |  |             |   |  |                               |       |                                          |         
|Exercised                    |  |             |   |  |                               |       |                                          |         
|Forfeited                    |  | (2,962       | ) |  |                               | 150.69 |                                          |         
|                             |  |              |   |  |                               |        |                                          |          
|Outstanding at June 27, 2009 |  | 59,568       |   |  | $                             | 113.92 |                                          | 6.2 years
|                             |  |              |   |  |                               |        |                                          |          

The weighted-average grant-date fair value of options issued in fiscal 2008 and 2007 was $31.67 and $11.50,
respectively. As of June 27, 2009, 59,568 options were outstanding, of which 53,329 were fully vested and exercisable. The weighted-average exercise price of the fully vested options was $104.24. The weighted average remaining contractual term
of vested options was 6.0 years. The total grant date fair value of all options outstanding at June 27, 2009 and June 28, 2008 was $1,521 and $1,582, respectively.

A summary of the status of the Companys nonvested option shares as of June 27, 2009, and activity during fiscal year ended June 27, 2009, are presented below:



|                                         |  |                               |   |  |                                         |      
|---------------------------------------- |  | ----------------------------- | - |  | --------------------------------------- | -----
|                                         |  | Weighted-averageoption shares |   |  | Estimatedgrant-datefair valueof options
|Nonvested option shares at June 28, 2008 |  | 25,019                        |   |  | $                                       | 23.15
|Granted options                          |  |                              |   |  |                                         |     
|Vested                                   |  | (17,868                       | ) |  |                                         | 26.99
|Forfeited                                |  | (912                          | ) |  |                                         | 14.49
|                                         |  |                               |   |  |                                         |      
|Nonvested option shares at June 27, 2009 |  | 6,239                         |   |  | $                                       | 13.42
|                                         |  |                               |   |  |                                         |      

The total fair value of shares vested during fiscal 2009, 2008, and 2007 was $482, $519, and $520, respectively.
The Company recognized stock compensation expense, which represents the amortization of the estimated fair value of the stock options issued, of $482, $552, and $577 for fiscal 2009, 2008, and 2007, respectively, and the total tax benefit recognized
for these periods was $193, $168, and $69, respectively. As of June 27, 2009, there was $84 of total unrecognized pre-tax compensation cost related to nonvested share-based compensation arrangements granted under the Plan that will be
recognized over the remaining vesting period. The weighted-average period of the remaining cost is 2.0 years. Cash received from options exercised under the share-based payment arrangement for fiscal 2009, 2008, and 2007 was $0, $91, and $1,017,
respectively.

NOTE 12EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is calculated using the weighted-average common shares outstanding for the period. Diluted earnings per share is calculated using the weighted-average common shares outstanding for the period, including the
dilutive effect of stock options as determined under the treasury stock method. For the fiscal year ended June 28, 2008, weighted-average common shares outstanding for the period include the dilutive effect of stock options of 10,894 for the
calculation of diluted earnings per share. For fiscal 2009, 2008 and 2007, common shares relating to the stock options of 59,568, 17,876 and 66,251, respectively, are excluded from the diluted earnings per share calculation as the related impact
would have been anti-dilutive. The calculations are as follows (dollar amounts are in thousands except per share data):



|                                               |  |      |         |   |      |   |       |  |   |       
|---------------------------------------------- |  | ---- | ------- | - | ---- | - | ----- |  | - | ------
|                                               |  | 2009 |         |   | 2008 |   | 2007 
|Net income (loss) from continuing operations   |  | $    | (19,733 | ) |      | $ | 4,337 |  | $ | 30,697
|Net income (loss) from discontinued operations |  |      | (446    | ) |      |   | 271   |  |   | 1,304 
|                                               |  |      |         |   |      |   |       |  |   |       
|Net income (loss)                              |  | $    | (20,179 | ) |      | $ | 4,608 |  | $ | 32,001
|                                               |  |      |         |   |      |   |       |  |   |       
|Basic net income (loss) per share:             |  |      |         |   |      |   |       |  |   |       
|Continuing operations                          |  | $    | (19.10  | ) |      | $ | 4.20  |  | $ | 29.90 
|Discontinued operations                        |  |      | (0.43   | ) |      |   | 0.26  |  |   | 1.27  
|                                               |  |      |         |   |      |   |       |  |   |       
|Total basic net income (loss) per share        |  | $    | (19.53  | ) |      | $ | 4.46  |  | $ | 31.17 
|                                               |  |      |         |   |      |   |       |  |   |       



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##### Table of Contents

|                                                        |  |      |           |   |      |   |           |  |   |          
|------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- |  | - | ---------
|                                                        |  | 2009 |           |   | 2008 |   | 2007     
|Diluted net income (loss) per share:                    |  |      |           |   |      |   |           |  |   |          
|Continuing operations                                   |  | $    | (19.10    | ) |      | $ | 4.16      |  | $ | 29.90    
|Discontinued operations                                 |  |      | (0.43     | ) |      |   | 0.26      |  |   | 1.27     
|                                                        |  |      |           |   |      |   |           |  |   |          
|Total diluted net income (loss) per share               |  | $    | (19.53    | ) |      | $ | 4.42      |  | $ | 31.17    
|                                                        |  |      |           |   |      |   |           |  |   |          
|Weighted-average shares used in per share calculations: |  |      |           |   |      |   |           |  |   |          
|Basic                                                   |  |      | 1,033,295 |   |      |   | 1,032,577 |  |   | 1,026,604
|                                                        |  |      |           |   |      |   |           |  |   |          
|Diluted                                                 |  |      | 1,033,295 |   |      |   | 1,043,471 |  |   | 1,026,604
|                                                        |  |      |           |   |      |   |           |  |   |          

Per share amounts are calculated separately for net income (loss) from continuing operations and discontinued
operations and total net income (loss) and, as such, the per share amounts for continuing operations and discontinued operations may not sum to the total net income per share.

NOTE 13LEASES

The Company leases certain properties consisting primarily of retail stores, distribution
centers, and equipment with original terms ranging primarily from 3 to 10 years and up to 22 years. Certain leases contain renewal options; generally for five year periods, with rent payments during the lease term dependant on the defined percent
increase or increases based on certain indexes, in each case as defined within the individual lease agreements. In accordance with SFAS No. 13, Accounting for Leases, for leases that contain fixed escalations of the minimum annual lease
payment during the original term of the lease and other lease incentives, the Company recognizes rental expense on a straight-line basis over the lease term and records the difference between rent expense and the amount that is payable as deferred
rent. In addition to minimum rental payments, certain of the Companys retail store leases require the Company to make contingent rental payments, which are typically structured as either minimum rent plus additional rent based on a percentage
of store sales if a specified store sales threshold is exceeded, or rent based on a negotiated threshold of sales after which a percent of sales is paid to the landlord. Such contingent rental expense is accrued in each reporting period if
achievement of any factor is considered probable. Extra payments such as common area maintenance and property taxes are also required on certain leases.

Total rental expense for all operating leases was as follows:



|                        |  |      |        |      |   |        |  |   |       
|----------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                        |  | 2009 |        | 2008 |   | 2007  
|Minimum rent expense    |  | $    | 24,508 |      | $ | 24,299 |  | $ | 24,111
|Contingent rent expense |  |      | 209    |      |   | 297    |  |   | 461   
|                        |  |      |        |      |   |        |  |   |       
|Total rent expense      |  | $    | 24,717 |      | $ | 24,596 |  | $ | 24,572
|                        |  |      |        |      |   |        |  |   |       

Minimum rental expense from discontinued operations included in the above totals was $1,464 for fiscal 2007. There
was no minimum rental expense from discontinued operations for fiscal 2009 or fiscal 2008, and there was no contingent rent expense from discontinued operations for any period presented.

The aggregate future minimum rental payments under non-cancelable operating leases and payments of principal and interest on our capital lease obligations in effect at June 27, 2009, were as follows for the
following fiscal years:



|           |  |                 |         |               |   |               |  |   |        
|---------- |  | --------------- | ------- | ------------- | - | ------------- |  | - | -------
|           |  | OperatingLeases |         | CapitalLeases |   | TotalPayments
|2010       |  | $               | 18,606  |               | $ | 161           |  | $ | 18,767 
|2011       |  |                 | 16,039  |               |   | 323           |  |   | 16,362 
|2012       |  |                 | 13,743  |               |   |              |  |   | 13,743 
|2013       |  |                 | 8,042   |               |   |              |  |   | 8,042  
|2014       |  |                 | 5,058   |               |   |              |  |   | 5,058  
|Thereafter |  |                 | 45,243  |               |   |              |  |   | 45,243 
|           |  |                 |         |               |   |               |  |   |        
|Total      |  | $               | 106,731 |               | $ | 484           |  | $ | 107,215
|           |  |                 |         |               |   |               |  |   |        

NOTE 14COMMITMENTS AND CONTINGENCIES

The Company is a party to legal proceedings in the ordinary course of, and which are incidental to, the Companys business. The Companys management believes that the ultimate liability, if any, resulting
from such proceedings would not have a material effect on the Companys results of operations, financial position or cash flows.



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The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify another party from
losses arising in connection with the Companys products or services. The Company also enters into indemnification provisions under its agreements with other companies in the ordinary course of business, typically with its contractors,
customers and landlords. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Companys activities or, in some cases, as a
result of the indemnified partys activities under the agreement. These indemnification provisions generally survive termination of the underlying agreement. In addition, the Company has entered into indemnification agreements with its officers
and directors that indemnify such persons for certain liabilities they may incur in connection with their services as an officer or director, and the Company has agreed to indemnify certain investors for certain liabilities they may incur in
connection with the sale of the senior notes to the initial purchasers and the 2005 exchange offer relating to the senior notes. The maximum potential amount of future payments the Company could be required to make under these indemnification
provisions is generally unlimited. As the Company believes that the occurrence of any events that would trigger payments under these contracts is remote, no liabilities have been recorded in the consolidated financial statements for these
indemnifications.

The Companys food and horticultural products are subject to regulation and inspection by various governmental agencies, and
involve the risk of injury to consumers. As such, the Company may be required to recall some of its products. The Company maintains product liability insurance in an amount that it believes is adequate to cover the costs associated with these
recalls.

In addition to minimum rental payments, certain of the Companys retail store leases require the Company to make contingent rental payments,
which are based upon certain factors, such as sales volume and property taxes. Such contingent rental expense is accrued in each reporting period if achievement of any factor is considered probable. See Note 13Leases.

On February 18, 2005, the Company established a Liquidity Event Award Program for each member of its senior management team who had received stock options under
the 2004 Stock Option Plan as of that date. The aggregate amount of all potential awards to senior management is equal to $6,372 or 7.5% of the portion of the proceeds from the sale of notes which were distributed on February 25, 2005 to the
Companys equity sponsors as a return of capital. The amount of each award, as a percentage of all awards, is proportional to the percentage of all of the options such member was awarded as of February 18, 2005. The right to receive 20% of
the award vested on June 17, 2005, an additional 20% of the award vested on June 17, 2006, and 5% vest in the next twelve quarters.

As of
June 27, 2009, 100% of the award was vested, representing $6,034 which also reflects forfeitures. In each case, vesting occurred as long as the award recipient was an employee of Harry & David Holdings, Inc. or its affiliates on the
vesting date. Award recipients will not be entitled to receive any vested portion of their awards unless: (i) a change of control (as so defined) occurs; (ii) the aggregate net sales proceeds in such change of control plus certain other
distributions received by the Companys equity sponsors exceeds a certain level; (iii) the Company has available cash, or if applicable, non-cash consideration equal to the aggregate of all awards; and (iv) certain other conditions
are met. Distributions in respect of the awards will be payable in cash or, in some circumstances, the non-cash consideration received in the change of control either at the time of the change of control or, in some circumstances, at a later
specified date. As of June 27, 2009, the Company has concluded that it is not obligated to accrue a liability or recognize any expense for the Liquidity Event Award Program for the fiscal year then ended.

NOTE 15RELATED-PARTY TRANSACTIONS

The Company has entered into
an agreement with its principal shareholders, Wasserstein and Highfields, for financial management, consulting, and advisory services. The Company has agreed to pay fees of $1,000 annually (excluding out-of-pocket reimbursements) under this
agreement. The fees are accrued to the extent that they are not paid in any such period. During fiscal 2009, 2008 and 2007, the Company paid $1,000, $1,000, and $1,068, respectively, in connection with this agreement. These amounts were charged to
selling, general and administrative expenses  related party.



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##### Table of Contents

NOTE 16SEGMENT REPORTING

Performance of business units is evaluated considering revenue growth achieved and potential profitability, contribution to other units and capital investment requirements. Reportable segments are strategic business
units that offer similar products and are managed separately because the business units utilize distinct marketing strategies. The accounting policies of the segments, where applicable, are the same as those described in the summary of significant
accounting polices.

The results of the Jackson & Perkins business are included as discontinued operations in the consolidated statement of
operations and footnotes for all periods presented.

The Direct Marketing segment generates net sales of premium gift-quality fruit,
gourmet food products and gifts under the Harry & David®, Wolfermans® and Cushmans® brands by marketing
through catalogs, the Internet, business-to-business and consumer telemarketing operations. The Companys catalogs reach customers throughout the United States and, to a lesser extent, in Canada. The Stores segment generates net sales of
Harry & David®, Wolfermans® and Cushmans® merchandise at various
retail locations (outlet stores, specialty stores, and a Country Village Store). As of June 27, 2009, the Company operated 138 Harry and David stores in 38 states. The Company also operates two Cushmans seasonal stores during the year.
The Wholesale segment generates net sales by selling Harry & David® brand, Wolfermans® brand, and Cushmans® brand wholesale products to national retailers as well as commercial sales of surplus, non-gift quality fruit grown in the Companys orchards surrounding
Medford, Oregon. Business units not disclosed separately for segment reporting purposes are grouped in the Other segment and include business units that support the Companys operations, including orchards, product supply,
distribution, customer operations, facilities, information technology services, and administrative and marketing support functions.

The Company
reclassified revenue from commercial fruit sales from the Other segment to the Wholesale segment. Certain costs related to commercial fruit sales have not been reclassified as the impact is immaterial and it is impractical to
do so. The Company also reclassified certain activities related to Cushmans from the Direct Marketing segment to the Wholesale segment as compared to the presentation in its fiscal 2009 interim periods.

Net intersegment sales were $64,556, $162,236 and $183,993 for the fiscal 2009, 2008 and 2007, respectively. Total assets in the Other segment include corporate cash and
cash equivalents, short-term investments, the net book value of corporate facilities and related information systems, third-party and intercompany debt and other corporate long-lived assets, including the Companys manufacturing and
distribution facilities.



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##### Table of Contents

The following table presents key financial statement data by segment for the periods indicated:



|                                                             |  |                 |         |   |        |   |         |           |  |   |        |   |  |                           |         |   |  |   |         |  
|------------------------------------------------------------ |  | --------------- | ------- | - | ------ | - | ------- | --------- |  | - | ------ | - |  | ------------------------- | ------- | - |  | - | ------- | -
|                                                             |  | DirectMarketing |         |   | Stores |   |         | Wholesale |  |   | Other  |   |  | TotalContinuingOperations |        
|Fiscal 2009                                                  |  |                 |         |   |        |   |         |           |  |   |        |   |  |                           |         |   |  |   |         |  
|Net external sales                                           |  | $               | 325,902 |   |        | $ | 125,921 |           |  | $ | 37,773 |   |  | $                         |        |   |  | $ | 489,596 |  
|Depreciation and amortization expense                        |  |                 | 1,350   |   |        |   | 3,323   |           |  |   |       |   |  |                           | 15,962  |   |  |   | 20,635  |  
|Operating income (loss) from continuing operations           |  |                 | (14,426 | ) |        |   | (14,499 | )         |  |   | 967    |   |  |                           | 52      |   |  |   | (27,906 | )
|Interest expense, net from continuing operations             |  |                 | 1       |   |        |   | (7      | )         |  |   |       |   |  |                           | 21,241  |   |  |   | 21,235  |  
|Income (loss) from continuing operations before income taxes |  |                 | (1,519  | ) |        |   | (12,805 | )         |  |   | 1,496  |   |  |                           | (21,766 | ) |  |   | (34,594 | )
|Capital expenditures                                         |  |                 |        |   |        |   | 623     |           |  |   |       |   |  |                           | 6,055   |   |  |   | 6,678   |  
|Total assets                                                 |  |                 | 46,307  |   |        |   | 24,490  |           |  |   | 8,578  |   |  |                           | 197,317 |   |  |   | 276,692 |  
|Fiscal 2008                                                  |  |                 |         |   |        |   |         |           |  |   |        |   |  |                           |         |   |  |   |         |  
|Net external sales                                           |  | $               | 372,552 |   |        | $ | 138,129 |           |  | $ | 34,383 |   |  | $                         |        |   |  | $ | 545,064 |  
|Depreciation and amortization expense                        |  |                 | 1,852   |   |        |   | 3,989   |           |  |   |       |   |  |                           | 14,651  |   |  |   | 20,492  |  
|Operating income (loss) from continuing operations           |  |                 | 39,208  |   |        |   | (8,858  | )         |  |   | 812    |   |  |                           |        |   |  |   | 31,162  |  
|Interest expense, net from continuing operations             |  |                 | 30      |   |        |   | 3       |           |  |   | (8     | ) |  |                           | 22,494  |   |  |   | 22,519  |  
|Income (loss) from continuing operations before income taxes |  |                 | 39,193  |   |        |   | (8,839  | )         |  |   | 820    |   |  |                           | (22,189 | ) |  |   | 8,985   |  
|Capital expenditures                                         |  |                 | 9       |   |        |   | 5,440   |           |  |   |       |   |  |                           | 12,406  |   |  |   | 17,855  |  
|Total assets                                                 |  |                 | 59,597  |   |        |   | 32,654  |           |  |   | 2,308  |   |  |                           | 262,078 |   |  |   | 356,637 |  
|Fiscal 2007                                                  |  |                 |         |   |        |   |         |           |  |   |        |   |  |                           |         |   |  |   |         |  
|Net external sales                                           |  | $               | 384,439 |   |        | $ | 139,478 |           |  | $ | 37,100 |   |  | $                         |        |   |  | $ | 561,017 |  
|Depreciation and amortization expense                        |  |                 | 1,612   |   |        |   | 3,657   |           |  |   |       |   |  |                           | 13,829  |   |  |   | 19,098  |  
|Operating income (loss) from continuing operations           |  |                 | 47,587  |   |        |   | (1,328  | )         |  |   | 4,475  |   |  |                           |        |   |  |   | 50,734  |  
|Interest expense, net from continuing operations             |  |                 |        |   |        |   |        |           |  |   |       |   |  |                           | 25,073  |   |  |   | 25,073  |  
|Income (loss) from continuing operations before income taxes |  |                 | 50,987  |   |        |   | (543    | )         |  |   | 4,528  |   |  |                           | (13,119 | ) |  |   | 41,853  |  
|Capital expenditures                                         |  |                 |        |   |        |   | 4,492   |           |  |   |       |   |  |                           | 16,967  |   |  |   | 21,459  |  

Depreciation and amortization expense from discontinued operations was $599 for fiscal 2007, and capital
expenditures from discontinued operations was $185 for fiscal 2007. There were no such amounts in fiscal 2009 or 2008.



F-32



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##### Table of Contents

NOTE 17QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table sets forth certain quarterly income statement information of the Company for the fiscal 2009 and 2008. The Company reports results using a fiscal
quarter method whereby each quarter is reported as a Saturday in September (Q1), December (Q2), March (Q3) or June (Q4) of the twelve or thirteen week period based on a 52/53 week year. As discussed in Note 6Discontinued
Operations, in fiscal 2007, the Jackson & Perkins business was discontinued. All periods presented reflect the accounting for discontinued operations. Dollars are in thousands, except per share amounts. The sum of the quarterly per
share amounts will not necessarily equal the annual net earnings per share amounts as each quarter is calculated independently.



|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|------------------------------------------------------------- |  | ---- | ------- | - | ----- | - | ------- |  | - | ------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                                              |  | 2009 |        
|                                                              |  | Q1   |         |   | Q2(1) |   | Q3      |  |   | Q4      |   |  | Total |        
|Net sales                                                     |  | $    | 52,607  |   |       | $ | 307,726 |  | $ | 74,912  |   |  | $     | 54,351  |   |  | $ | 489,596 |  
|Cost of goods sold                                            |  |      | 36,399  |   |       |   | 161,109 |  |   | 52,194  |   |  |       | 37,465  |   |  |   | 287,167 |  
|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Gross profit                                                  |  |      | 16,208  |   |       |   | 146,617 |  |   | 22,718  |   |  |       | 16,886  |   |  |   | 202,429 |  
|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Income (loss) from continuing operations before taxes         |  |      | (24,614 | ) |       |   | 49,620  |  |   | (30,901 | ) |  |       | (28,699 | ) |  |   | (34,594 | )
|Provision (benefit) for income taxes on continuing operations |  |      | (9,264  | ) |       |   | 19,282  |  |   | (12,702 | ) |  |       | (12,177 | ) |  |   | (14,861 | )
|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Net income (loss) from continuing operations                  |  |      | (15,350 | ) |       |   | 30,338  |  |   | (18,199 | ) |  |       | (16,522 | ) |  |   | (19,733 | )
|Net income (loss) from discontinued operations                |  |      | 125     |   |       |   | 110     |  |   | 99      |   |  |       | (780    | ) |  |   | (446    | )
|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Net income (loss)                                             |  | $    | (15,225 | ) |       | $ | 30,448  |  | $ | (18,100 | ) |  | $     | (17,302 | ) |  | $ | (20,179 | )
|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Basic net income (loss) per share:                            |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Continuing operations                                         |  | $    | (14.86  | ) |       | $ | 29.36   |  | $ | (17.61  | ) |  | $     | (15.99  | ) |  | $ | (19.10  | )
|Discontinued operations                                       |  | $    | 0.12    |   |       | $ | 0.11    |  | $ | 0.10    |   |  | $     | (0.75   | ) |  | $ | (0.43   | )
|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Total basic income (loss) per share                           |  | $    | (14.73  | ) |       | $ | 29.47   |  | $ | (17.52  | ) |  | $     | (16.74  | ) |  | $ | (19.53  | )
|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Diluted net income (loss) per share:                          |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Continuing operations                                         |  | $    | (14.86  | ) |       | $ | 29.36   |  | $ | (17.61  | ) |  | $     | (15.99  | ) |  | $ | (19.10  | )
|Discontinued operations                                       |  | $    | 0.12    |   |       | $ | 0.11    |  | $ | 0.10    |   |  | $     | (0.75   | ) |  | $ | (0.43   | )
|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  
|Total diluted net income (loss) per share                     |  | $    | (14.73  | ) |       | $ | 29.47   |  | $ | (17.52  | ) |  | $     | (16.74  | ) |  | $ | (19.53  | )
|                                                              |  |      |         |   |       |   |         |  |   |         |   |  |       |         |   |  |   |         |  



|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|------------------------------------------------------------- |  | ---- | ------- | - | -- | - | ------- |  | - | ------- | - |  | ----- | ------- | - |  | - | -------
|                                                              |  | 2008
|                                                              |  | Q1   |         |   | Q2 |   | Q3      |  |   | Q4      |   |  | Total
|Net sales                                                     |  | $    | 55,454  |   |    | $ | 363,978 |  | $ | 68,315  |   |  | $     | 57,317  |   |  | $ | 545,064
|Cost of goods sold                                            |  |      | 36,135  |   |    |   | 167,468 |  |   | 48,546  |   |  |       | 43,745  |   |  |   | 295,894
|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Gross profit                                                  |  |      | 19,319  |   |    |   | 196,510 |  |   | 19,769  |   |  |       | 13,572  |   |  |   | 249,170
|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Income (loss) from continuing operations before taxes         |  |      | (25,350 | ) |    |   | 103,788 |  |   | (32,224 | ) |  |       | (37,229 | ) |  |   | 8,985  
|Provision (benefit) for income taxes on continuing operations |  |      | (9,355  | ) |    |   | 37,915  |  |   | (11,227 | ) |  |       | (12,685 | ) |  |   | 4,648  
|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Net income (loss) from continuing operations                  |  |      | (15,995 | ) |    |   | 65,873  |  |   | (20,997 | ) |  |       | (24,544 | ) |  |   | 4,337  
|Net income (loss) from discontinued operations                |  |      | (159    | ) |    |   | 95      |  |   | 206     |   |  |       | 129     |   |  |   | 271    
|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Net income (loss)                                             |  | $    | (16,154 | ) |    | $ | 65,968  |  | $ | (20,791 | ) |  | $     | (24,415 | ) |  | $ | 4,608  
|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Basic net income (loss) per share:                            |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Continuing operations                                         |  | $    | (15.50  | ) |    | $ | 63.80   |  | $ | (20.33  | ) |  | $     | (23.76  | ) |  | $ | 4.20   
|Discontinued operations                                       |  | $    | (0.15   | ) |    | $ | 0.09    |  | $ | 0.20    |   |  | $     | 0.12    |   |  | $ | 0.26   
|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Total basic income (loss) per share                           |  | $    | (15.65  | ) |    | $ | 63.89   |  | $ | (20.14  | ) |  | $     | (23.64  | ) |  | $ | 4.46   
|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Diluted net income (loss) per share:                          |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Continuing operations                                         |  | $    | (15.50  | ) |    | $ | 63.12   |  | $ | (20.33  | ) |  | $     | (23.76  | ) |  | $ | 4.16   
|Discontinued operations                                       |  | $    | (0.15   | ) |    | $ | 0.09    |  | $ | 0.20    |   |  | $     | 0.12    |   |  | $ | 0.26   
|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        
|Total diluted net income (loss) per share                     |  | $    | (15.65  | ) |    | $ | 63.21   |  | $ | (20.14  | ) |  | $     | (23.64  | ) |  | $ | 4.42   
|                                                              |  |      |         |   |    |   |         |  |   |         |   |  |       |         |   |  |   |        



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##### Table of Contents



|(1) | The financial information for the second fiscal quarter of 2009 has been restated from that previously reported on the Companys form 10-Q. See below for restatement and
correction information.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Restatement and correction

During the fourth quarter of fiscal 2009, the Company concluded that the Wolfermans impairment charge recorded in the second fiscal quarter was incorrectly calculated. The correction impacted the financial
statements in the previously filed form 10-Qs for the second and third fiscal quarter of 2009. While certain captions comprised in cash provided by operating activities were impacted by the correction, total net operating cash flows did not change
from what was previously reported. The financial statement line items on the balance sheet and statement of operations have been restated as follows:

Balance sheet restatement



|                                        |  |                       |        |                    |   |        |  
|--------------------------------------- |  | --------------------- | ------ | ------------------ | - | ------ | -
|                                        |  | As ofDecember 27,2008 |        | As ofMarch 28,2009 |  
|                                        |  | Unaudited             |        | Unaudited          |  
|Goodwill                                |  |                       |        |                    |   |        |  
|As previously reported                  |  | $                     | 10,998 |                    | $ | 11,000 |  
|As restated                             |  |                       | 12,209 |                    |   | 12,211 |  
|Retained earnings (accumulated deficit) |  |                       |        |                    |   |        |  
|As previously reported                  |  | $                     | 16,002 |                    | $ | (2,098 | )
|As restated                             |  |                       | 16,732 |                    |   | (1,368 | )

Statement of operations restatement



|                                                                |  |                                     |         |                                       |   |                                     |  |   |         |  
|--------------------------------------------------------------- |  | ----------------------------------- | ------- | ------------------------------------- | - | ----------------------------------- |  | - | ------- | -
|                                                                |  | Thirteen WeeksEndedDecember 27,2008 |         | Twenty-sixWeeks EndedDecember 27,2008 |   | Thirty-nineWeeks EndedMarch 28,2009 | 
|                                                                |  | Unaudited                           |         | Unaudited                             |   | Unaudited                           | 
|Selling, general and administrative expense                     |  |                                     |         |                                       |   |                                     |  |   |         |  
|As previously reported                                          |  | $                                   | 104,705 |                                       | $ | 142,369                             |  | $ | 190,917 |  
|As restated                                                     |  |                                     | 103,494 |                                       |   | 141,158                             |  |   | 189,706 |  
|Provision (benefit) for income taxes from continuing operations |  |                                     |         |                                       |   |                                     |  |   |         |  
|As previously reported                                          |  | $                                   | 18,801  |                                       | $ | 9,537                               |  | $ | (3,165  | )
|As restated                                                     |  |                                     | 19,282  |                                       |   | 10,018                              |  |   | (2,684  | )
|Net income (loss) from continuing operations                    |  |                                     |         |                                       |   |                                     |  |   |         |  
|As previously reported                                          |  | $                                   | 29,608  |                                       | $ | 14,258                              |  | $ | (3,941  | )
|As restated                                                     |  |                                     | 30,338  |                                       |   | 14,988                              |  |   | (3,211  | )
|Net income (loss)                                               |  |                                     |         |                                       |   |                                     |  |   |         |  
|As previously reported                                          |  | $                                   | 29,718  |                                       | $ | 14,493                              |  | $ | (3,607  | )
|As restated                                                     |  |                                     | 30,448  |                                       |   | 15,223                              |  |   | (2,877  | )
|Net income (loss) from continuing operations per share          |  |                                     |         |                                       |   |                                     |  |   |         |  
|As previously reported                                          |  | $                                   | 28.65   |                                       | $ | 13.80                               |  | $ | (3.81   | )
|As restated                                                     |  |                                     | 29.36   |                                       |   | 14.51                               |  |   | (3.11   | )
|Net income (loss) per share                                     |  |                                     |         |                                       |   |                                     |  |   |         |  
|As previously reported                                          |  | $                                   | 28.76   |                                       | $ | 14.03                               |  | $ | (3.49   | )
|As restated                                                     |  |                                     | 29.47   |                                       |   | 14.73                               |  |   | (2.78   | )



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##### Table of Contents

NOTE 18VALUATION AND QUALIFYING ACCOUNTS



|                                            |  |                              |       |                             |   |        |            |  |   |                         |         |  |   |    
|------------------------------------------- |  | ---------------------------- | ----- | --------------------------- | - | ------ | ---------- |  | - | ----------------------- | ------- |  | - | ---
|                                            |  | Balance atbeginningof period |       | Charged tocosts andexpenses |   |        | Deductions |  |   | Balance at endof period
|Year ended June 27, 2009                    |  |                              |       |                             |   |        |            |  |   |                         |         |  |   |    
|Allowance for doubtful accounts             |  | $                            | 39    |                             | $ | 778    |            |  | $ | (310                    | )       |  | $ | 507
|Year ended June 28, 2008                    |  |                              |       |                             |   |        |            |  |   |                         |         |  |   |    
|Allowance for doubtful accounts             |  | $                            | 15    |                             | $ | 157    |            |  | $ | (133                    | )       |  | $ | 39 
|Valuation allowance for deferred tax assets |  | $                            | 888   |                             | $ | (888   | )(c)       |  | $ |                        |         |  | $ |   
|Year ended June 30, 2007                    |  |                              |       |                             |   |        |            |  |   |                         |         |  |   |    
|Allowance for doubtful accounts             |  | $                            | 80    |                             |   | 670    |            |  |   | (735                    | )(a)(b) |  | $ | 15 
|Valuation allowance for deferred tax assets |  | $                            | 4,545 |                             |   | (3,657 | )(c)       |  |   |                        |         |  | $ | 888



|(a) | Uncollectible amounts written off, net of recoveries.
|--- | -----------------------------------------------------



|(b) | Amount includes $395 of reserves related to certain receivables sold with recourse, which were reclassified to other accrued liabilities in connection with the sale
of Jackson & Perkins.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Consolidated amount includes amount from continuing operations of $(686) and $(3,309) for fiscal 2008 and 2007, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------

NOTE 19CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

On
November 30, 2007, Harry & David Operations, Corp., (the Predecessor), effected an internal corporate reorganization pursuant to which its wholly-owned subsidiaries, Bear Creek Stores, Inc. and Bear Creek Direct Marketing,
Inc. (both being guarantors under the Indenture referred to below), merged with and into Harry and David, an Oregon corporation and subsidiary guarantor of the Predecessor (the Successor), (collectively, the Reorganization).
As a result of the Reorganization, the Predecessor entered into the First Supplemental Indenture (the Supplemental Indenture) among the Successor, the Company, Bear Creek Orchards, Inc., Harry & David Operations, Inc., (formerly
Bear Creek Operations, Inc.) and Wells Fargo Bank, N.A., as Trustee (the Trustee) to the Indenture, among the Predecessor, the Successor, as a guarantor, Harry & David Holdings, Inc., Bear Creek Orchards, Inc., Bear Creek
Operations, Inc., the other guarantors party thereto, and the Trustee under which the Senior Notes were issued. Pursuant to the Supplemental Indenture, the Successor assumed all of the rights and obligations of the Predecessor under the Indenture
and the Senior Notes and each of the Predecessor, Bear Creek Stores, Inc. and Bear Creek Direct Marketing, Inc. was released and discharged from their respective obligations under the Indenture.

The following consolidating financial information presents financial information which reflects the Reorganization, in separate columns, for (i) the Company (on a
parent-only basis) with its investment in its subsidiaries recorded under the equity method, (ii) Harry and David under the equity method, (iii) subsidiaries of the Company that guarantee the Senior Notes on a combined basis,
(iv) the eliminations and reclassifications necessary to arrive at the information for the Company and its subsidiaries on a consolidated basis, and (v) the Company on a consolidated basis, as of June 27, 2009 and June 28, 2008,
and for fiscal 2009, 2008, and 2007. The Senior Notes are fully and unconditionally guaranteed on a joint and several basis by the Company and each of its existing and future domestic restricted subsidiaries, which are 100% owned, directly or
indirectly, by the Company within the meaning of Rule 3-10 of Regulation S-X. There are no non-guarantor subsidiaries. The Senior Notes place certain restrictions on the payment of dividends, other payments or distributions by the Company and
between the guarantors.



F-35



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##### Table of Contents

NOTE 19CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

Condensed Consolidating Balance Sheet

As of
June 27, 2009



|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|---------------------------------------------------- |  | ---------------------------------------- | ------- | - | --------------- | - | -------- | --------------------- |  | - | -------------------------------- | - |  | ------------ | -------- | - |  | - | ------- | -
|                                                     |  | Harry & DavidHoldings, Inc.(Parent-Only) |         |   | Harry and David |   |          | GuarantorSubsidiaries |  |   | EliminationsandReclassifications |   |  | Consolidated |         
|Assets                                               |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Current assets:                                      |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Cash and cash equivalents                            |  | $                                        | 51      |   |                 | $ | 15,344   |                       |  | $ |                                 |   |  | $            |         |   |  | $ | 15,395  |  
|Trade accounts receivable, net                       |  |                                          |        |   |                 |   | 1,350    |                       |  |   | 116                              |   |  |              |         |   |  |   | 1,466   |  
|Other receivables                                    |  |                                          |        |   |                 |   | 398      |                       |  |   | 1,664                            |   |  |              |         |   |  |   | 2,062   |  
|Inventories                                          |  |                                          |        |   |                 |   | 17,936   |                       |  |   | 26,802                           |   |  |              |         |   |  |   | 44,738  |  
|Deferred catalog expenses                            |  |                                          |        |   |                 |   | 2,657    |                       |  |   |                                 |   |  |              |         |   |  |   | 2,657   |  
|Deferred income taxes                                |  |                                          | 5,230   |   |                 |   |         |                       |  |   |                                 |   |  |              |         |   |  |   | 5,230   |  
|Other current assets                                 |  |                                          | 262     |   |                 |   | 1,572    |                       |  |   | 3,028                            |   |  |              |         |   |  |   | 4,862   |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total current assets                                 |  |                                          | 5,543   |   |                 |   | 39,257   |                       |  |   | 31,610                           |   |  |              |         |   |  |   | 76,410  |  
|Fixed assets, net                                    |  |                                          |        |   |                 |   | 9,208    |                       |  |   | 136,269                          |   |  |              |         |   |  |   | 145,477 |  
|Goodwill                                             |  |                                          |        |   |                 |   | 12,236   |                       |  |   |                                 |   |  |              |         |   |  |   | 12,236  |  
|Intangibles, net                                     |  |                                          |        |   |                 |   | 33,057   |                       |  |   |                                 |   |  |              |         |   |  |   | 33,057  |  
|Investment in subsidiaries                           |  |                                          | 150,370 |   |                 |   | (83,606  | )                     |  |   |                                 |   |  |              | (66,764  | ) |  |   |        |  
|Deferred financing costs, net                        |  |                                          |        |   |                 |   | 5,975    |                       |  |   |                                 |   |  |              |         |   |  |   | 5,975   |  
|Deferred income taxes                                |  |                                          | 1,423   |   |                 |   |         |                       |  |   |                                 |   |  |              |         |   |  |   | 1,423   |  
|Other assets                                         |  |                                          | 1,886   |   |                 |   | 32       |                       |  |   | 196                              |   |  |              |         |   |  |   | 2,114   |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total assets                                         |  | $                                        | 159,222 |   |                 | $ | 16,159   |                       |  | $ | 168,075                          |   |  | $            | (66,764  | ) |  | $ | 276,692 |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Liabilities and stockholders equity (deficit)       |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Current liabilities:                                 |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Accounts payable                                     |  | $                                        |        |   |                 | $ | 4,322    |                       |  | $ | 6,849                            |   |  | $            |         |   |  | $ | 11,171  |  
|Accrued payroll and benefits                         |  |                                          |        |   |                 |   | 7,694    |                       |  |   | 6,411                            |   |  |              |         |   |  |   | 14,105  |  
|Income taxes payable                                 |  |                                          | 13,717  |   |                 |   | (78      | )                     |  |   | 4                                |   |  |              |         |   |  |   | 13,643  |  
|Deferred revenue                                     |  |                                          |        |   |                 |   | 16,317   |                       |  |   |                                 |   |  |              |         |   |  |   | 16,317  |  
|Accrued interest                                     |  |                                          |        |   |                 |   | 4,485    |                       |  |   |                                 |   |  |              |         |   |  |   | 4,485   |  
|Other accrued liabilities                            |  |                                          | 176     |   |                 |   | 1,813    |                       |  |   | 991                              |   |  |              |         |   |  |   | 2,980   |  
|Current portion of capital lease obligations         |  |                                          |        |   |                 |   | 147      |                       |  |   |                                 |   |  |              |         |   |  |   | 147     |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total current liabilities                            |  |                                          | 13,893  |   |                 |   | 34,700   |                       |  |   | 14,255                           |   |  |              |         |   |  |   | 62,848  |  
|Long-term debt and capital lease obligations         |  |                                          |        |   |                 |   | 198,671  |                       |  |   |                                 |   |  |              |         |   |  |   | 198,671 |  
|Accrued pension liability                            |  |                                          |        |   |                 |   |         |                       |  |   | 27,364                           |   |  |              |         |   |  |   | 27,364  |  
|Other long-term liabilities                          |  |                                          | 3,861   |   |                 |   | 4,121    |                       |  |   | 1,609                            |   |  |              |         |   |  |   | 9,591   |  
|Intercompany debt                                    |  |                                          | 163,250 |   |                 |   | (371,703 | )                     |  |   | 208,453                          |   |  |              |         |   |  |   |        |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total liabilities                                    |  |                                          | 181,004 |   |                 |   | (134,211 | )                     |  |   | 251,681                          |   |  |              |         |   |  |   | 298,474 |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Stockholders equity (deficit):                      |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Common stock                                         |  |                                          | 10      |   |                 |   | 1        |                       |  |   |                                 |   |  |              | (1       | ) |  |   | 10      |  
|Additional paid-in capital                           |  |                                          | 6,673   |   |                 |   | 232,518  |                       |  |   | 53,784                           |   |  |              | (286,302 | ) |  |   | 6,673   |  
|Accumulated other comprehensive loss, net of tax     |  |                                          | (9,795  | ) |                 |   |         |                       |  |   | (13,521                          | ) |  |              | 13,521   |   |  |   | (9,795  | )
|Accumulated deficit                                  |  |                                          | (18,670 | ) |                 |   | (82,149  | )                     |  |   | (123,869                         | ) |  |              | 206,018  |   |  |   | (18,670 | )
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total stockholders equity (deficit)                 |  |                                          | (21,782 | ) |                 |   | 150,370  |                       |  |   | (83,606                          | ) |  |              | (66,764  | ) |  |   | (21,782 | )
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total liabilities and stockholders equity (deficit) |  | $                                        | 159,222 |   |                 | $ | 16,159   |                       |  | $ | 168,075                          |   |  | $            | (66,764  | ) |  | $ | 276,692 |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  



F-36



---

##### Table of Contents

NOTE 19CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

Condensed Consolidating Balance Sheet

As of
June 28, 2008



|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|---------------------------------------------------- |  | ---------------------------------------- | ------- | - | --------------- | - | -------- | --------------------- |  | - | -------------------------------- | - |  | ------------ | -------- | - |  | - | ------- | -
|                                                     |  | Harry & DavidHoldings, Inc.(Parent-Only) |         |   | Harry and David |   |          | GuarantorSubsidiaries |  |   | EliminationsandReclassifications |   |  | Consolidated |         
|Assets                                               |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Current assets:                                      |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Cash and cash equivalents                            |  | $                                        | 1,570   |   |                 | $ | 9,723    |                       |  | $ | 29,499                           |   |  | $            |         |   |  | $ | 40,792  |  
|Short-term investments                               |  |                                          |        |   |                 |   |         |                       |  |   | 15,033                           |   |  |              |         |   |  |   | 15,033  |  
|Trade accounts receivable, net                       |  |                                          |        |   |                 |   | 1,928    |                       |  |   | 156                              |   |  |              |         |   |  |   | 2,084   |  
|Other receivables                                    |  |                                          |        |   |                 |   | 1,094    |                       |  |   | 1,749                            |   |  |              |         |   |  |   | 2,843   |  
|Inventories                                          |  |                                          |        |   |                 |   | 18,320   |                       |  |   | 36,143                           |   |  |              |         |   |  |   | 54,463  |  
|Deferred catalog expenses                            |  |                                          |        |   |                 |   | 6,258    |                       |  |   |                                 |   |  |              |         |   |  |   | 6,258   |  
|Deferred income taxes                                |  |                                          | 3,230   |   |                 |   |         |                       |  |   |                                 |   |  |              |         |   |  |   | 3,230   |  
|Other current assets                                 |  |                                          |        |   |                 |   | 2,273    |                       |  |   | 5,218                            |   |  |              |         |   |  |   | 7,491   |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total current assets                                 |  |                                          | 4,800   |   |                 |   | 39,596   |                       |  |   | 87,798                           |   |  |              |         |   |  |   | 132,194 |  
|Fixed assets, net                                    |  |                                          |        |   |                 |   | 15,320   |                       |  |   | 146,894                          |   |  |              |         |   |  |   | 162,214 |  
|Goodwill                                             |  |                                          |        |   |                 |   | 3,690    |                       |  |   |                                 |   |  |              |         |   |  |   | 3,690   |  
|Intangibles, net                                     |  |                                          |        |   |                 |   | 45,677   |                       |  |   |                                 |   |  |              |         |   |  |   | 45,677  |  
|Investment in subsidiaries                           |  |                                          | 195,041 |   |                 |   | (59,765  | )                     |  |   |                                 |   |  |              | (135,276 | ) |  |   |        |  
|Deferred financing costs, net                        |  |                                          |        |   |                 |   | 9,266    |                       |  |   |                                 |   |  |              |         |   |  |   | 9,266   |  
|Other assets                                         |  |                                          | 2,464   |   |                 |   | 358      |                       |  |   | 774                              |   |  |              |         |   |  |   | 3,596   |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total assets                                         |  | $                                        | 202,305 |   |                 | $ | 54,142   |                       |  | $ | 235,466                          |   |  | $            | (135,276 | ) |  | $ | 356,637 |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Liabilities and stockholders equity (deficit)       |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Current liabilities:                                 |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Accounts payable                                     |  | $                                        |        |   |                 | $ | 9,631    |                       |  | $ | 9,350                            |   |  | $            |         |   |  | $ | 18,981  |  
|Accrued payroll and benefits                         |  |                                          |        |   |                 |   | 7,396    |                       |  |   | 6,656                            |   |  |              |         |   |  |   | 14,052  |  
|Income taxes payable                                 |  |                                          | 23,622  |   |                 |   | (12      | )                     |  |   |                                 |   |  |              |         |   |  |   | 23,610  |  
|Deferred revenue                                     |  |                                          |        |   |                 |   | 17,072   |                       |  |   |                                 |   |  |              |         |   |  |   | 17,072  |  
|Accrued interest                                     |  |                                          |        |   |                 |   | 5,523    |                       |  |   |                                 |   |  |              |         |   |  |   | 5,523   |  
|Other accrued liabilities                            |  |                                          | (34     | ) |                 |   | 2,172    |                       |  |   | 2,389                            |   |  |              |         |   |  |   | 4,527   |  
|Current portion of capital lease obligations         |  |                                          |        |   |                 |   | 647      |                       |  |   |                                 |   |  |              |         |   |  |   | 647     |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total current liabilities                            |  |                                          | 23,588  |   |                 |   | 42,429   |                       |  |   | 18,395                           |   |  |              |         |   |  |   | 84,412  |  
|Long-term debt and capital lease obligations         |  |                                          |        |   |                 |   | 235,599  |                       |  |   |                                 |   |  |              |         |   |  |   | 235,599 |  
|Accrued pension liability                            |  |                                          |        |   |                 |   |         |                       |  |   | 17,494                           |   |  |              |         |   |  |   | 17,494  |  
|Deferred income taxes                                |  |                                          | 4,074   |   |                 |   |         |                       |  |   |                                 |   |  |              |         |   |  |   | 4,074   |  
|Other long-term liabilities                          |  |                                          | 4,925   |   |                 |   | 4,798    |                       |  |   | 1,183                            |   |  |              |         |   |  |   | 10,906  |  
|Intercompany debt                                    |  |                                          | 165,566 |   |                 |   | (423,725 | )                     |  |   | 258,159                          |   |  |              |         |   |  |   |        |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total liabilities                                    |  |                                          | 198,153 |   |                 |   | (140,899 | )                     |  |   | 295,231                          |   |  |              |         |   |  |   | 352,485 |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Stockholders equity (deficit):                      |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Common stock                                         |  |                                          | 10      |   |                 |   | 1        |                       |  |   |                                 |   |  |              | (1       | ) |  |   | 10      |  
|Additional paid-in capital                           |  |                                          | 6,191   |   |                 |   | 232,518  |                       |  |   | 53,785                           |   |  |              | (286,303 | ) |  |   | 6,191   |  
|Accumulated other comprehensive loss, net of tax     |  |                                          | (3,558  | ) |                 |   |         |                       |  |   | (3,558                           | ) |  |              | 3,558    |   |  |   | (3,558  | )
|Retained earnings (accumulated deficit)              |  |                                          | 1,509   |   |                 |   | (37,478  | )                     |  |   | (109,992                         | ) |  |              | 147,470  |   |  |   | 1,509   |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total stockholders equity (deficit)                 |  |                                          | 4,152   |   |                 |   | 195,041  |                       |  |   | (59,765                          | ) |  |              | (135,276 | ) |  |   | 4,152   |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total liabilities and stockholders equity (deficit) |  | $                                        | 202,305 |   |                 | $ | 54,142   |                       |  | $ | 235,466                          |   |  | $            | (135,276 | ) |  | $ | 356,637 |  
|                                                     |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |  |              |          |   |  |   |         |  



F-37



---

##### Table of Contents

NOTE 19CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

Condensed Consolidating Statement of Operations

For the year ended June 27, 2009



|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|------------------------------------------------------------ |  | ---------------------------------------- | ------- | - | --------------- | - | ------- | --------------------- |  | - | -------------------------------- | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                             |  | Harry & DavidHoldings, Inc.(Parent-Only) |         |   | Harry and David |   |         | Guarantorsubsidiaries |  |   | Eliminationsandreclassifications |   |  | Consolidated |        
|Net sales                                                    |  | $                                        |        |   |                 | $ | 490,786 |                       |  | $ | 63,366                           |   |  | $            | (64,556 | ) |  | $ | 489,596 |  
|Cost of goods sold                                           |  |                                          |        |   |                 |   | 288,390 |                       |  |   | 63,333                           |   |  |              | (64,556 | ) |  |   | 287,167 |  
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Gross profit                                                 |  |                                          |        |   |                 |   | 202,396 |                       |  |   | 33                               |   |  |              |        |   |  |   | 202,429 |  
|Selling, general and administrative                          |  |                                          |        |   |                 |   | 230,350 |                       |  |   | (15                              | ) |  |              |        |   |  |   | 230,335 |  
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Operating income (loss)                                      |  |                                          |        |   |                 |   | (27,954 | )                     |  |   | 48                               |   |  |              |        |   |  |   | (27,906 | )
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Other (income) expense:                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Interest income                                              |  |                                          |        |   |                 |   |        |                       |  |   | (241                             | ) |  |              |        |   |  |   | (241    | )
|Interest expense                                             |  |                                          | 93      |   |                 |   | 21,250  |                       |  |   | 133                              |   |  |              |        |   |  |   | 21,476  |  
|Gain on debt prepayment                                      |  |                                          |        |   |                 |   | (15,416 | )                     |  |   |                                 |   |  |              |        |   |  |   | (15,416 | )
|Other (income) expense, net                                  |  |                                          | 577     |   |                 |   | 292     |                       |  |   |                                 |   |  |              |        |   |  |   | 869     |  
|Equity in earnings of consolidated subsidiaries              |  |                                          | 34,706  |   |                 |   | 747     |                       |  |   |                                 |   |  |              | (35,453 | ) |  |   |        |  
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Total other (income) expense                                 |  |                                          | 35,376  |   |                 |   | 6,873   |                       |  |   | (108                             | ) |  |              | (35,453 | ) |  |   | 6,688   |  
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Income (loss) from continuing operations before income taxes |  |                                          | (35,376 | ) |                 |   | (34,827 | )                     |  |   | 156                              |   |  |              | 35,453  |   |  |   | (34,594 | )
|Benefit for income taxes                                     |  |                                          | (14,861 | ) |                 |   |        |                       |  |   |                                 |   |  |              |        |   |  |   | (14,861 | )
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Net income (loss) from continuing operations                 |  |                                          | (20,515 | ) |                 |   | (34,827 | )                     |  |   | 156                              |   |  |              | 35,453  |   |  |   | (19,733 | )
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Discontinued operations:                                     |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Loss on sale of Jackson & Perkins                            |  |                                          |        |   |                 |   |        |                       |  |   | (1,414                           | ) |  |              |        |   |  |   | (1,414  | )
|Operating income from discontinued operations                |  |                                          |        |   |                 |   | 121     |                       |  |   | 511                              |   |  |              |        |   |  |   | 632     |  
|Benefit for income taxes on discontinued operations          |  |                                          | (336    | ) |                 |   |        |                       |  |   |                                 |   |  |              |        |   |  |   | (336    | )
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Net income (loss) from discontinued operations               |  |                                          | 336     |   |                 |   | 121     |                       |  |   | (903                             | ) |  |              |        |   |  |   | (446    | )
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  
|Net loss                                                     |  | $                                        | (20,179 | ) |                 | $ | (34,706 | )                     |  | $ | (747                             | ) |  | $            | 35,453  |   |  | $ | (20,179 | )
|                                                             |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |         |   |  |   |         |  



F-38



---

##### Table of Contents

NOTE 19CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

Condensed Consolidating Statement of Operations

For the year ended June 28, 2008



|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|----------------------------------------------------- |  | ---------------------------------------- | ------ | - | --------------- | - | ------- | --------------------- |  | - | -------------------------------- | - |  | ------------ | -------- | - |  | - | ------- | -
|                                                      |  | Harry & DavidHoldings, Inc.(Parent-Only) |        |   | Harry and David |   |         | Guarantorsubsidiaries |  |   | Eliminationsandreclassifications |   |  | Consolidated |         
|Net sales                                             |  | $                                        |       |   |                 | $ | 543,563 |                       |  | $ | 163,745                          |   |  | $            | (162,244 | ) |  | $ | 545,064 |  
|Cost of goods sold                                    |  |                                          |       |   |                 |   | 294,408 |                       |  |   | 163,730                          |   |  |              | (162,244 | ) |  |   | 295,894 |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Gross profit                                          |  |                                          |       |   |                 |   | 249,155 |                       |  |   | 15                               |   |  |              |         |   |  |   | 249,170 |  
|Selling, general and administrative                   |  |                                          |       |   |                 |   | 217,189 |                       |  |   | 819                              |   |  |              |         |   |  |   | 218,008 |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Operating income (loss)                               |  |                                          |       |   |                 |   | 31,966  |                       |  |   | (804                             | ) |  |              |         |   |  |   | 31,162  |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Other (income) expense:                               |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Interest income                                       |  |                                          |       |   |                 |   | (8      | )                     |  |   | (2,700                           | ) |  |              |         |   |  |   | (2,708  | )
|Interest expense                                      |  |                                          |       |   |                 |   | 25,188  |                       |  |   | 39                               |   |  |              |         |   |  |   | 25,227  |  
|Gain on debt prepayment                               |  |                                          |       |   |                 |   | (303    | )                     |  |   |                                 |   |  |              |         |   |  |   | (303    | )
|Other (income) expense, net                           |  |                                          | (183   | ) |                 |   | 144     |                       |  |   |                                 |   |  |              |         |   |  |   | (39     | )
|Equity in earnings of consolidated subsidiaries       |  |                                          | (9,092 | ) |                 |   | (1,978  | )                     |  |   |                                 |   |  |              | 11,070   |   |  |   |        |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total other (income) expense                          |  |                                          | (9,275 | ) |                 |   | 23,043  |                       |  |   | (2,661                           | ) |  |              | 11,070   |   |  |   | 22,177  |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Income from continuing operations before income taxes |  |                                          | 9,275  |   |                 |   | 8,923   |                       |  |   | 1,857                            |   |  |              | (11,070  | ) |  |   | 8,985   |  
|Provision for income taxes                            |  |                                          | 4,648  |   |                 |   |        |                       |  |   |                                 |   |  |              |         |   |  |   | 4,648   |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Net income from continuing operations                 |  |                                          | 4,627  |   |                 |   | 8,923   |                       |  |   | 1,857                            |   |  |              | (11,070  | ) |  |   | 4,337   |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Discontinued operations:                              |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Gain on sale of Jackson & Perkins                     |  |                                          |       |   |                 |   |        |                       |  |   | 282                              |   |  |              |         |   |  |   | 282     |  
|Operating income (loss) from discontinued operations  |  |                                          |       |   |                 |   | 169     |                       |  |   | (161                             | ) |  |              |         |   |  |   | 8       |  
|Provision for income taxes on discontinued operations |  |                                          | 19     |   |                 |   |        |                       |  |   |                                 |   |  |              |         |   |  |   | 19      |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Net income (loss) from discontinued operations        |  |                                          | (19    | ) |                 |   | 169     |                       |  |   | 121                              |   |  |              |         |   |  |   | 271     |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Net income                                            |  | $                                        | 4,608  |   |                 | $ | 9,092   |                       |  | $ | 1,978                            |   |  | $            | (11,070  | ) |  | $ | 4,608   |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  



F-39



---

##### Table of Contents

NOTE 19CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

Condensed Consolidating Statement of Operations

For the year ended June 30, 2007



|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|----------------------------------------------------- |  | ---------------------------------------- | ------- | - | --------------- | - | ------- | --------------------- |  | - | -------------------------------- | - |  | ------------ | -------- | - |  | - | ------- | -
|                                                      |  | Harry & DavidHoldings, Inc.(Parent-Only) |         |   | Harry and David |   |         | Guarantorsubsidiaries |  |   | Eliminationsandreclassifications |   |  | Consolidated |         
|Net sales                                             |  | $                                        |        |   |                 | $ | 558,977 |                       |  | $ | 186,033                          |   |  | $            | (183,993 | ) |  | $ | 561,017 |  
|Cost of goods sold                                    |  |                                          |        |   |                 |   | 293,189 |                       |  |   | 186,015                          |   |  |              | (183,993 | ) |  |   | 295,211 |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Gross profit                                          |  |                                          |        |   |                 |   | 265,788 |                       |  |   | 18                               |   |  |              |         |   |  |   | 265,806 |  
|Selling, general and administrative                   |  |                                          |        |   |                 |   | 215,144 |                       |  |   | (72                              | ) |  |              |         |   |  |   | 215,072 |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Operating income                                      |  |                                          |        |   |                 |   | 50,644  |                       |  |   | 90                               |   |  |              |         |   |  |   | 50,734  |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Other (income) expense:                               |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Interest income                                       |  |                                          |        |   |                 |   | (35     | )                     |  |   | (3,091                           | ) |  |              |         |   |  |   | (3,126  | )
|Interest expense                                      |  |                                          | (2      | ) |                 |   | 28,097  |                       |  |   | 104                              |   |  |              |         |   |  |   | 28,199  |  
|Pension curtailment gain                              |  |                                          |        |   |                 |   |        |                       |  |   | (15,844                          | ) |  |              |         |   |  |   | (15,844 | )
|Other (income) expense, net                           |  |                                          |        |   |                 |   | 54      |                       |  |   | (402                             | ) |  |              |         |   |  |   | (348    | )
|Equity in earnings of consolidated subsidiaries       |  |                                          | (44,282 | ) |                 |   | (19,115 | )                     |  |   |                                 |   |  |              | 63,397   |   |  |   |        |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Total Other (income) expense                          |  |                                          | (44,284 | ) |                 |   | 9,001   |                       |  |   | (19,233                          | ) |  |              | 63,397   |   |  |   | 8,881   |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Income from continuing operations before income taxes |  |                                          | 44,284  |   |                 |   | 41,643  |                       |  |   | 19,323                           |   |  |              | (63,397  | ) |  |   | 41,853  |  
|Provision for income taxes                            |  |                                          | 11,156  |   |                 |   |        |                       |  |   |                                 |   |  |              |         |   |  |   | 11,156  |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Net income from continuing operations                 |  |                                          | 33,128  |   |                 |   | 41,643  |                       |  |   | 19,323                           |   |  |              | (63,397  | ) |  |   | 30,697  |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Discontinued operations:                              |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Gain on sale of Jackson & Perkins                     |  |                                          |        |   |                 |   | 2,584   |                       |  |   | 4,129                            |   |  |              |         |   |  |   | 6,713   |  
|Operating income (loss) from discontinued operations  |  |                                          |        |   |                 |   | 55      |                       |  |   | (4,337                           | ) |  |              |         |   |  |   | (4,282  | )
|Provision for income taxes on discontinued operations |  |                                          | 1,127   |   |                 |   |        |                       |  |   |                                 |   |  |              |         |   |  |   | 1,127   |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Net income (loss) from discontinued operations        |  |                                          | (1,127  | ) |                 |   | 2,639   |                       |  |   | (208                             | ) |  |              |         |   |  |   | 1,304   |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  
|Net income                                            |  | $                                        | 32,001  |   |                 | $ | 44,282  |                       |  | $ | 19,115                           |   |  | $            | (63,397  | ) |  | $ | 32,001  |  
|                                                      |  |                                          |         |   |                 |   |         |                       |  |   |                                  |   |  |              |          |   |  |   |         |  



F-40



---

##### Table of Contents

NOTE 19CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

Condensed Consolidating Statement of Cash Flows

For the year ended June 27, 2009



|                                                      |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|----------------------------------------------------- |  | ---------------------------------------- | ------ | - | --------------- | - | -------- | --------------------- |  | - | -------------------------------- | - | ------------ | - | - |  | - | -------- | -
|                                                      |  | Harry & DavidHoldings, Inc.(Parent-Only) |        |   | Harry and David |   |          | Guarantorsubsidiaries |  |   | Eliminationsandreclassifications |   | Consolidated |  
|Operating activities                                  |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Net cash provided by (used in) operating activities   |  | $                                        | 796    |   |                 | $ | (29,308  | )                     |  | $ | 24,339                           |   |              | $ |  |  | $ | (4,173   | )
|                                                      |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Investing activities                                  |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Acquisition of fixed assets                           |  |                                          |       |   |                 |   | (603     | )                     |  |   | (6,075                           | ) |              |   |  |  |   | (6,678   | )
|Acquisition of Wolfermans business                   |  |                                          |       |   |                 |   | (8,509   | )                     |  |   |                                 |   |              |   |  |  |   | (8,509   | )
|Proceeds from the sale of fixed assets                |  |                                          |       |   |                 |   |         |                       |  |   | 22                               |   |              |   |  |  |   | 22       |  
|Proceeds from income on available-for sale securities |  |                                          |       |   |                 |   |         |                       |  |   | 10,097                           |   |              |   |  |  |   | 10,097   |  
|Proceeds from sale of held-to-maturity securities     |  |                                          |       |   |                 |   |         |                       |  |   | 5,000                            |   |              |   |  |  |   | 5,000    |  
|                                                      |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Net cash provided by (used in) investing activities   |  |                                          |       |   |                 |   | (9,112   | )                     |  |   | 9,044                            |   |              |   |  |  |   | (68      | )
|                                                      |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Financing Activities                                  |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Borrowings of revolving debt                          |  |                                          |       |   |                 |   | 113,000  |                       |  |   |                                 |   |              |   |  |  |   | 113,000  |  
|Repayments of revolving debt                          |  |                                          |       |   |                 |   | (113,000 | )`                    |  |   |                                 |   |              |   |  |  |   | (113,000 | )
|Repayments of long-term debt                          |  |                                          |       |   |                 |   | (20,366  | )                     |  |   |                                 |   |              |   |  |  |   | (20,366  | )
|Repayments of capital lease obligation                |  |                                          |       |   |                 |   | (790     | )                     |  |   |                                 |   |              |   |  |  |   | (790     | )
|Net (payments) receipts on intercompany debt          |  |                                          | (2,315 | ) |                 |   | 65,197   |                       |  |   | (62,882                          | ) |              |   |  |  |   |         |  
|                                                      |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Net cash provided by (used in) financing activities   |  |                                          | (2,315 | ) |                 |   | 44,041   |                       |  |   | (62,882                          | ) |              |   |  |  |   | (21,156  | )
|                                                      |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Increase (decrease) in cash and cash equivalents      |  |                                          | (1,519 | ) |                 |   | 5,621    |                       |  |   | (29,499                          | ) |              |   |  |  |   | (25,397  | )
|Cash and cash equivalents, beginning of period        |  |                                          | 1,570  |   |                 |   | 9,723    |                       |  |   | 29,499                           |   |              |   |  |  |   | 40,792   |  
|                                                      |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Cash and cash equivalents, end of period              |  | $                                        | 51     |   |                 | $ | 15,344   |                       |  | $ |                                 |   |              | $ |  |  | $ | 15,395   |  
|                                                      |  |                                          |        |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  



F-41



---

##### Table of Contents

NOTE 19CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

Condensed Consolidating Statement of Cash Flows

For the year ended June 28, 2008



|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|----------------------------------------------------- |  | ---------------------------------------- | ------ | - | --------------- | - | ------- | --------------------- |  | - | -------------------------------- | - | ------------ | - | - |  | - | ------- | -
|                                                      |  | Harry & DavidHoldings, Inc.(Parent-Only) |        |   | Harry and David |   |         | Guarantorsubsidiaries |  |   | Eliminationsandreclassifications |   | Consolidated |  
|Operating activities                                  |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|Net cash provided by (used in) operating activities   |  | $                                        | (1,861 | ) |                 | $ | 12,406  |                       |  | $ | 18,084                           |   |              | $ |  |  | $ | 28,629  |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|Investing activities                                  |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|Acquisition of fixed assets                           |  |                                          |       |   |                 |   | (9,144  | )                     |  |   | (8,711                           | ) |              |   |  |  |   | (17,855 | )
|Acquisition of Wolfermans business                   |  |                                          |       |   |                 |   | (22,784 | )                     |  |   |                                 |   |              |   |  |  |   | (22,784 | )
|Proceeds from sale of Jackson & Perkins business      |  |                                          |       |   |                 |   |        |                       |  |   | 4,161                            |   |              |   |  |  |   | 4,161   |  
|Proceeds from the sale of fixed assets                |  |                                          |       |   |                 |   |        |                       |  |   | 32                               |   |              |   |  |  |   | 32      |  
|Purchases of available-for sale securities            |  |                                          |       |   |                 |   |        |                       |  |   | (10,000                          | ) |              |   |  |  |   | (10,000 | )
|Purchases of held-to-maturity securities              |  |                                          |       |   |                 |   |        |                       |  |   | (4,964                           | ) |              |   |  |  |   | (4,964  | )
|Proceeds from income on available-for sale securities |  |                                          |       |   |                 |   |        |                       |  |   | 195                              |   |              |   |  |  |   | 195     |  
|Proceeds from sale of held-to-maturity securities     |  |                                          |       |   |                 |   |        |                       |  |   | 24,978                           |   |              |   |  |  |   | 24,978  |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|Net cash provided by (used in) investing activities   |  |                                          |       |   |                 |   | (31,928 | )                     |  |   | 5,691                            |   |              |   |  |  |   | (26,237 | )
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|Financing Activities                                  |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|Borrowings of revolving debt                          |  |                                          |       |   |                 |   | 63,000  |                       |  |   |                                 |   |              |   |  |  |   | 63,000  |  
|Repayments of revolving debt                          |  |                                          |       |   |                 |   | (63,000 | )                     |  |   |                                 |   |              |   |  |  |   | (63,000 | )
|Repayments of long-term debt                          |  |                                          |       |   |                 |   | (9,405  | )                     |  |   |                                 |   |              |   |  |  |   | (9,405  | )
|Repayments of capital lease obligation                |  |                                          |       |   |                 |   | (1,684  | )                     |  |   |                                 |   |              |   |  |  |   | (1,684  | )
|Payments for deferred financing costs                 |  |                                          |       |   |                 |   | (10     | )                     |  |   |                                 |   |              |   |  |  |   | (10     | )
|Proceeds for exercise of stock options                |  |                                          | 91     |   |                 |   |        |                       |  |   |                                 |   |              |   |  |  |   | 91      |  
|Net (payments) receipts on intercompany debt          |  |                                          | 1,860  |   |                 |   | 30,391  |                       |  |   | (32,251                          | ) |              |   |  |  |   |        |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|Net cash provided by (used in) financing activities   |  |                                          | 1,951  |   |                 |   | 19,292  |                       |  |   | (32,251                          | ) |              |   |  |  |   | (11,008 | )
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|Increase (decrease) in cash and cash equivalents      |  |                                          | 90     |   |                 |   | (230    | )                     |  |   | (8,476                           | ) |              |   |  |  |   | (8,616  | )
|Cash and cash equivalents, beginning of period        |  |                                          | 1,480  |   |                 |   | 9,953   |                       |  |   | 37,975                           |   |              |   |  |  |   | 49,408  |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  
|Cash and cash equivalents, end of period              |  | $                                        | 1,570  |   |                 | $ | 9,723   |                       |  | $ | 29,499                           |   |              | $ |  |  | $ | 40,792  |  
|                                                      |  |                                          |        |   |                 |   |         |                       |  |   |                                  |   |              |   |   |  |   |         |  



F-42



---

##### Table of Contents

NOTE 19CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

Condensed Consolidating Statement of Cash Flows

For the year ended June 30, 2007



|                                                    |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|--------------------------------------------------- |  | ---------------------------------------- | ------- | - | --------------- | - | -------- | --------------------- |  | - | -------------------------------- | - | ------------ | - | - |  | - | -------- | -
|                                                    |  | Harry & DavidHoldings, Inc.(Parent-Only) |         |   | Harry and David |   |          | Guarantorsubsidiaries |  |   | Eliminationsandreclassifications |   | Consolidated |  
|Operating activities                                |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Net cash provided by (used in) operating activities |  | $                                        | 16,056  |   |                 | $ | 24,880   |                       |  | $ | (7,114                           | ) |              | $ |  |  | $ | 33,822   |  
|                                                    |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Investing activities                                |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Acquisition of fixed assets                         |  |                                          |        |   |                 |   | (14,435  | )                     |  |   | (7,209                           | ) |              |   |  |  |   | (21,644  | )
|Cash proceeds from sale of business                 |  |                                          |        |   |                 |   |         |                       |  |   | 43,045                           |   |              |   |  |  |   | 43,045   |  
|Proceeds from the sale of fixed assets              |  |                                          |        |   |                 |   | (8       | )                     |  |   | 25                               |   |              |   |  |  |   | 17       |  
|Purchases of short-term investments                 |  |                                          |        |   |                 |   |         |                       |  |   | (51,838                          | ) |              |   |  |  |   | (51,838  | )
|Proceeds from sale of short-term investments        |  |                                          |        |   |                 |   |         |                       |  |   | 27,429                           |   |              |   |  |  |   | 27,429   |  
|                                                    |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Net cash provided by (used in) investing activities |  |                                          |        |   |                 |   | (14,443  | )                     |  |   | 11,452                           |   |              |   |  |  |   | (2,991   | )
|                                                    |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Financing Activities                                |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Borrowings of revolving debt                        |  |                                          |        |   |                 |   | 108,500  |                       |  |   |                                 |   |              |   |  |  |   | 108,500  |  
|Repayments of revolving debt                        |  |                                          |        |   |                 |   | (108,500 | )                     |  |   |                                 |   |              |   |  |  |   | (108,500 | )
|Repayments of capital lease obligation              |  |                                          |        |   |                 |   | (1,077   | )                     |  |   |                                 |   |              |   |  |  |   | (1,077   | )
|Proceeds for exercise of stock options              |  |                                          | 1,017   |   |                 |   |         |                       |  |   |                                 |   |              |   |  |  |   | 1,017    |  
|Net (payments) receipts on intercompany debt        |  |                                          | (16,056 | ) |                 |   | (3,788   | )                     |  |   | 19,844                           |   |              |   |  |  |   |         |  
|                                                    |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Net cash provided by (used in) financing activities |  |                                          | (15,039 | ) |                 |   | (4,865   | )                     |  |   | 19,844                           |   |              |   |  |  |   | (60      | )
|                                                    |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Increase in cash and cash equivalents               |  |                                          | 1,017   |   |                 |   | 5,572    |                       |  |   | 24,182                           |   |              |   |  |  |   | 30,771   |  
|Cash and cash equivalents, beginning of period      |  |                                          | 463     |   |                 |   | 4,381    |                       |  |   | 13,793                           |   |              |   |  |  |   | 18,637   |  
|                                                    |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  
|Cash and cash equivalents, end of period            |  | $                                        | 1,480   |   |                 | $ | 9,953    |                       |  | $ | 37,975                           |   |              | $ |  |  | $ | 49,408   |  
|                                                    |  |                                          |         |   |                 |   |          |                       |  |   |                                  |   |              |   |   |  |   |          |  



F-43



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##### Table of Contents

NOTE 20SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION



|                                                                                                         |  |      |        |   |      |   |        |  |   |       
|-------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ |  | - | ------
|                                                                                                         |  | 2009 |        |   | 2008 |   | 2007  
|Cash paid (received) for:                                                                                |  |      |        |   |      |   |        |  |   |       
|Interest, net of capitalized interest of $19, $528 and $253 for fiscal 2009, 2008 and 2007, respectively |  | $    | 19,942 |   |      | $ | 22,981 |  | $ | 25,190
|                                                                                                         |  |      |        |   |      |   |        |  |   |       
|Taxes                                                                                                    |  | $    | (330   | ) |      | $ | 2,410  |  | $ | 768   
|                                                                                                         |  |      |        |   |      |   |        |  |   |       
|Non-cash items:                                                                                          |  |      |        |   |      |   |        |  |   |       
|Non-cash portion of proceeds on sale of Jackson & Perkins                                                |  | $    |       |   |      | $ |       |  | $ | 6,303 
|                                                                                                         |  |      |        |   |      |   |        |  |   |       
|Equipment acquired through a capital lease                                                               |  | $    |       |   |      | $ | 895    |  | $ | 3,112 
|                                                                                                         |  |      |        |   |      |   |        |  |   |       



F-44